Seven things to consider before applying for a personal loan

• Follow

A personal loan can help an individual tackle unexpected financial problems. Banks, NBFCs and lending apps now offer this facility in a seamless manner.

So, if you are looking to apply for a personal loan for the first time, here are things you need to consider:

Check credit score: If you want to apply for a loan, the first step is to check your credit score. You can avail of the loan only if you have a good credit score. Lenders have their own respective eligibility criteria. A credit score of above 650 for banks and above 750 for other lending institutions will help you in the process.

Select the right lender: There are, an end number of financial institutions offering personal loans offline and online. Hence, it becomes really difficult to choose the correct lender. To be competitive they keep changing their interest rates and twisting the hidden costs and terms & conditions. Also, many of them keep calling or messaging to avail their loan. Select the right one by comparing the interest rate, processing fees, etc. Also, select a lender who has a good financial history.

Calculate the rate of  interest: Loan providers offers interest rates with a wide variety ranging from 8.45 % to as high as 33%. So, you need to do your own research to calculate your total cost and EMI before randomly falling into the trap of opting for the cheapest interest rate.

Check your current liabilities: If you are a credit card user, you need to check all your dues as your existing debt would be taken into consideration when you will apply for your personal loan. If you have taken any other loan then you have to check your debt-to-income ratio to see if you will actually have enough money to repay the loan you wish to take.

Plan the repayment before taking the loan: Most lenders have their own EMI calculator which helps you to check the repayment schedule of the loan before you borrow the amount. You have to enter the amount you wish to borrow along with the interest rate and the tenure of the loan, and the system will generate your EMIs and display an amortization table that will help you understand how much you will have to pay on a monthly basis.

Keep the documents ready: Every lender has their own requirements of the documents which you need to submit. But these are the list of documents that you need to keep ready for a personal loan. An address proof, ID proof, income proof, bank statements, and photographs. Keep these documents handy as it will make the application process easy and hassle-free.

Wait for approval: Your lender will review your documents and will inform whether you are selected or rejected. The amount of time an organization takes to verify can vary. In some cases, you could receive a decision almost instantly while some might delay approval by few days or even longer to get a decision.