Personal loan is an unsecured loan. It does not require an asset to be offered as a security for the lender to provide you the loan. However, to ensure that you do not face a drawback while applying for personal loan, we have come up with a list of tips that you should consider before applying for a personal loan.
Most commonly, personal loans are used to fund requirements or expenses such as a long-due vacation, funding a family function such as a wedding or birth ceremony, making down payment for a house or car, paying off outstanding credit card bills or any other long-standing debt, renovating one’s house or updating the interior furnishings, among many other uses. Also, with no requirement of collateral, the documentation involved to get the personal loan is also far less as compared to any other loan such as a car loan or home loan.
1. Good Credit Score
Credit Score is given to any individual based on their debt to credit ratio and is calculated using credit payment and previous loan repayment figures. More is the regularity in your credit bill payments, higher is your credit score. The score ranges from 350 to 900. If your credit score is above 700, you have a higher chance of getting your loan approved. But, if you have a lower credit score, you can take a few months and complete your bill payments and dues on time to improve your score.
2. Compare Interest Rates
As we already know, the absence of collateral makes is the reason why personal loans have relatively higher interest rates. Before you take a personal loan, check with several lenders to see what interest rates are being offered. This way you can find out which lender is offering the lowest rate, along with favorable terms.
3. Compare various loan offers
There are multiple personal loan providers in the market such as online fintech lenders, banks, NBFCs, etc. Each has their own eligibility criteria, interest rates, time frame for disbursal, and other terms and conditions.
While certain lenders provide loans at a lower rate of interest, their eligibility criteria may be strict. Others may have more relaxed eligibility conditions but may not disburse the amount that you need. Therefore, check for a few different offers before applying and choose what works for your financial situation.
4. Check if you have the right Documentation
Availing a personal loan involves less documentation and it is important to submit documents that are approved by the lender under each category to avoid loan rejection.
It is also important to submit current documents if you are submitting ones like utility bills or bank statements.
5. Meeting the Eligibility Criteria
Across most Indian banks, the minimum age of applying for a personal loan is 21 years and the maximum age is 60 years. However, some banks also allow individuals of 18 years or above to apply for a personal loan.
6. Choose Loan Amount Reasonably
You must apply for a loan amount reasonably after considering your repayment ability. Every bank checks your loan repayment capability based on your current income status. Hence, if you apply for a loan amount that you won’t be able to repay in the decided tenure, based on your expected savings, chances are that the bank will reject the application.
7. Have a look at your existing EMIs
Before availing a personal loan, take a look at your existing EMIs, rent, and other bills. Calculate what percentage of your income goes in fulfilling these commitments. If you are already spending over 30-40% of your income on existing commitments, then you have a lesser chance of getting loan approval. Additionally, it will be harder for you to repay your loans as well.
8. Check your Eligibility
Before you apply for a personal loan, check with the lender to find out whether or not you are eligible for it, especially in terms of your income and employment. Income is one of the most important criteria lenders adhere to when approving a personal loan as it is an indicator of whether or not the borrower may be financially able to repay the loan or not.
9. Don’t Send in Multiple Applications
If you think that applying to more banks will increase your chances of getting the loan, it is in fact the exact opposite. Banks do not prefer the applicant applying to many banks since it dilutes the possibility of the applicant choosing that specific bank.
Applying to several lenders for a loan in a short period can have adverse effects on your credit score. If you do that, then it will automatically cause the lenders to think that you are desperate for funds and will not be equipped to repay your loan. This will result in your credit score dip which is never helpful if you are looking to avail yourself of credit, either at that time or even in the future.
10. Check Your Credit Report
Before you apply for a personal loan, make sure you have thoroughly checked the contents of your credit report. Make sure that the details reflected in your credit report are accurate and correspond with your repayment history. The slightest error in the calculation of your credit score can affect your score negatively, which can further lead to the rejection of credit requests in the future. In case of a discrepancy, ensure that you get it corrected immediately.
11. Don’t Apply for Personal Loan While Paying Off another Loan
Make sure that you haven’t taken another loan in at least the past six months. Banks generally avoid lending money to such applicants, considering that they might not be able to take the burden of two loans at a time.
By following the above-mentioned tips, you can increase your chances of getting your personal loan approved.
12. Make sure all the information provided is correct
Lastly, make sure that all the information filled in your application is true and free from errors. Lenders carry out a verification process before sanctioning your application. If any of the information is found to be false, then your application will be rejected.