• Personal Loan Tips

    Personal loans are one of the most popular types of loans availed by people. There are several reasons behind why these loans have become so popular lately. To begin with, lenders do not limit or restrict the end use of the funds provided via a personal loan. This means that one can use a personal loan for any purpose they think fits. Most commonly, personal loans are used to fund requirements or expenses such as a long-due vacation, funding a family function such as a wedding or birth ceremony, making down payment for a house or car, paying off outstanding credit card bills or any other long-standing debt, renovating one’s house or updating the interior furnishings, among many other uses. The second most important reason why personal loans are ever so popular is that these are unsecured loans. This means that unlike a car loan or a home loan, the borrower does not have to provide security or collateral to the lender to get the loan. Also, with no requirement of collateral, the documentation involved to get the personal loan is also far less as compared to any other loan such as a car loan or home loan.

    Applying for a personal loan is fairly easy, however, there are a few things which you must know before you apply for a personal loan. So, here are some handy tips which you can keep in mind when you start looking for a personal loan.

    1. Evaluate Your Need Before Taking A Loan

    Before you decide to take a loan, assess the requirement which you need it for. Every loan is a commitment to pay monthly EMIs for the specified term of the loan, which means that it will be an added expense in your future budget, along with interest. Evaluate if the loan you are taking is for a productive purpose or not. For instance, you have unpaid credit card bills to pay off but you are taking a personal loan to fund your vacation. That will just land you in more debt. So, ensure that you use your loan money productively.

    2. Do Your Research

    Before you take a loan from a lender, do some thorough research for all the options available to you. Don’t just blindly go for the first lender who approaches you with a personal loan offer. Hunt around and you have a good chance of finding a lender who may offer you a lower rate on the personal loan with better terms. Also, ensure that the loan you choose suits your requirements.

    3. Credit Scores & Personal Loans

    Your credit score can make or break your chances of getting a personal loan. Given that these are unsecured loans, the risk involved is much higher for the lender. As a result, the lender will favor applicants who have a higher credit score as this will indicate better repayment capacity of the borrower. A measure of gauging the repayment capacity Check your credit score. A credit score of 750 and above will land you a good chance of getting a personal loan with a lower interest rate and good terms.

    4. Low Credit Score Equals higher Interest Rate

    If you have a low credit score and do manage to find a lender who is willing to give you a personal loan, be prepared to pay a relatively higher rate of interest. A low credit score is like a red flag that lenders would preferably like to steer clear of when it comes to borrowers as it indicates poor repayment capacity or bad repayment history. Also, if you get a personal loan despite having a low credit score, you might get the loan for a lesser amount than what you have requested and your loan may be accompanied by stricter terms.

    5. Compare Interest Rates

    As we already know, the absence of collateral makes is the reason why personal loans have relatively higher interest rates. Before you take a personal loan, check with several lenders to see what interest rates are being offered. This way you can find out which lender is offering the lowest rate, along with favorable terms.

    6. Check Your Eligibility

    Before you apply for a personal loan, check with the lender to find out whether or not you are eligible for it, especially in terms of your income and employment. Income is one of the most important criteria lenders adhere to when approving a personal loan as it is an indicator of whether or not the borrower may be financially able to repay the loan or not.

    7. Ask For Pre-payment

    Many lenders allow borrowers to pre-pay their loans, with some extra charges. While you are finalizing a lender to take a loan, make sure you ask them about loan pre-payment. Pre-payment of a loan will help you save tremendously on the high-interest rate which you’d otherwise have to pay.

    8. Don’t Apply For Multiple Loans

    Applying to several lenders for a loan in a short period can have adverse effects on your credit score. If you do that, then it will automatically cause the lenders to think that you are desperate for funds and will not be equipped to repay your loan. This will result in your credit score dip which is never helpful if you are looking to avail yourself of credit, either at that time or even in the future.

    9. Double Check Your Credit Report

    Before you apply for a personal loan, make sure you have thoroughly checked the contents of your credit report. Make sure that the details reflected in your credit report are accurate and correspond with your repayment history. The slightest error in the calculation of your credit score can affect your score negatively, which can further lead to the rejection of credit requests in the future. In case of a discrepancy, ensure that you get it corrected immediately.

    10. Wait For 6 Months Before Re-applying

    In case your loan application has been rejected by the lender, it is advised to wait for at least 6 months before you apply for a loan again. In case your loan application has been rejected due to a poor credit score, try to improve your score in these 6 months by making outstanding payments. If our loan has been rejected, it is often futile to approach other lenders as they are also likely to reject your request. Multiple rejections can cause your credit score to drop, which is never good.

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