Mistakes to Avoid While Applying for a Personal Loan
Read this article to know what mistakes you need to avoid before you apply for a Personal Loan. Know the points that lenders check before approving your loan and what you can do to make sure to get a Personal Loan at a low-interest rate.
A personal loan is a fixed amount of money borrowed at a fixed rate and repaid over a set tenure by the lender. Personal loans can be availed from a bank, credit union or online lender. Personal loans are an unsecured type of loan which means it requires some type of collateral as security. Banks and financial institutions look at various factors like credit history, credit score, income to determine the credibility of the borrower. If you fail to meet the mentioned criteria your loan application might get rejected. However, you can always take extra precautions and avoid such situations. Let's have a look at the common mistakes that can be avoided for smooth loan approval.Overlooking your Credit Report
Your creditworthiness is the first thing a lender considers when granting a loan. The lender fetches your credit report from credit bureaus and looks through your past and current credit payments. Hence, it is crucial to have a good credit history as it ultimately affects your credit score. A credit score over 750 is considered a healthy score if your score is lower than you have a higher chance of getting rejected for a loan. A good credit score represents how good and disciplined you are towards your credit payments. Having a good credit score will also help you get low-interest rates on your loan. It is advisable to review your credit report before submitting your loan application to help prevent any possible error from getting bypassed, that might bring down your score. Reviewing your credit report can help you find any errors in your credit statements, you can simply report such errors to the concerned bureau and lender and get them corrected at the earliest.Ignoring the Eligibility Criteria
All banks and financial institutions have a set of eligibility criteria that needs to be fulfilled by the borrowers. To avail of an instant personal loan you need to first check with your eligibility criteria. Different lenders run a check with the applicant's age, income level, employment type details, etc. to determine their creditworthiness. The first important step is to check whether you fulfil the basic eligibility criteria for personal loans, this makes the application process easier. Also, you can also take the help of an online eligibility calculator to calculate your loan eligibility for a loan, this saves a lot of time and you can easily avoid loan rejection.Not Comparing your Lending Options
When you plan on applying for a loan you need to make sure you compare all your lending options. Different lenders have different loan requirements and the interest rate they offer may vary. The interest charged on loan can range anywhere between 10.35%-24% p.a. Hence it is prudent to visit the online marketplace, some lenders also offer a personal loan app for easy loan applications. So, you can look up to such offerings and compare all your lending options the financial market has to offer. Besides interest rates, there are other factors like processing fees, prepayment charges and other applicable terms & conditions. You can go through all such terms and choose the lender that can offer you a loan based on your loan requirements.Not Considering your Repayment Capacity
A personal loan is a debt that has to be repaid at the end of its tenure. Thus you need to consider your repayment capacity based on the loan amount you wish to avail yourself. There are numerous lenders that can offer you a high personal loan amount based on your profile. As a loan applicant having Fixed Obligation to Income Ratio (FOIR), within 50-60% are generally preferred by lenders, make sure you opt for a loan tenure whose corresponding EMI keeps your FOIR within this range. If you have a low repayment capacity you can opt for a longer loan repayment tenure on personal loans. Also, note that a longer tenure will imply paying higher overall interest and outgo on the loan. Taking a personal loan can make sense when you can conveniently afford the EMI payments for the duration of the loan term. This makes it easier for you to avoid defaulting on a loan and manage your finances.
