Personal loan is an attractive financial instrument due to quick disbursal ration, no requirement of collaterals, and zero restrictions on end usage. However, easily availability of credit often make borrowers ignore other aspects of taking a personal loan.
Consider these factors before applying for a personal loan.
If you are hunting for an unsecured credit then your credit score plays a vital role in securing a personal loan. A high credit score will boost your chances of loan approval. You can improve your credit score by making regular payments of your credit card and EMIs. Also, keep your credit utilization ratio under 30% and monitor co-signed loan account to keep a healthy credit score.
Compare loan offers
Personal loan interest rates can up to a whopping 26% per annum. Hence, it is essential to do some market research, compare interest rates, and chose a lender who meets your requirements cost-efficiently. You can check out the interest rates on online financial marketplace to find the best offers.
Also, don't limit your comparisons to just rate of interest. Check out processing fees, prepayment charges, and other conditions as well.
Choose a feasible loan tenure
Lenders calculate your FOIR (Fixed Obligation to Income Ratio) i.e. the proportion of present income being used to existing debt including credit card bills and loan EMIs. This helps them identify your ability to pay EMIs. Normally, lenders look for an FOIR of up to 50% including the EMI of loan that you will take. Hence, make sure to opt for an EMI that lies in your FOIR range.
If you have a lower income, you can consider a longer tenure with lower EMIs. However, keep in mind that a longer tenure will also make you pay larger amount as interest.
Avoid multiple loan applications
Whenever you apply for multiple credit requests, bankers access your credit report from the credit rating agency. Credit report requests initiated from lenders are treated as hard enquiries by credit bureau and you credit score is hit with every inquiry.
Also, when you make multiple loan applications rating agencies find you credit hungry and it could lead to the rejection of your loan.
Avoid frequent job switches
Lenders also check your employment history and stability of your income. Frequent job changes might reflect as an unstable career in books and lenders could hesitate in offering a loan. Try avoiding job switch if you are planning to take a personal loan.
Hope these points will help you in taking a personal loan easily.