A personal loan is a popular choice for funds during a financial emergency due to key benefits such as simple documentation and quick disbursal. Furthermore, these days many lenders are offering personal loans online making it even easier for borrowers. While these benefits of personal loans are well known, first time borrowers often face quite a few challenges. If you are planning to apply for your first personal loan, the following are some of the key things you need to consider to make an informed choice:
Evaluate your needs: This is definitely a good place to start. Personal loans are need-based borrowings so it is vital that you accurately assess your requirement for funds. Borrowing money will cost you money, so you should take a loan only if there is no alternative way such as savings to fulfill the requirement. If you do this correctly, you will be able to figure out how much you actually need to borrow. Keeping your debts low will not only save you money in terms of interest payouts but also ensure that your monthly budget is minimally impacted due to the loan.
Know your repayment capacity: In the next step, you must evaluate your monthly expenses and the EMIs that you would be paying. The EMI payable on your desired amount can be easily calculated using a free online personal loan EMI calculator. Once you know the EMI payable based on your fund requirement, you should be able to figure out if the desired amount is in fact affordable based on your income and current level of debt/liabilities, if any. If not you may have to reconsider your personal loan application or opt for a lower amount.
Know your credit score: Credit score one of the first things that lenders look at when assessing your personal loan application. A high credit score such as 750 or more can help improve your chances of approval for a personal loan and often leads to lower interest rates being offered. A low credit score can however hurt your chances of approval for a personal loan. So checking your score and taking corrective action if necessary will definitely improve your chances of loan approval.
Choose the right lender: While there is no shortage of potential lenders out there, not all will be suitable for your requirement. This is where an online loan comparison platform can come in handy. Some of the key criteria that you can use to compare different loan offers include interest rate, processing charges, foreclosure charges, available tenure options, etc. By comparing these key features, you will be better placed to identify the loan offer that is most suitable for you.
Know the eligibility criteria: Once you have chosen the personal loan offer that best suits your requirement, it is important to check if you fit the eligibility criteria set by that lender to avoid rejection of your loan application. Lenders take various factors into consideration including credit score, employment type, income, NMI to EMI ratio (Net Monthly Income to Equated Monthly Installment ratio), etc. You should only apply with the lender if you meet all such eligibility criteria to maximize your chances of loan approval.
Know all the fees and charges: Ensure that you do adequate research regarding the various fees and charges that are associated with a personal loan like foreclosure charges, processing fees, late payment charges, etc. While this will not increase your chances of approval, it will help you from unpleasant surprises in the future.
Keep your documents handy: Applying for a personal loan typically requires basic documents like ID Proof (Aadhaar Card, Voter ID Card, Passport, Driving License, etc.), Address Proof (Utility Bills, Aadhaar Card, PAN Card, Passport, etc.), Income Proof (Bank Account Statement, Salary Slips, ITR, etc.). The lender either asks you to upload these documents online or schedules a document pickup from your home/office location. In both the cases, it is important to keep the documents handy to ease the loan application process.
Evaluate your EMIs: Even after your personal loan application has been approved, do check the loan offer and determine if the loan is in fact affordable for you. While most loan agreements do have an EMI payment schedule attached as an annexure to the loan agreement, it might be a good idea to double check those figures using a personal loan EMI calculator. Also do check the other aspects of the loan agreement such as processing fees, foreclosure charges, etc. prior to signing the dotted line.
Conclusion
If you follow the above tips and tricks, there is a high probability that you will be able to avail the best personal loan offer the first time you apply. But do keep in mind that getting the personal loan disbursed and using it for the intended purpose is not the end of your personal loan journey. You do have to plan your finances well over the loan tenure in order to pay back your loan in a timely manner that minimally impacts your monthly budget. Missing EMI payments repeatedly or even worse defaulting on your personal loan will have adverse future consequences including a low credit score that can very often takes years to rectify. So the best plan probably is to borrow only if absolutely necessary and only up to the amount that you actually need.
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