Personal loan VS Lending Money from Friends

Personal Loan

• Affordability- Finance companies have made personal finance accessible with the lowering interest rates and simple eligibility requirements. The documentation and the processing have been made simple too. But the applicant should be cautious when it comes to personal finance. The applicant should consider if the repayment of the loan will be possible on time. If the applicant has any other loans to repay, you should consider the impact of those loans on your earnings before applying for any other loan. It is not a good idea to go forward with another loan if you are already in debt, as it is possible that you might struggle with the repayment of the loans.The applicant must also consider whether the EMI of the loan would impact your normal life and lifestyle.
• Compare Prices- Take some time out to browse around the banks’ websites if you have to take out a loan. Don’t apply to the first good deal you see. Don’t fall for the advertised interest and offers too.Interest rates differ for every other applicant. There are some factors that affect the interest rates of the personal loan. These factors are your monthly income, your credit Score, etc. Although the bank might advertise certain interest rates for a certain amount of loan, it is not compulsory that your interest rate will be the same. If your monthly salary is less than AED 6000, you will get a personal loan for a higher rate of interest.The best way to find out EMIs would be to calculate. Find out about the processing fee of the finance company and other charges that they might have. This will provide a good idea of what the total repayment amount is.
• Read the Terms and Conditions- Before you sign the contract with any finance company, read the terms and conditions carefully. Make sure to ask for the full terms. Many of the customers don’t know what they are signing up to. There are many customers who sign up for the loan without any proper idea of the processing fee, interest rates or early repayment fees. Although the finance companies would not be dishonest, sometimes they would not provide you complete information either.
• Borrow the needed amount- Finance companies offer a lower rate of interest for the higher loan amount. Due to this, many customers opt for more than what they need or can afford. This is not a good idea. Although the lower interest rate can be tempting, this can backfire in the long run. Taking a loan of more than what you need will cause your capital amount to be higher. Ultimately, your repayment amount per month is going to be much higher too. Experts suggest borrowing what you can repay.
• Negotiate- Before signing the contract for the personal loan, negotiate the terms. Some finance companies are willing to negotiate the terms to gain your business. If the negotiation works, the cost of the loan will be less for you.
• Look Out for Insurance- If the loan amount is small, it is not necessary to get insurance. But if the loan amount is high, opting for insurance is advised. Don’t sign up for the Insurance provided by the finance companies. Read the terms and conditions first. The insurance offered by the finance companies doesn’t cover your families in case of unfortunate accidents. That insurance is only to cover the loan amount. It is better to look for other insurance options.

Lending Money From Friends

• Try Other Method First- Before lending money from friends, try every other option first. Cut down your expenses. Try to save money. Contact your bank to check if there are any lighter monthly payment options.
• Don’t negotiate the terms- Remember that a friend or family is doing a favor by lending you money. Don’t negotiate the terms when borrowing from them. Don’t demand more than what they are willing to lend you. By doing that, you will seem impolite and unappreciative of the favor.
• Be Ready for Rejection- Don’t take it to your heart if a family or friend is unwilling to loan you the amount. They have their own expenses too. Be ready for rejection. Not everybody has money lying around to provide loans.
• Pay an interest- When a family or friend is willing to loan you the amount, offer to pay interest. Remember that if you had to take a loan from the finance companies, the interest would be much higher.
• Proof of Loan- When you take a loan from a close person, always take a proof of it. Write the terms and the repayment amount in a paper signed by the parties involved. This will prevent any issues in the future.
• Repayment on Time- Always make sure to payback on time. Remember that the person did you a favor by lending you the money. He has his own expenses too. If you are unable to pay on time, make sure to inform him in advance. The lender should not face issues due to your problem.

Over to you

It is really difficult to say which of the two is better in terms of personal loan benefits. Whether you take a loan from your friends or finance companies, both has its pros and cons. Finance companies can finance you a higher amount of money but friends can loan you a limited amount. Finance companies charge higher personal loan interest rate but don’t affect your relationship. While relationships can turn sour with an unpaid loan or any other issue regarding the loan. Also, remember that a friend or family is doing you a favor by lending you the money. Don’t let the loan amount affect your relationships.