Applying for a personal loan can a hassle-free process if you follow all the personal loan application rules and apply at the right time. Personal loans are unsecured loans as they do not require any collateral or security that can act as your back in case you default on the loan. Make sure to plan the expenses and purpose of the loan before applying for it, this will help you to plan a fixed amount for the EMIs to be paid in the future. There are endless banks and NBFCs to choose from that offer benefits and are tailor-fit to your needs, be it higher education, business investment, marriage, buying a property or medical expenses. Personal loans offer user-end benefits where you have no limits to what you can use the money for, it is best advised to use it for the multiplication of your wealth.
Below are mentioned top 10 tips for you to check before your personal loan apply:
- Purpose: The first step toward securing a personal loan is to find your purpose. Organize your plan and discuss it with legal and financial help as to how much money you would actually need and how and when will you be able to pay it back. Paying a committed EMI can gradually become a burden if don’t evaluate the purpose of your loan thoroughly. For instance, if you are taking a loan to start a new business, calculate beforehand how much profit will the business make you and soon you can pay back your loan. If you do secure a loan and use it for personal pleasures like a luxurious vacation or an impromptu purchase, paying back the loan with interest can cost you much more than the principal amount.
- Credit Score: A credit score is like your resume for a loan application, just like lack of experience and education does not land you a good job, the same way an unhealthy credit score can drastically drop your chances for securing a loan. Maintaining a healthy credit score is vital because you cannot predict future circumstances and you might just need to engage in the loan application process for a medical emergency. If your credit score is 750 and above you can be rest assured to secure a personal loan with a low interest rate. Personal loans are risky in nature because they are unsecured loans, meaning the lender has no collateral to fall upon when you cannot pay back your loan, which results in a poor credit score. And for future loan applications, you may be able to secure a loan on poor credit score, but with an exponentially higher interest rate, which will act as collateral for the bank.
- Documents: Along with having an excellent credit score, a loan applicant must have a long-standing steady income of over Rs.20,000/- and be in the age bracket of 21-60 years of age. Having all your documents along like ID proof, address proof, 3 months of bank statements, last three months salary slips, 2 passport size photographs, KYC documents, audited income proof (self-employed applicants), office address proof and proof of continuity of business can make the process of your loan application smoother. Regular income proof reassures the bank that you are legible and capable as a candidate and will pay back the loan on a regular basis.
- Interest Rates: Due to lack of collateral while applying for a personal loan, interest rates are generally high ranging from 10.99-22.00% per year. It is wise to research about various lenders before applying for a loan to see which scheme suits your loan payback plan. Most lenders may also conduct research on your and your ability to pay back the loan before they approve the sanction.
- Prepayment: A safe option for the lender and borrower, if the lender successfully secures surplus funds before the tenure of his loan repayment completes. Many financial institutions allow the lender a prepayment option, so make sure to ask about it when you apply for a personal loan. The benefit of this option is that it allows you to repay your loan in half or full before you hit your tenure deadline, which reduces the principal amount and in turn reduces your EMIs for the remainder of your tenure.
- Duration: Considering the fact that the lender will offer a time period of 12-60 months for the repayment of the loan amount, so you have enough time to collect or arrange funds to pay back your loan. The repayment is split into equally distributed EMIs and the higher the EMI amount the sooner you will be able to pay off your loan. Since you have prior information as to how much time frame you have, you can easily calculate how and when you can accumulate enough funds to pay back your loan. Try to avoid borrowing more than can handle to payback.
- Automatic Withdrawals: An online payment method that helps you set a fixed amount that will be deducted every month from your account as an EMI payment of your loan. If you wish to stop automatic payments you must request in writing 14 days prior to stopping the payments. It is best to pay your EMI via cheque so that in case of unforeseen circumstances you have ready cash available. You can always set aside your EMI payment amount, but it is not necessary to pay via automatic withdrawals.
- Wait 6 months before applying: A lack of good credit score can lead to the rejection of your loan application and you will have to wait another 6 months before you can apply for a loan again. Lender hopping will not work in your favour as multiple rejections will even further drop your credit making it nearly impossible for you to get a loan. The only solution to avoid a waiting period is to have a clean credit score, in case you are not able to secure a loan, use those 6 months to clear your credit score and bring the score up to 700, a significant change in your credit score will build trust amongst lenders and easily approve your loan.
- Urgency: Depending on the purpose and urgency of the loan, financial institutions can take several days after the loan is approved to release your loan amount. If you need an urgent loan for medical emergencies or any other urgent financial needs it is best to contact an online lender who can offer quick procedure and almost instant dispatch of your loan amount. To avoid rejection of loan in urgent situations, it is vital to keep your credit score clean, as a poor credit score applying for a loan in an emergency seems suspicious.
- Back up Plans: From the moment your loan is approved till the time you completely pay back your loan, there are many possibilities to consider. Be prepared for a falling out and set aside funds for regular EMIs, for whatever reasons you may be taking a personal loan, the bank will go through all measures to recover their money back and in the process you can end up losing all your prized possessions. Since there is no collateral in place, it is up to you to save or generate enough money to pay back your loan with interest.
Personal loans can be a lifesaver and can be used as a last resort when no other sources of funding left. However, keeping a few things in find and following them genuinely can help you in striking the best deal.