Key Points to Remember When Applying for a Personal Loan

 Applying for a personal loan can be a simple and hassle-free way to meet your immediate financial needs. You can use the loan to consolidate debt, handle home improvement expenses, deal with medical bills, pay your child’s tuition fees, and more. Personal loans are usually unsecured, which means that they provide access to funds without having to pledge any collateral.

How Does a Personal Loan Work?

• Application: You can apply for a personal loan online or at a local branch of the lender.

• Evaluation: The lender shall check your income, credit score, and documentation.

• Approval: If the lender finds you eligible for the loan, your loan application shall be approved.

• Disbursal: The loan amount shall be directly transferred to your bank account.

• Repayment: You have to repay the loan through EMIs over the specified loan tenure.

Points to Consider When Applying for a Personal Loan

There are several lenders in India that offer personal loans. When planning to apply for such a loan, you must follow these points:

Understand Your Needs

Before availing a personal loan, you need to assess your requirements and carefully think about why you need the funds. This would help you determine the required loan amount.

Check Credit History

Your credit history is among the most important factors impacting your personal loan eligibility. The lender would carefully assess your credit history to gauge whether you can timely repay the loan or not. A good credit score would increase the odds of getting your loan application approved, as well as help you enjoy better loan terms. Hence, before applying for a personal loan, you should try your best to improve your credit score. This can be done by paying your credit card bills and loan EMIs in time.

Compare Interest Rate

You must compare personal loan interest rates offered by varying lenders before filling out the loan application. The interest rate would have a huge impact on your monthly payments, as well as the total cost of the loan. Hence, you must identify the lenders offering personal loans at the most budget-friendly rates.

Calculate the Total Cost

It is vital to look beyond just the monthly payment when considering the loan offer. One must also calculate the total cost of the loan, including fees and interest, over the entire loan term. This shall provide a better understanding of the overall financial commitment.

Select a Realistic Repayment Period

The repayment tenure for the personal loan should be chosen after adequate thought and deliberation. While a longer tenure may result in lower EMIs, it may also incur higher overall interest costs. Hence, one must try their best to select a repayment period that aligns with their budget and financial goals.

Gather Required Documents

Lenders would ideally demand certain documentation along with the personal loan application. Lenders generally ask for:

• Identity proof like the Aadhaar card, voter ID card, or driving license

• Address proof like the Aadhaar card, passport, utility bills or voter ID card

• Bank statements for the previous 3 months

• The three latest salary slips

Having all these documents in place will expedite the application process.

Avoid Borrowing More Than You Need

It is tempting to borrow more than what you had initially planned, particularly if you get approved for a higher amount. But it is important to remember that borrowing more than necessary could lead to unnecessary debt and financial strain. Therefore, it is better to stick to your original loan purpose and budget.

Before signing a personal loan agreement, borrowers must carefully read and understand the terms and conditions. They especially must double check the repayment schedule, fees, and any prepayment penalties mentioned in the agreement. If you have any confusion, then it is crucial to get it clarified prior to signing the agreement.

Author bio: The author has worked in the finance industry for about two decades. He shares his experience and industry insights through his blog. He also provides valuable financial advice to readers online.