Swift disbursal of funds, no restrictions on end-use, minimal documentation, and no collateral requirement make personal credit an appropriate borrowing option for those who urgently need funds.
A personal loan solves your short-term financial requirements, such as home renovation, making sizable purchases, or catering to wedding expenses.
However, the ease of obtaining funds typically leads borrowers to disregard some of the critical aspects of securing a personal loan.
5 Factors To Consider When Applying For Credit
It is necessary to have all the necessary knowledge before going for personal credit. It not only boosts the chances of your credit application getting approved but can also help you achieve a lower interest rate on your sanctioned loan.
To ensure that your loan application does not get rejected and you do not fall for dubious terms, check out these five essential points when applying for credit –
1. Revise Your Credit Score
A credit report is nothing but your credit score, which informs a bank or lending institution regarding your creditworthiness. A credit score that ranges between 750 and 900 is considered excellent.
You can obtain your credit report from any of the four Reserve Bank of India (RBI) licensed bureaus, including Equifax, TransUnion CIBIL, Experian, and CRIF Highmark. These accredited bureaus gather information from their representatives to submit information about your credit history.
Your credit score is one of the most crucial criteria lenders consider while assessing your loan application. A strong credit score can boost your loan approval chances and help you seek a lower interest rate.
Therefore, it is advisable to consider inculcating habits such as consistently paying your loan EMIs and credit card bills, maintaining your credit utilisation ratio within 20%-30%, and reviewing co-signed loan accounts to ensure that your credit score stays high.
Your credit score gets computed based on the information provided in your credit report. Therefore, it is imperative that you periodically review your credit report to steer clear of any errors. This gesture can also help you identify possible fraud from bypassing and decimating your credit score and loan approval chances.
2. Juxtapose Various Loan Offers and Costs
Almost all banks and numerous money lending platforms offer personal loans with interest rates ranging between 10.99% and 26% p.a. This makes it crucial for you to pick the right lender that complies with your loan requirements.
Visit online financial marketplaces to secure the best loan offer according to your requirements and eligibility.
While comparing, ensure that you do not limit your juxtaposition to interest rates only. You must also account for the processing fee, prepayment charges, and other terms and conditions before finalising a lender.
There are several costs associated with borrowing credit, such as processing fee, prepayment fee, and late payment fee.
Before applying for credit, account for the various fees that your lender might charge to obtain a precise estimate of the expenditure. This gesture can help you deal with your finances better and determine whether the credit is affordable.
If you are looking for a platform that can help you with small loans and credit requirements, visit StashFin as they are the best money lending app that can provide you with a plethora of financial benefits and flexible borrowing terms.
3. Pick a Loan Tenure as per Your Repayment Capacity
While assessing your loan application, lenders evaluate your repayment efficiency by calculating your FOIR (Fixed Obligation to Income Ratio), which is essentially the proportion of your income getting used up in debt repayments that include credit card bills and loan EMIs.
Since lenders typically prefer lending to applicants who have a FOIR up to 40-50% (including EMI of the new loan), ensure that you chose a loan tenure whose subsequent EMI keeps your FOIR within the specified range.
Borrowers with a low repayment capacity can consider choosing a longer repayment tenure. However, you must bear in mind that a longer tenure would correspondingly imply a higher overall interest outgo.
To cut down your overall interest cost, prepay your borrowed credit sum whenever you have leftover funds. However, you must ensure that the overall saving in interest payout arisen from prepayment substantially surpasses the foreclosure charges imposed by your lender.
4. Avoid Submitting Your Loan Application to Multiple Lenders
Every time you apply for a credit card or a loan, the lender obtains your credit report from the credit bureau to evaluate your repayment history and creditworthiness.
These lender-initiated credit report requests are regarded as hard enquiries by the credit bureau, and each requires drags down your credit score by a couple of points.
Making multiple enquiries within a brief period can portray you as credit hungry. Such consumers are typically perceived as risky by lenders, which either makes lenders turn down your credit application or sanction it at exorbitant interest rates.
Rather than directly submitting loan applications to several lenders, consider visiting an online financial marketplace to contrast and single out the most suitable loan offer that complies with your credit score and other eligibility parameters.
5. Employment History
Employment history is also accounted for by money lenders as proof of income and stability. Lenders determine proof of ongoing income before sanctioning loans, and applicants who switch their jobs regularly or have no stable income source are regarded as risky borrowers.
A healthy employment history implies that you have been engaged in the same field of employment and have stayed employed consistently.
Frequent job shifts imply that you are prone to quitting work within a brief span, and if you fail to secure another job, you lose your income source and thus might default on a payment.
However, this does not mean that you should be employed with the same company over the years. Self-employed people typically experience more scrutiny than salaried individuals with a reliable monthly income source.
StashFin provides you with an instant credit line with minimal documentation or enquiries so that your emergency fund requirements do not get suppressed under the massive paperwork.
Numerous money lending platforms have emerged over the years, considering that more people are actively applying for credit to meet their financial requirements for substantial investments.
With a dozen options to choose from in the market, you must pick a lender that complies with your financial requirements and does not disguise dubious terms and conditions.
Adhere to these five factors mentioned above when applying for credit if you are still worried about transparency and intend to delve deep into the borrowing process before handing over your loan application to a lender.