Personal loans have been among the most popular sources of funding available in the financial market. The primary reason that has increased the overall demand for a personal loan is that it can be used for any type of funding need you have, right from emergency medical financing to big-ticket business investments. Many other reasons command the increasing popularity of these advances that are available against minimum eligibility and document requirements.
Given that these loans create significant financial responsibility for the borrower for an extended duration. It thus requires each borrower to know all the details about the loan that help make an informed borrowing decision as well as aid in management of the advance. Below given are some essential aspects to know about these loans along with a few pertinent questions that you must ask when availing the advance for better decision-making.
Personal Loans are Collateral-Free Advances
As against several other financing options that require asset collateral, personal loans are unsecured advances that do not require any security in the form of assets. You need to meet only a handful eligibility criteria laid down by the lender. These can span around factors like –
- Your age
- Minimum monthly income, which varies according to the city you reside in
- Your employment status if you are a salaried individual
- In the case of business owners or professionals, a minimum duration of business stability is required
- Credit score, which shall not be less than 700
To prove such eligibility fulfilment, you must also provide necessary documents that support them. It is ideal to look out for a lender that keeps these requirements to a minimum, so you easily meet the criteria and the chances of approval increase. It is important to meet all criteria laid down by your selected financial institution as the absence of any collateral increases the overall risk of lending for them.
Maximum Financing Quantum
Some of the reputed lending institutions allow eligible individuals to borrow a loan of up to Rs.25 lakh easily. It thus helps you avail the necessary funding of high quantum to meet a wide range of financing needs involving big-ticket expenses. As these loans come with zero restriction to end-use, you can choose the financing need to address with a personal loan minus any lender-based restriction. For instance, you can avail the advance to pay for any international travel plans that you have, for expenses related to higher education of kids, to fulfil wedding expenditure, complete home renovation, and many more. The total loan availability for you, however, varies with your borrowing profile and the extent of eligibility you fulfil. You can also always improve on your current eligibility by leveraging a few aspects related to your financial profile.
Interest Rate Applicable
As unsecured advances, personal loans, more often than not, attract interest at a higher rate than for secured advances. However, this should not deter you from availing necessary funding as these loans are available at competitive rates easily if the borrowing risk associate with your financial profile is low. Many lenders today provide personal loans at affordable rates as well as other charges that helps you manage the repayment liability conveniently.
In this, it is also essential to choose a lender carefully as some lenders are more flexible than others in negotiating the rates levied initially. Further, you can look out for seasonal and festive offers that can land you some best rates that remain affordable.
Tenure Flexibility
If you are looking forward to managing your personal finance conveniently, it is equally important that you select a suitable tenure that spreads the entire loan liability affordably for repayment. Generally, you can easily look out for personal advances whose repayment tenure extend up to 5 years for convenient repayment in easy EMIs.
Nevertheless, choosing a tenure carefully bears all the more importance because it impacts your EMIs as well as the interest payable for the entire duration. A long tenure easily allows you to bring down the amount of EMIs you would need to bear monthly. However, if you can bear higher EMIs than the minimum amount possible, it is not wise to choose longer tenures. It is because while reducing the EMIs, such tenure selection leads to higher interest accumulation due to a longer duration involved. When selecting a loan tenure, use a personal loan EMI calculator that allows you to assess values related to EMIs payable and interest accrues as well for affordable borrowing decision.
Minimum Credit Score Requirement is Mandatory
As mentioned earlier, your successful loan approval is heavily affected by the credit score you hold, which is not less than 700. Credit score is a 3-digit number that is assigned to any individual with a credit history based on his/her related financial habits and discipline. It is a critical indicator of an individual’s creditworthiness and thus helps lenders decide whether and how much to lend to an such a person so the risk is minimized.
You can use various ways to improve your credit score over a duration of say 6 months. Some of them include –
- Make timely payment of all credit card bills and EMIs and in full
- Utilise not more than 30% of the available credit
- Keep your fixed monthly liabilities at under 50% of your fixed monthly income
- Do not apply for multiple loans in a short span
- Apply for rectification of any errors on your credit report
While availing a personal loan requires you to meet only a handful of eligibility requirements, you can as well improve your chances of loan approval with a few tips in place. For instance, you can produce all income documents when applying, add a co-signor with a high credit score, and choose a loan amount lower than your maximum eligibility.
