It is important to have all pertinent information before applying for a personal loan. It not only improves the chances of your loan being approved but can also help you secure a lower interest rate on personal loan. Here are some vital things you need to keep in mind before applying for a personal loan.
While applying for a personal loan, it is for you to take into consideration factors like your credit score, interest rate, and other fees and charges. Examining these criteria ensures that you decide what works best for you. It also prevents you from making mistakes such as selecting the wrong lender, opting for an inconvenient tenor, or borrowing more than you need.
1. Maintain a good credit history
A credit score or the CIBIL score is a representation of your creditworthiness, based on your history of credit repayment. The CIBIL score ranges from 300-900 and a score above 750 is considered ideal. A lower credit score signifies bad debt management and may result in your loan application being rejected or a higher interest rate being applied on your loan.
You can maintain a good credit score by simply paying your dues on time. A good way of ensuring this by automating your payments. Another important way of doing this is by reducing the number of credit cards used and ensuring that you continue to use your old credit card with a good credit history. It is also important that you never exceed more than 30% of credit utilization.
2. Compare the interest rates in the market
Comparing the interest rates offered by various lenders ensures that you get the lowest rate. You can easily compare the rates offered by different financial institutions on platforms such as Paisabazaar, Bankbazaar, and Myloancare.
This enables you to select a personal loan at the lowest interest rate and a type of interest that is best for you, making the repayment of EMI on your loan easier.
3. Assess all costs
When borrowing a loan, there can be numerous costs like processing fees, prepayment fees, and late payment fees involved. Before applying for a loan, consider the various fees that your lender charges to get a clear estimate of the expenditure. This can help you manage your finances better and help you decide whether the loan is affordable.
Additional Read: Personal Loan For Travel Fees and Charges Explained
4. Consider your needs to arrive at the right loan amount
Make a list of all your needs and requirements and then prioritize which of the needs you are going to finance with a loan. Some common purposes for taking a personal loan are to buy a vehicle, finance a wedding, address a medical emergency or plan a holiday. Based on the prices and expenses associated with your needs, you can decide the amount that you need to borrow. If your monetary needs are unpredictable, consider opting for a Flexi personal loan.
5. Evaluate your ability to repay the loan
Before borrowing a loan, prepare for its repayment. You can do this by routing income from investments towards EMI payments. But, you should also ensure that your income is enough to repay the loan. You must also consider other financial obligations and debt repayment before borrowing a loan to avoid financial confusion later.