Personal loans are popular financial sources that give instant access to funds without pledging collateral. These unsecured loans do not have any end-
Personal loans are popular financial sources that give instant access to funds without pledging collateral. These unsecured loans do not have any end-use restrictions, which means you can use them to cover any planned or urgent expenses.
Whether it is a medical emergency, wedding, vacation, education, or a big-ticket purchase, you can apply for an instant loan and get the needed funds. However, if you are applying for a personal loan for the first time, you need to be extra careful and keep these five points in mind.
1. Have a High Credit Score
If you are applying for an instant loan for the first time, the chances are that you do not have a long credit history. Many first-time borrowers do not even know what a credit score is. It is a score that credit bureaus calculate based on an individual’s repayment history, credit utilization ratio, DTI ratio, and other parameters. Therefore, lenders check your credit score to determine your creditworthiness, repayment history, and credit behavior.
Most lenders will ask for a credit score of at least 700, which is difficult to achieve if you have never taken another type of loan or credit card in the past. Therefore, it is essential to check your credit score and ensure that it meets the lender’s minimum requirement. If it is low, consider improving it by diversifying your credit portfolio with different types of loans, keeping your DTI and credit utilization ratio low, and maintaining your old accounts to prolong your credit history.
Once you achieve a high credit score, you become eligible for a high loan amount at lower interest rates.
2. Several Factors Affect Your Loan Eligibility
Most NBFCs have simple eligibility conditions that most individuals can fulfill with ease. However, checking the lender’s eligibility criteria is of the essence before submitting your loan application. Generally, eligibility conditions are related to the applicant’s age, income, and employment.
Lenders want to ensure that you are in your prime earning years with a stable job and regular income. They require you to be in the same profession for several months or years to ensure income stability. Many lenders also have a loan eligibility calculator on their website, which you can use to check your eligibility and know how much loan amount you may avail.
3. Importance of Choosing the Right Repayment Tenure
Most personal loan lenders offer flexible repayment terms that borrowers can select according to their repayment capacity and monthly budget. Loan tenure is the period during which the lender will spread your borrowed amount in monthly installments. The tenure may range from a few months to several years.
Opting for longer loan tenure reduces your EMI amount but increases your total interest outgo. A shorter tenure increases your EMI amount but saves your interest cost. Therefore, using an online personal loan EMI calculator is wise to select a loan term with an EMI amount suitable to your budget.
4. Know Your Repayment Capacity
NBFCs grant generous personal loans to eligible applicants with high credit scores. However, you must borrow a minimum after assessing your financial requirement and repayment capacity. Even if you qualify for a high loan amount, you should not borrow more than you need. After all, a loan is a financial commitment that you have to repay along with the interest rate and other charges.
Therefore, assess your purpose of taking the loan and ensure that its EMIs do not disturb your financial goals and obligations.
5. Choosing the Best Lender Makes a Huge Difference
Loan amount, interest rates, eligibility conditions, documentation requirements, and other terms and conditions vary from one lender to the other. You will find hundreds of lenders offering personal loans at competitive interest rates. However, your final choice makes a huge difference in your loan cost and overall experience.
While looking for a personal loan, compare lenders based on their interest rates, repayment tenures, eligibility and documentation requirements, processing fees and other charges, customer service, etc. After comparing all the lenders, select the one that best suits your financial needs and has the lowest borrowing cost.
If you are borrowing an instant loan for the first time, make an informed decision based on the points mentioned above. Use an online personal loan EMI calculator to choose a suitable loan term and cover your expenses without stressing your finances.