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Things you should know if you’re a first-time personal loan applicant

A personal loan is a handy tool that helps ease your financial burden in times of need. While applying for such a loan for the first time, it’s natural for you to have several questions on your mind. Will the lender sanction the credit? Will there be hidden charges? How do you know how much to repay? Having basic knowledge about loans always helps.

Here is some relevant information that can ensure a hassle-free borrowing and eventual repayment of the loan:

Your credit score decides your personal loan eligibility

Personal loans require no collateral. Only your good credit standing with a CIBIL score above 750 establishes creditworthiness. Hence, you must maintain a good credit score to improve your chances at securing favorable loan terms.

Your income matters

Your income is the primary indicator of your repayment capacity. Make sure to mention all your income sources when you apply for personal loan to increase the likelihood of your loan application being approved.

Outstanding debts influence the approval

If your existing monthly payment obligations are high, lenders may consider your capability to service a new loan insufficient. Add your total monthly debt outgo and divide the sum by your gross monthly income to get your debt-to-income ratio. If it is over 30%, you can try to lower it by settling other dues.

Refrain from making multiple loan applications

Every time you apply for credit, your lender views your credit report. Too many inquiries lower your credit score. You must hence research loan offers thoroughly and compare interest rates online before making a formal application.

You should plan your personal loan repayment

You are required to repay the borrowed sum through fixed monthly instalments. The interest rate, loan amount, and duration of the repayment period determine the amount. Defaulting on EMIs attracts penalties. Ensure the EMIs fit into your monthly budget. You can use an online personal loan EMI calculator to get an estimate of your monthly liability and plan accordingly.

Understand foreclosure/prepayment rules

If your resources permit, making prepayments can reduce the loan tenure and the total interest paid. However, lenders have regulations and fees for part or full prepayments.

Be sure to check:

  • Period after you can foreclose the loan
  • Applicable prepayment charges
  • Amount you can prepay at a time

Know the additional charges involved

Clarity on situations that can attract additional charges helps you avoid extra loan costs.

Charges commonly levied by lenders include:

  • Late payment interest
  • Cheque bounce charges
  • Processing fees

Choosing the right loan tenure is crucial

Longer personal loan tenure can lower the EMI burden. However, that will mean paying interest for a long time. It makes your loan expensive. Your repayment schedule must be in line with your resources to balance the EMI and the total interest outflow.

Final words

Personal loans are beneficial, but you must be aware of details like hidden charges, tenure, credit score, etc. to ensure you get the money soon and are able to repay the loan easily.

If you are looking for a loan without any gimmicky offers, you can consider Tata Capital’s personal loan that offer flexible step-up EMI options. You can even apply for a personal loan online and be assured of a quick disbursal on approval.

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