A Personal Loan is a great financial product that helps efficiently meet planned or immediate requirements. As a result, you get financial leverage in emergencies, such as home repairs, urgent travels, medical emergencies, last-minute wedding expenses, etc. Moreover, these unsecured loans do not require security of collateral, guarantor, or deposit. The loan terms are flexible, which you can repay conveniently according to your monthly budget.
If you want to apply for a Personal Loan online for the first time, here are some key points to remember.
What is a Personal Loan?
Personal Loans are unsecured credit products financial institutions provide based on criteria like age, income, credit history, profession, employment, work experience, repayment capacity, etc. Also known as consumer loans, these are multi-purpose loans that you can use to meet different kinds of expenses, including wedding expenses, education costs, travel plans, home renovation projects, medical emergencies, etc.
Purpose of Borrowing a Personal Loan
NBFCs offer various types of Personal Loans for different purposes, like:
- Travel Loans: Enabling you to fund your travelling expenses within India or abroad
- Home Renovation Loans: Allowing you to conduct restoration or repair works at your home
- Wedding Loans: Saving you from the hassle of wedding finances and last-minute shortfalls
- Higher Education Loans: Providing financial facilities to fund higher education in India or abroad
- Medical Loans: Extending financial support in case of an illness or medical emergency
- Debt Consolidation Loans: Letting you consolidate loans to manage them better
Maximum Amount You Can Borrow
The maximum amount you can borrow depends on your profession, income, work experience, credit history, and repayment capacity. Generally, loan providers sanction loans based on your DTI ratio, which should be 40-50 % of your monthly income. Moreover, financial institutions consider your dues when offering you an appropriate loan amount. If you are self-employed, your loan eligibility will depend on your profit and loss statement. For salaried professionals, it is based on monthly salary and job stability. Irrespective of the loan offer, you must borrow only what you need and repay without disrupting your finances.
Choosing the Loan Tenure Carefully
Another aspect you must focus on when applying for a Personal Loan is the selection of your loan tenure. Many first-time borrowers make the mistake of choosing a longer tenure to minimise their EMI size. However, that is not the best thing you can do. A longer tenure reduces the EMI amount, prolongs the repayment term, and increases the applicable compound interest. As a result, the loan becomes costlier than a plan with a shorter tenure.
A Personal Loan EMI calculator can help you select the right tenure according to your repayment capacity without increasing the loan cost considerably. You can choose the shortest possible loan term with EMIs you can easily afford using this online tool.
Importance of Credit Score
The credit score is a vital parameter that lending institutions use to determine your credit behaviour and repayment capacity. Since credit is assigned based on your repayment history, diversity in the credit portfolio, credit age, and other factors, loan providers largely depend on it to evaluate your creditworthiness. Simple acts like full and timely EMI and credit card bill payments help build and maintain a decent credit score. A credit score above 700-750 will go a long way in getting the best loan deal with a reasonable interest rate.
Borrowing from a Credible Lending Institution
Instead of traditional banks, evaluate alternate options to borrow Personal Loans. Modern NBFCs supporting 100% online loan procedures are better loan providers, ensuring consumer convenience. Moreover, they are comparatively faster in verifying applicant details and processing loan applications, making disbursal possible within hours. Some loan companies also have mobile apps you can download on your smartphone and apply for a Personal Loan online instantly. Compare financial institutions based on your loan requirement, interest rate, repayment tenure, eligibility criteria, documentation requirements, customer service, and other parameters to find the best loan plan.
Common Mistakes to Avoid When Applying for a Personal Loan
Here are a few common mistakes that most first-time borrowers make when they apply for a Personal Loan online.
- Borrowing More Than Your Repayment Capacity: Based on your income, DTI ratio, and credit history, financial institutions may offer you a generous loan amount to borrow. However, you should refrain from borrowing more than your repayment capacity. Missing out on EMIs will lead to penalties and hurt your credit score.
- Getting Stuck with Bad Deals: Comparing loans from multiple loan companies will help you find the best deal, potentially reducing your loan cost. Compare fees, reputation, and interest rates of various financial institutions to apply for a Personal Loan online with the best loan offer.
- Ignoring the Additional Fees and Charges: You must repay the principal borrowed amount to the financial institution with the applicable interest rate. Besides, pay attention to the additional fees and charges and make up your total loan cost. These include processing fees, prepayment penalties, documentation charges, internet fees, etc.
Tips to Grab the Best Loan Deal
- Consider your financial situation, including your credit score, current DTI ratio, income, repayment capacity, etc., and borrow accordingly to ensure timely repayment.
- Improve your credit score, as it is the most important parameter determining your loan eligibility, loan amount, interest rate, and other terms and conditions.
- Research and compare financial institutions to find a loan deal with the most favourable terms and conditions suitable to your loan requirement and repayment capacity.
- Use a Personal Loan EMI calculator to choose an adequate loan tenure with budget-friendly EMIs.
- If you have a low income or bad credit score, apply with a co-applicant to improve your eligibility and chances of approval.
Applying for a Personal Loan online, especially for first-time borrowers, can be a convenient and efficient way to access financial support. Understanding what is Personal Loan, familiarising yourself with the application process, and being mindful of your financial situation are essential steps. Remember to compare offers, read the terms carefully, and select a reputable financial institution. By following this first-timer’s guide to applying for a Personal Loan online, you can make informed decisions, secure the funds you need, and embark on a journey to meet your financial goals with confidence.