Steps to Get a Personal Loan
First, you need to analyse your requirements and the factors affecting your creditworthiness.
Decide what type of loan you need, as all loans are not the same, and if you have decided that you will go with a personal loan then proceed with the following steps:
- Compare different lenders as each bank provides different benefits for the same loan product.
- Check for your eligibility fulfilment to determine your chances of getting approved for a personal loan.
- Keep all the required documentation ready. Knowing what paperwork is required will help prove your case.
- Fill out the application form and submit all the required documents.
The ongoing COVID-19 pandemic has ruined so many things, be it people losing their loved ones or millions struggling for their survival with job loss and pay cuts. It’s a tough time and adding even a little extra cash to your wallet could be the need of the hour. This is particularly true right now as many businesses are crawling out of the COVID-19 crisis. Whatever be the need, a Personal Loan is one of the most sought-after ways to fulfil your cash crunches and temporary financial needs.
Why Personal Loans?
There are many reasons to take out a personal loan, this includes eliminating your last moment cash crunches, consolidating high-interest rate debts including credit card, financing weddings, or funding your home renovation, or medical expenses.
A personal loan comes with no end-use restrictions and is easy to avail as they require minimum eligibility criteria to be fulfilled by the borrower.
The loan is widely available and can be availed from several banks, NBFCs and DSAs. A personal loan comes collateral-free and hence you don’t need any of your assets to put against your borrowing.
The loan has become even more convenient to borrow with online availability and processing. This adds to their appeal, as it provides you with the convenience to apply for a personal loan from the ease of your home or office, just by few clicks on your laptop to mobile. Being online the approval process is quite quick and it takes only hours to process the loan and disburse in your account.
But, before the bank approves your loan, they assess a few things to know your creditworthiness, so let’s also know those:
Your Credit Score
Your credit profile matters a lot and lenders will access it before they approve or process your personal loan application. A credit score of 750 and above is considered good and a loan application with such a score is more likely to get approval. However, below 750 is not a good score and a loan application with such a CIBIL score is more likely to get rejected. Many online lenders may work with borrowers that have personal credit scores of around 700 to 600, but they may charge a higher rate of interest for the approved loan.
Your credit history is mostly a detailed explanation of your scores, and hence your credit history is also considered by lenders. This is because a detailed explanation of your credit history provided by the credit bureaus shows how you have been utilizing your credits and how timely you are/were with its repayment. A low credit utilization ratio and your timely payments can help you a lot to increase your creditworthiness and can help you get approved for a personal loan.
Lenders want to be sure about their repayment and hence, they want to be confirmed about your ability to make timely payments. And knowing your cash flow helps them to estimate your repayment capacity. Lenders will ask for your salary slip, bank statement and last year’s ITR documents to extract the correct information. Having a higher debt to income ratio can also affect your loan approval. This is because having a higher debt to income ratio shows you have more obligations which may affect the repayment of your new personal loan.
Though personal loans are mostly unsecured and collateral-free, in case you have a low CIBIL or higher debt to income ratio or you feel there is a low probability of getting approved for the loan, then adding collateral to your loan can work in your favour. Adding collateral not only reduces the risk factor for the lenders but also adds to your eligibility. However, by giving collateral against your borrowing, you can risk your ownership for the asset which you have given as collateral. This is because in case of non-payment lenders have the authority to liquidate it to recover the outstanding amount.
A personal loan can be a great help to meet your temporary financial needs and cash crunches. The funds borrowed through a personal loan can also help you get through a time of stress or to pay at a joyous occasion.