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5 Things to Consider Before Applying for a Personal Loan

Personal loans have become one of the most popular types of financial products availed by people. These are unsecured loans taken out by individuals from a bank or a non-banking financial company to fulfil personal needs. Such loans are not secured against any form of asset. Since borrowers do not put up any collateral such as property or gold to avail such loans, if you default on the loan, the lender cannot auction anything you own. Since they have a greater risk attached to them, personal loans usually attract a higher rate of interest than other loans. Key criteria that affect your ability to get a personal loan include income, credit score, age and employment history, amongst others. Additionally, lenders usually do not restrict the use of funds availed by a personal loan, except for illegal activities. Common uses of personal loans include for refurbishing a house, education, vacation, wedding amongst others.

Evaluate your needs before taking out the loan.

The first step before you apply for a personal loan is to ensure that you have evaluated all costs and requirements carefully. A personal loan is not something you should take out lightly as it is a financial commitment for not only monthly payments but also interest payments on the amount you will be taking out. This will be a fixed portion of your budget for the foreseeable future, so, ensure that you are using your personal loan productively and prudently. You should make sure that you take into consideration all the costs of taking out the loan, including the EMI, interest payments, processing fees amongst others before deciding upon an amount for your loan.

Maintain a good credit score.

When you apply for a personal loan, one of the first things you will be required to obtain is a credit report. This can be requested from any of the four Reserve Bank of India (RBI) licensed bureaus, namely, the TransUnion CIBIL, Equifax, Experian and CRIF Highmark. A credit report is basically your credit score which informs a bank or lending institution about your creditworthiness. The above-accredited bureaus collect information from their members to provide information about your credit history and a credit score between 750 and 900 is considered as great. The higher your credit score, the better are your chances of your personal loan being approved. Additionally, a higher credit score will also mean that you will be able to get more attractive loan offers, including, lower rates of interest, higher loan amounts and longer repayment periods.

However, if your credit score is on the lower end, you don’t need to worry, there are steps you can take to fix this. Before applying for your personal loan, ensure that you have been paying your credit card bills on time for at least the past six months. Additionally, ensure you do not default on any EMI payments.

Check the eligibility criteria.

For personal loans, the eligibility criteria vary from lender to lender, including age, occupation (salaried vs. self-employed), income. Before you apply for a loan, check with your bank or lending institution regarding your eligibility. A majority of lenders require the age of the borrower to be between 21 and 55 years, and in some cases between 18 and 60 years. Usually, income Vs existing expenses/EMI payments is one of the most important criteria that affect your eligibility as it directly coincides with your ability to repay the loan. Many lenders also have a personal loan eligibility calculator to give users a basic idea.

Take all additional costs into consideration.

It is important to remember that the costs of taking out a loan are not limited to EMI and interest payments. There are numerous other costs including, processing fee, prepayment fee, and late payment fee which also get added to the overall cost. Before signing the loan document, ensure you read the terms and conditions carefully to better assess the feasibility

Ensure you check the repayment plan thoroughly.

It is advised to take into consideration all pre-existing financial obligations before taking out another loan. This includes monthly expenses as well as EMIs. Ideally, if you can have a flexible repayment schedule, it would help you manage your finances better in a hassle-free manner. Personal loans provided have a flexible repayment tenure up to 60 months. What’s more, is that customers can avail attractive interest rates, and enjoy the benefits of a completely digital documentation process for quick loan disbursal.

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