Keep These 4 Tips in Mind Before Applying for a Personal Loan
Minimal documentation, fast disbursal, no restriction on end usage of loan amount and no collateral requirement make a personal loan one of the ideal credit options to meet your immediate monetary shortfalls. However, the unsecured characteristic of a personal loan often makes lenders adopt a cautious approach when approving your application. Listed here are 4 important tips, which you must consider before clicking on the personal loan apply button.
- Assess your credit profile
Credit score is an important filter used by lenders to evaluate your credibility for personal loan. Usually, they approve your application if your credit score is 750 and above as this score indicates your disciplined behavior towards credit. Hence, you must strive at forming a good score. For this, consider following healthy financial behaviour like timely loan and credit card bill repayments, containing CUR (credit utilisation ratio) within 30 percent, maintaining a balanced credit mix, monitoring co-signed accounts, etc.
As credit score is calculated depending upon the information provided by card issuers and lenders, any clerical mistake on lender/issuer’s part or fraudulent transaction in your name can bring down your score considerably. This, in turn, can hamper your personal loan eligibility. Hence, ensure to assess your report periodically to figure out and report incorrect information, if any, to the lender and bureau for correction. A corrected report can automatically enhance your score.
- Select repayment tenure as per your affordability
Lenders evaluate your affordability by considering your loan repayment obligations. Usually, they prefer lending if your repayment obligation, including your personal loan EMI, is within 50-60 percent of your monthly income. If your debt repayment obligation is higher than the acceptable limit, your approval chances may be lower because of your higher loan default risk. Thus, before you apply for personal loan, ensure to select a repayment tenure whose corresponding loan EMI keeps your repayment obligations under limit.
- Compare amongst numerous personal loan offers
Personal loan rate differs widely amongst lenders. Currently, personal loan interest rate can range anywhere between 10.25% and 24% p.a. Hence, it is important for you to compare various loan offers from various lenders, before finalising on a specific one. Start your search for a personal loan by directly contacting the financial institution with whom you hold an existing banking relation. Next, approach online lending markets to compare various personal loan offers from other lenders.
While comparing offers from different lenders, avoid restricting your research to only personal loan interest rate. Ensure to factor in other parameters too like processing charge, loan amount, prepayment charge, etc., for selecting a specific lender.
- Do not submit loan applications to various lenders
Once you click on the personal loan apply online button, the concerned lender fetches your credit report to assess your credibility. This lender-initiated credit report is called hard enquiry, for which the credit bureau deducts a few points of your credit score. Making multiple such loan requests drastically lowers your score, which in turn brings down your personal loan eligibility chances.
This can be easily avoided if you approach online lending markets to select a suitable lender from multiple options. While online markets also fetch your score to provide you with various personal loan deals, such enquiries are termed as soft enquiries, which do not impact your score in any way.
Before you apply for a personal loan, you must also ensure to be aware about your serviceable EMI. You can calculate this using an online personal loan EMI calculator. Through such calculators, you can compute your EMI instantly based upon your repayment capacity.