Sep 13, 2021

Best Personal Loan Tips

Are you contemplating taking a personal loan to fund a large payment? A personal loan can definitely help you to make payments for your various credit needs such as planning a family vacation, a wedding, renovating your house, etc. In addition to not needing any collateral, the documentation process is also not as complex as some of the other loans.

Hence, it might seem extremely simple to avail the benefits of a personal loan. However, there are a few important things you must keep in mind while looking for a personal loan. Read our list of 9 most handy tips that will definitely help you with your personal loan.

Take a Loan Only When Absolutely Necessary

A personal loan should only be taken after a thorough assessment of your requirements and already existing loan/repayment commitments. It is important to understand that while a loan will help you pay for your short-term goals, it will be an additional payment for the next few months/years that you will have to do without fail. Hence, it is imperative to ensure that you will be able to make the monthly payments within your monthly income.

Research Thoroughly Before Applying

With the increase in the number of personal loan providers and their bold claims, it is possible to get swept away with the most attractive loan offer without reading the terms and conditions carefully. Hence, it is essential to do thorough research before selecting your personal loan. Ensure that you compare features such as interest rates, loan tenure, processing fees, etc. and pick the loan provider that matches your financial needs.

Look for Lowest Interest Rate

Personal loans generally have high-interest rates owing to the fact that there is no collateral taken as a guarantee. As the interest to be paid is high, even a small difference in the interest rate can mean a huge difference in the total amount you would have to pay as interest. This makes it very important to look for loan providers that can offer you a good deal on interest rate based on your credit score and requirements. 

Check Eligibility Criteria

Before you narrow down on the bank and the loan that best suits your needs, make sure you check that you meet the eligibility criteria of the loan you’re interested in. One of the most important eligibility criteria is your income and credit score, as these indicate your loan repayment ability. The higher your income and credit score is, the more likely you are to get a personal loan for a higher amount

Maintain High Credit Score

Along with your income, a high credit score will definitely boost your chances of getting a personal loan with the desired interest rate and tenure. This is because a low credit score will be an indication of a poor repayment history causing banks to be apprehensive about granting loans to you. Therefore, it is very critical to clear all your debts and pending credit card bills prior to a new loan application.

Be Careful of Additional Charges

Before you settle with one bank to apply for your personal loan, make sure you take into consideration other factors apart from just the interest rate and duration, such as processing fees. 

Check Prepayment Charges

Prepayment is the settlement of the loan prior to the official due date; either by paying the full amount or settling a part of the repayment. Although prepayment option is only allowed by certain banks and loan providers, it usually requires the borrower to make an additional payment and can only to be done after 12 months of the loan being sanctioned. It is important to go through the prepayment terms and conditions prior to finalising your personal loan.

Make Timely Repayments

Any loan or credit you take is a commitment to repay it diligently and without fail for months/years. Timely repayments not only prevent you from unwanted penalties, but it will also ensure your credit score does not get impacted negatively. Maintaining a good repayment history is crucial in maintaining a high credit score, which will only help you in the future for availing any more credit/loan.

Shorten the Loan Tenure

You might come across loan providers who allow very long repayment periods low EMI options, which might be very tempting. But, it is worth noting that in such long-term loans, the total interest you will have to pay can be very high.

Tips to improve your chances of getting a loan

When it comes to applying for a loan, there are things that help and things that hinder your chances of getting approved. Here are some tips on improving your chances before submitting and how you can avoid the risk of getting rejected.

To give yourself the best shot of getting your loan approved, it’s important to know some of the key factors that go into deciding whether or not a loan gets approved. Not only do these factors impact the likelihood of securing a loan; they also influence your interest rate and payment terms.

Having everything in order and knowing what needs to be fixed will help you plan ahead and put your best foot forward when applying.

1. Check your credit score

Your credit score shows your credit standing and behaviour, indicating how likely you are to pay back your debt. This determines whether you’re eligible for a loan and on what terms. Get your credit score in shape before applying for a loan. Make sure all your bills are paid and fix any mistakes, such as incorrect information, that might appear on it. Also, keep the amount of credit you’re accessing low to show that you can sensibly manage money lent to you.

2. Approach the right lender

Just as there are different loans for different needs, different lenders have different requirements and approaches to risk. Be specific and realistic. Apply to a lender that’s a good fit for your needs and one that’s more likely to accept you.

3. Can you afford it?

An unaffordable loan isn’t in your interest, and it’s unappealing to lenders. Have you got a steady and reliable income, and do you have enough to pay the monthly instalments and cover your expenses? A bank or lender wants to ensure you’re able to pay back the money. Determine exactly how much you need, see whether you qualify for that amount and then apply for the minimum loan amount.

4. Understand how the loan application works

The type of loan you’re applying for will determine what’s required to start and complete the process. Understanding what’s required, when it needs to be submitted and how long it takes, will help you prepare adequately and manage expectations accordingly.

5. Pay down existing debt

An important element of your credit score is your debt-to-income ratio: the amount of credit you used versus what’s available to you. A high ratio could indicate that you are overexposed to debt, impacting your chances of getting a new loan. Paying off debt will lower this ratio and make your application more attractive.

6. Consider collateral or a co-signer

If you’re having a hard time securing a loan, (depending on the loan type) you can put down collateral, showing the lender you’re serious and that you have incentive to pay back the money or risk losing that item of value. Alternatively, if you’re just starting out or have a higher debt-to-income ratio, you can also ask someone with a good credit score or higher income to co-sign the loan application.

7. Be honest

Don’t stretch the truth. Overestimating your income, underestimating your debt or misrepresenting your employment could result in your application being rejected and a decline in your credit score. Reapplying or submitting multiple applications within a short period is also a red flag for lenders and makes them wary of approving your loan application.

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