Why is Calculating Your Needs Before Applying for a Personal Loan so Important?
The easy availability of an instant loan has made financing more popular than ever. Today, people opt for personal loans not only to meet their emergency needs but also for their aspirational needs, like buying a high-end gadget or appliance or taking a luxury trip. Getting an instant loan through a loan app is no doubt easier than ever, but a personal loan is still a loan, and calculating your needs before applying for a personal loan is very important.
The habit of borrowing more than you need can land you in a financial mess. Personal loans are very helpful when it comes to meeting an urgent financial need, however, if borrowing unnecessarily can put a strain on your income. Not to forget that with any loan you need to pay more than what you borrow. In addition to that, having too many debts or missing out on any of your EMIs can impact your credit score negatively.
Thus, it is very crucial to assess your borrowing needs before applying for your personal loan. Below are elucidated a whole list of reasons why it can be crucial and beneficial to calculate your financing needs when applying for the instant loan.
Know Your Needs before Applying for a Personal Loan
- It helps you differentiate your needs from wants
When opting for an instant loan, it is very important to understand your financial needs and differentiate them from your wants. Availing a personal loan for a medical purpose, educational purpose or urgent repairs totally make sense. However, if you want to apply for a personal loan for a wedding, or a trip or a high-end gadget, then you must think twice if you really need to make the purchase now, or it could wait for a few months.
It is simply because even though the wanted financing is available, you may risk overburdening your income with unnecessary repayment liability. As a result, it creates undue pressure on you to meet these liabilities. Although financing is often available based on your borrowing capacity, it does not necessitate borrowing all that is available and sticking only to as much as you want. To check your affordability for the loan, you can always resort to the use of an instant loan EMI calculator.
- You can plan your EMIs in advance
Computing in advance how much you need as a loan also allows you to plan your EMIs well as per your affordability. Depending on your monthly income and your existing fixed monthly liabilities, you would be able to service EMIs only up to the amount that conveniently accommodates in your income. Once you are well aware of the loan amount, you can use an online loan calculator to compute your EMI and loan tenure.
When using the calculator, check the EMIs being computed based on the loan amount entered. If you can easily afford the EMIs, you can proceed with your instant loan application knowing full well that it will remain affordable. In case the EMI exceeds your affordability, you can choose to bring down your borrowing requirement to make repayments affordable.
- Choosing a suitable repayment tenure gets easy
When making a reasonable borrowing calculation, you also need to select a reasonable tenure. Your tenure selection again, can be made easily with the help of an EMI calculator available online for free. Note that even when the loan amount is limited to your financing need, the choice of tenure impacts your repayment schedule. And as such, the total repayment liability is affected too.
For instance, when selecting a low EMI, you would need to extend the tenure length. But a long tenure also means increased interest pay out. Contrarily, if you choose a loan tenure that is short, it will keep the interest in check but increase the EMIs. Thus, it is important to make your calculations and strike a good balance between your interest and EMI.
- You can decide between timely and early repayment for interest savings
Planning your financing and repayment needs also nudges you in the direction of planning a foresighted repayment schedule. Irrespective of the EMI schedule that your lender has set, you always have an option to choose prepayment of the instant loan in a lump sum to save on your total loan liability. In that instance, you would only need to follow a few lender based regulations to initiate the prepayment. Pre-calculating all of this only makes it easier to manage the finances needed for such repayment when it is time so you maximise your interest savings.
In conclusion, calculating your needs before applying for an instant loan is a must. This will help in keeping your finances well-sorted, improve your overall creditworthiness, and help you accommodate new funding avenues. Check out for the availability of calculating tools like EMI calculator and eligibility calculator. These tools are available for free on dedicated loan apps for a better estimation of your borrowing decisions.