There are multiple situations when you would require monetary resources to finance a significant event in life. It can serve as a solution to manage your wedding expenses, home renovation, travel budget, purchasing a new vehicle, medical emergency or debt consolidation. A personal loan can be a quick fix to all these needs as there is no end purpose of this loan. In the absence of pledging any assets as security or collateral, it becomes convenient to avail these loans. You can click here to know more about personal loan.
A quick guide on how to apply for a personal loan
Check your credit score: In the absence of collateral, the personal loan falls into the category of unsecured loans. The primary qualifier to determine the creditworthiness of a borrower becomes the credit score. Financial institutions look for a good credit score of 750 and above to approve a personal loan application. The interest rate also relies on the credit scores of an individual. Hence, the borrower must check his credit score from credit rating companies before proceeding to apply for a personal loan.
Review your income: Before applying for an unsecured personal loan, you must review your income, as it becomes a crucial criterion in the exclusion of collateral. The ability to repay the loan amount is only assessed by the lending institution from the income of the borrower. You must, therefore, provide all the details regarding your salary and other sources of income to the lender. All these documentations are necessary for the lending institution for estimating repayment of the loan.
Rebalancing your income and debts: The lenders also ask for your income statement to ascertain your debt-to-income ratio. This means that your debts should not exceed a specific limit for your income. Typically most lenders prefer 40% of the income should be levelled towards the payment of combined EMIs on outstanding debts which includes loans, credit card bills, etc. As a responsible borrower, you need to clear all these amounts as it also has the potential to ruin the snapshot of your credit history and ultimately all put a halt on your loan approval.
Consider Co-signers/Guarantors: If you are thinking it is troublesome to avail a personal loan individually, then you can consider picking a co-signer or guarantor. The person you select for this purpose must have a credit score of 750 and above. Though you need to be cautious because in case, the co-signer defaults any outstanding credit payment on his part; it will directly hit upon your credit scores.
Avoid applying for multiple loans: Remember that when you are opting for a personal loan, you must avoid applying at multiple places. This can make you appear a credit hungry borrower in the eyes of the lending institutions and your credit scores will deteriorate as well. The loan will not get sanctioned in such a scenario. So, research thoroughly and compare the loans before finally going to apply.
Select the right lender: You need to do some homework on tenure, interest rates, etc.before shortlisting a particular financial institution. It is better to go with a financial institution with whom you have an existing relationship as it can ease the process of getting a personal loan. Even if you have availed other credit from it, then it will be easier for them to determine your repayment behaviour. Besides, you must be aware of certain lending institutions that entertain high-risk borrowers with low credit scores to lure into a debt trap through payday loans.
Prefer a gap of six months: It is better to opt for a personal loan with a minimum gap of six months if you have availed any other loans before it. Unless there is a dire need, you must refrain from applying for a personal loan since this also can damage your credit scores.
Additionally, the interest rates are higher on a personal loan as it is an unsecured loan. Extra charges on processing fees and foreclosure are present in a personal loan. Make a detailed study regarding all these factors before you zero down one.