5 checkpoints to go through before taking out a personal loan

Personal loan interest rates can vary widely between 9% and 24% per year

Quick disbursement, minimal documentation, no restrictions on the end use of the loan proceeds, and a minimum collateral requirement make personal loans an ideal borrowing option to meet urgent monetary needs. However, the unsecured nature of personal loans compels lenders to take a cautious approach during the loan approval process.

Here are five crucial checkpoints as to which your personal loan approval chances can increase:

Check your credit profile: The credit score is one of the first filters used by lenders to assess the creditworthiness of the applicant for availing a personal loan. Generally, applicants with a credit score of 750 and above are more likely to get loan approval. Therefore, one should strive to establish and maintain a strong credit rating. Consider adopting healthy financial habits, such as paying off IMEs and credit card bills on time, having a credit utilization ratio of less than 30%, maintaining a healthy credit mix, as well as monitoring of co-signed loan accounts, etc.

Additionally, since your credit score is calculated based on information provided by lenders and card issuers, any clerical errors on the part of the lender or card issuer or any transaction or request Credit fraud made on your behalf can lower your credit score. and loan eligibility. Therefore, review your credit report at regular intervals to identify and report erroneous information, if any, to the credit bureaus and lenders for rectification. A corrected credit report will automatically yield a higher credit score.

Choose the tenure according to your repayment capacity: Lenders assess your repayment capacity taking into account your loan repayment obligations. They generally prefer to lend to applicants whose loan repayment obligations (including the proposed personal loan EMI) do not exceed 50%. Applicants with a higher proportion of debt securities are generally considered to have a higher chance of default. Therefore, be sure to choose a term whose corresponding EMI keeps your overall repayment obligations within limits.

Compare the different loan offers: The interest rates for personal loans can vary widely between 9% and 24% per year. Therefore, it is crucial to compare loan offers from as many lenders as possible, before focusing on a particular lender. Begin your loan search by contacting banks and NBFCs with which you already have a consumer relationship. Follow it by visiting online financial markets to compare personal loan options available from other lenders.

However, while comparing personal loan offers from various lenders, do not limit your search to loan interest rates only. You should also compare other features of the loan like processing fee, loan amount, repayment term, prepayment charge, etc. before finalizing a particular lender.

Avoid submitting loan applications to multiple lenders: Every time you apply for a loan or a credit card, the lender gets your credit report from the credit bureaus to assess your creditworthiness. Such lender initiated credit report requests are referred to as full investigations by the credit bureaus, each of which is included in your credit report, reducing your credit score by a few points. Additionally, making multiple credit applications in a short period of time can portray you as a credit-hungry borrower, which may lead some lenders to reject your personal loan application.

You can avoid this by visiting online financial marketplaces to choose the optimal personal loan offer from among several loan options.

Avoid frequent job changes: As the practice of frequent job changes can be seen as a sign of career instability by lenders, they may be reluctant to lend to those who change jobs frequently. Therefore, try to avoid frequent job changes, especially if you plan to apply for a personal loan in the near future.

(By Gaurav Aggarwal, Director of Unsecured Loans, Paisabazaar.com)

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