Tips For First-Time Personal Loan Borrowers

Personal loans are a type of unsecured loan known for their flexibility and swift disbursal. While obtaining such a loan would be an advantageous option for many, first-time borrowers need to consider a few factors prior to doing so.

●  Know Your Personal Loan Eligibility: While planning to apply for a personal loan, your first step should be to evaluate your eligibility. Lenders consider factors like your CIBIL score, employment history, income level, and existing debts when determining personal loan eligibility.

●  Research Multiple Lenders: Several lenders across India offer personal loans. You must not settle for the very first lender you come across. Rather, you should go through the options offered by the most reputable and reliable lenders, and compare their personal loan interest rates, processing fees, repayment terms, and even customer testimonials. This would allow you to shortlist lenders that offer the most favourable terms and conditions for personal loans.

●    Compare Interest Rates: Personal loan interest rates vary across lenders, and tend to depend on factors like the loan amount, your income and credit scores. You should compare the interest rates charged by multiple lenders, and identify the most affordable one. The interest rates will have a direct impact on the total cost of the loan. Even a tiny difference in the interest rates can result in significant cost savings over time.

●Assess Your Repayment Ability: You need to thoroughly assess your repayment ability before applying for a personal loan. To identify an EMI amount you can comfortably afford, you should take into account your monthly income, expenses, and financial commitments.

Improving Personal Loan Eligibility

Lenders assess many aspects of your financial profile to evaluate your personal loan eligibility. Hence, before applying for a personal loan online, you should consider following a few steps that can help improve the chances of loan approval.

●        Check Your Credit Score: Credit score is among the most important factors that lenders consider while evaluating personal loan applications. Credit scores are issued by credit bureaus like CIBIL. A CIBIL score is basically a 3-digit number ranging from 300 to 900 that reflects the creditworthiness of a borrower. A higher CIBIL score would ideally lead to faster loan approval and better interest rates. The minimum credit score for personal loan approval required by most lenders is 750. To have a good credit score, you must pay your credit card bills, as well as make EMI payments on time.  You should also check for any inaccuracies in your credit report that may harm your score. If any errors are found, you must resolve them amicably by reaching out to the credit bureau.

●        Showcase Stable Earnings and A Long Employment History: Having a steady income and long employment history establishes reliable repayment capacity and financial stability. Borrowers with a long and consistent history of employment or business income are likely to have a better chance of having their personal loan approved than those without it. You can showcase your financial stability through bank statements and pay slips.

●        Avoid Multiple Loan Applications at Once: You should avoid applying for several loans within a short timeframe, as doing so can harm your CIBIL score and personal loan eligibility. It is better to apply for one loan at a time. This would enable you to build a stronger credit profile, and increase the odds of getting your personal loan approved.

●        Have the Appropriate Documents in Place: Submitting up-to-date and accurate documents can help fast-track the evaluation process of your personal loan application. You must make sure that all paperwork submitted to the lender, including identity, income proof, residence proof, and tax documents, is error-free. Incomplete applications lead to delays and increase the chance of your loan application getting rejected.

●        Control Your Debt-to-Income Ratio: Lenders will likely follow the debt-to-income (DTI) ratio to assess your personal loan eligibility. This ratio basically indicates how much of the borrower's income goes towards meeting their existing debt obligations. You should try to keep the DTI ratio below 40% to assure the lender of your repayment potential.

The tips discussed above would help you in presenting yourself as a dependable and low-risk borrower, which can considerably improve your chances of getting a personal loan approved.

Author bio: The author is a financial consultant who has experience working in the industry for several years. In his free time, he likes to write and impart knowledge on financial services.