Looking to apply for a personal loan? The good news is that the process is extremely simple, easy, and straightforward compared to over a decade ago.
These days, anyone can take a loan from the comfort of their own home- without having to wait in a queue, fill out tedious paperwork, or submit a multitude of documents, only to wait several weeks before getting an approval or rejection.
You can apply for a loan online and get the funds straight to your account, all within 48 hours or less! The best part is that these loans are unsecured, so you don’t need to submit any form of collateral against the loan.
However, there are several things you want to keep in mind before you fill out and send your application to the lender. Let’s discuss some important dos and don’ts to keep in mind when applying for a personal loan.
Take good note of the following four points that will give your loan application a stronger chance of approval!
1.Check eligibility criteria of the lender
Every lender has a certain eligibility criteria, which is essentially a set of parameters that a borrower must meet in order to qualify for a loan from the lender. Eligibility criteria includes parameters such as age, income, location, employment history, and credit score.
You want to ensure that you only apply to lenders whose eligibility criteria you meet; otherwise, your loan application will get immediately rejected. Do your research and narrow down to only 2-3 lenders where you meet every basic criteria.
2.Prepare documents and details in advance
Your loan application is something you’d want to be meticulous about. Even small things such as a minor signature mismatch will lead to your loan getting rejected. Avoid rejection due to silly mistakes by first going through the application form at least twice before you fill out any details.
If there is anything you don’t understand about the application or procedure, make a note of it and ask the lender for clarification- it can make the difference between getting approved or rejected!
3.Ensure your finances are in order
One of the main things a lender looks for in a potential borrower is their financial stability and credit score. While both do not need to be perfect, it is advisable to have as little outstanding debt as possible.
If you’re applying for a loan during an emergency but still have several outstanding debts, the lender will carefully assess your repayment habits and potential ability to take on another debt. The higher your CIBIL score, the better your chances.
4.Only borrow what you can realistically repay
Borrowers tend to make a classic mistake of applying for a loan amount that is far beyond their means to repay. In most cases, lenders will be able to assess your repayment capacity as mentioned above. However, in other instances, one might get approved for a high loan amount but end up struggling to repay it.Therefore, only borrow the amount you really need. If you do need additional funds again, you can always apply for a top up loan from the same lender.
So now that you have your checklist ready on what to keep in mind while applying for a loan, here’s what you should NOT do, by all means!
1.Apply to numerous lenders at once
There is a reason that it is suggested to apply only to 2-3 lenders at a given time. You may think you’re increasing your chances of approval if you do this, but the opposite is true.
When you apply for a loan, lenders will check your credit history. Every time you apply for a loan, it gets recorded in your credit report- which is something all lenders check. If a lender sees that you’ve applied for a loan from many other lenders, they will perceive you as a credit-hungry individual who is probably not fiscally responsible, and has a high risk of not being able to repay the loan (or, defaulting on it entirely).
It’s best to improve your finances and credit score (if you’re able to do so) before applying for a loan. Make sure you’re only applying to a maximum of 3 lenders where you meet each and every qualifying criteria.
2.Falsify any information
Sometimes, potential borrowers think they’ll get approved for their loan if they provide fake details about their income or identity. Beware, because lenders will most definitely discover this, and will reject your application immediately!
Be honest in your application form, even if you may not have the best finances or credit history at the moment. Remember, that lenders assess many parameters of your loan application; and if you’re honest in the application, you can still have a decent chance of getting approved.
3.Select a loan for low interest rate
Most people would select a loan offer from the lender that gives them the lowest interest rate on their loan. While interest rate is indeed an important parameter to consider, you want to keep in mind that your repayment capacity should be the main focus while taking out a loan.
Choosing a loan with a longer repayment tenure will reduce your monthly EMI amount, and thus make it very easy to repay. Additionally, the ease of being able to pay off your EMIs in a timely fashion will boost your credit score significantly- which makes you eligible for larger loan amounts with lower interest rates in the future.