Mistakes to Avoid While Applying for a Personal Loan

A personal loan is a financial tool that can be used for multiple purposes. Since it is unsecured in nature and can be availed in short notice, the personal loan apply process is instant and therefore can be ideal for emergencies. However, when availing a loan, there are various factors that must be taken into consideration for faster approval and disbursal.In this article, we share 5 things one must not overlook for a personal loan apply:

1. Creditworthiness: A credit score is a three-digit numeric expression that represents your credit history. The score is basis the punctuality and diligence of how you have historically made the payments. Ranging from 300-900, it is easier to get a low-interest loan when you have a credit score of 750 or above. A score below 750 might result in a high-interest loan and the possibility of rejection of personal loan application.
2. Comparing Loan Offers: Another important factor to be careful of during the personal loan apply process is the comparison of loan offers. In current times, almost all banks and NBFCs are offering personal loans with different interest rates. Although the interest rates offered are low in most cases, some companies do have hidden charges. In such cases, it is important to compare loan offers and check the best you can get basis your personal loan eligibility.
3. Debt-to-income ratio: Debt-to-Income Ratio is the percentage of an individual’s gross income that is used for debt repayment. A DTI of 40 per cent is generally considered the highest permissible limit. Although you can still get the loan, anything beyond 36 per cent is frowned upon by lenders.One way to improve the debt-to-income ratio is by repaying an amount higher than your EMI.
4. Multiple applications: Another thing to be careful about during the personal loan apply process is going after too many lenders at the same time. While a personal loan is ideal during emergencies, applying simultaneously at many places will result in hard enquiries on your credit report, thus lowering your chances of approval.
5. Repayment Terms: Banks or financial institutions will know the repayment abilities or financial obligations, considering they have accessed your credit score. Hence, it is crucial that you too understand the repayment terms and gauge whether you would be able to afford the loan with your salary.

While a personal loan is recommended for emergencies, please do keep in mind the aforementioned things during the personal loan apply process.

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.