Unexpected expenses can come up at any time and can be very unpleasant when a person’s monthly salary would be unable to cover it. If you find yourself in a situation where you need to cover some kind of short term expense, you might need to turn to a bank in order to get a personal loan. Understanding what a personal loan entails, how much you will repay, and when it might be appropriate to take out this type of financial aid is important. This can help you avoid making too much debt and ending up with a bad credit record.
When Might A Personal Loan Be Appropriate?
There are many reasons why people might look at applying for a personal loan. When it comes to this type of financial services, it is important to ensure that the expenses are truly needed and that you will be able to afford the repayments.
Some common reasons why you might want to apply for a personal loan include:
- If you are looking to consolidate all of your debt into one monthly payment.
- If you want to pay off all the credit cards that you own.
- You might require funds to pay for an Education, wedding, or another event.
- You may need to buy a new mobile phone if yours have broken.
- A personal loan could be useful if you are looking to remodel parts of your home.
- If you need to undergo a medical procedure, a loan can help you cover the costs.
How Does Repayment Work?
One of the most crucial factors to take into account when you are considering to apply for a personal loan is how repayments work. You need to make sure that you understand how much interest you are going to be paying and what your monthly installment will likely be. This can help you know how much money you can borrow, based on the monthly repayment that you will be able to afford.
To give you a better overview of what you should expect, let’s take a quick look at an example of a repayment plan. Note that this example does not provide you with a 100% accurate view of what you should expect, as the interest rate applied to your account can vary. You might also need to pay additional administration and initiation fees.
Monthly Salary: AED 9,000
Loan Amount: AED 50,000
Repayment Period: 36 months
With the details above, you will be repaying about AED 1,733 per month for the next 36 months. By the end of the loan term, you would have paid back a total of AED 62,389.
Short-term expenses can usually be covered by a personal loan, but it is important that you understand what you are signing yourself up for. We explained some situations that may call for a personal loan in this post and provided an example of how a repayment plan might work. This would help you determine if your situation might be appropriate for a personal loan and ensure you know what to expect.