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 make a decision that’s 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.
So take the time to examine these five aspects before applying for a personal loan:
1. Maintain a good credit history
- A credit score or CIBIL score the 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 you paying a higher interest rate 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 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 utilisation.
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 websites like Paisabazaar, Bankbazaar, Myloancare, etc.
- 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 fee, prepayment fee, and late payment fee involved. This cost is initially incurred by the lender but gets added to the amount that you’re supposed to repay.
- Before applying for a loan, look into 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.
4. Consider your needs to arrive at the right loan amount
- Make a list of all your needs and requirements and then prioritise 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, 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 personal line of credit.
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 on.
6. Avoid falling for gimmicky offers and plans
- There are lenders all across the market that offer artificially low interest rates or gimmicky schemes.
- When you check the fine print, these loans often turn out to be more expensive than expected. Also, at times, they are based on floating rates of interest. This makes the interest rate appear low initially but, as time passes, it can increase substantially.
- Some providers also bury costs and charges in paperwork. Find a lender who is transparent for the best personal loan experience.