Personal loans are usually unsecured, which implies that they not backed by collateral. While this makes the loan slightly more expensive due to a higher rate of interest, none of your assets is under scrutiny for loss, in case of defaulting on your installments.
Since the lender does not take any collateral against the loan, they scrutinize all your financial details to validate if you shall be able to pay back the loan amount.
Here are a few points that should be kept in mind to ensure that your personal loan without collateral is sanctioned.
- Income net worth and loan ratio: The first thing that the loan provider checks while assessing your application is your net worth income. They check your available bank balance to see if you can maintain a fair inflow and outflow of money. The personal loan has a higher chance of being approved if the ratio between the monthly income and obligations, including the proposed Equated Monthly Installments (EMI) is 40-50%.
- Credit score:
A credit score is a pointer towards creditworthiness of the loan applicant. Things such as the number of accounts, timely repayment of credit card bills, past loans, and their payments, all contribute towards your credit score. The loan providers do not specify the exact number they look for as your ideal score, but the higher it is, the better are the chances of your loan getting sanctioned.
- Multiple loans:
Applying for multiple loans can impact the eligibility of your loan application. Each loan you take impacts your credit score. It obliges you to pay back the EMI in a timely manner. Too many loans could also overwhelm you and your family financially. The entire activity may quickly turn into a circle of debt, which ultimately will be harmful to your finances.
- Job stability:
Having a stable job allows the lender to grant you a higher loan amount. The longer the employment period, the higher is the loan. Having a stable job confirms a steady flow of income, which in turn will allow you to make timely EMI payments.
- Creditworthy co-signer:
If your credit score is low, and you feel that the chances of getting a personal loan without collateral are difficult, applying with a credible and trustworthy co-signer can boost your chances. However, this makes your co-signer responsible for the loan amount. Finding the right person, who has the required credit score and is willing to help you procure the loan can be tough. So, make sure you weigh in all the pros and cons beforehand.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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