Personal loan: If you are planning to raise a loan and a lender is reluctant to lend as much as you want, what can be the alternative? Either you borrow from friends and family, or else you stagger your requirement over a period of time.
Alternatively, you could rely on multiple lenders for your personal loan requirement so that collectively, your needs could be met. Let us take a look at some of the advantages of reaching out to multiple lenders.
Loan from multiple lenders: Advantages
I. Different interest rates: When you borrow from multiple lenders, you could take out loans at different interest rates. For instance, one lender with which you share a good banking relationship offers you a loan at 12 per cent per annum, whereas another one could offer a loan at 14 per cent. This way, your average interest becomes 13 per cent.
II. Larger amount: When you borrow from multiple lenders, you may be able to raise a larger loan amount. This could be double what you could have got if you had relied only on one lender.
III. Diverse credit: When you raise loans across multiple categories, it reflects positively in your credit report. So, rather than raising one unsecured loan, it is recommended to raise multiple loans (secured, unsecured and instant loan against a credit card). This is considered better for your credit score.
Key factors to consider
I. Repayment capacity: One should keep one’s debt-to-income (DTI) ratio below 40-50 per cent. A higher DTI can lead to financial stress.
II. Purpose of borrowing: If the loans are for productive purposes (such as business or education) with confirmed returns, then it may be reasonable to borrow from multiple lenders. However, one should avoid borrowing for lifestyle purposes such as travel and luxury.
III. Loan tenure: It is recommended to align loan tenures with your repayment ability. Short-term loans from NBFCs could have higher EMIs, while bank loans may offer longer tenures with lower rates of interest.
IV. Credit score: A good credit score can easily enable you to secure better terms. When you raise multiple loans, this could get botched up if not managed properly.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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