Whether you need to finance a medical emergency at home, or buy a new iPhone, or even pay for your sibling’s wedding, an online personal loan is the best solution. It is obtained easily and with minimal documentation, but you must know as much about the loan product as you can before you apply. Read on to gain more insights into personal loans.
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Why borrow a personal loan?
It is a loan product that is disbursed speedily and which can be used for a variety of purposes, whether urgent or not. If repaid on schedule or before its tenure is over, it can help improve your credit score for future borrowing. However, borrowing a personal loan is not always as simple as applying and getting the money – there are some things you must know about it. Being aware of all the aspects of a personal loan helps you apply for it the right way and avoid a rejection.
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If you are a first time personal loan applicant, the following points should clear up aspects about the product and the process that you may be unaware of.
● It’s not for everybody
Not every person is equally eligible to get a personal loan online. The personal loan eligibility is decided based on several factors, from your age to your credit score, and from repayment history to current income. While it is easier to get a personal loan from an instant loan app, you will find that the best loan apps do not extend this category of loan to self-employed persons. So unless you have a salaried job with a Government or private concern, you cannot apply for the loan..
● Your credit score is the most important factor
Every applicant’s credit score determines whether they will be eligible to get a personal loan from a loan app, or a traditional lender such as a bank. The credit score is a number attributed to you based on your spending, past loan repayments, income, etc. The CIBIL score is the most highly rated one among India’s various credit bureaus , though the Equifax score is also considered by leading loan apps. A credit score between 750 and 900 points is considered ideal. So if your score is lower than 750, it is better to raise the score first before you apply. Applying with a low credit score is likely to result in an instant rejection, and you may have to wait for up to a year (if applying to a traditional lender) or three months (if applying to an instant loan app) with an improved score to apply again.
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● Loan defaulters, stay away.
Apart from your credit score, the lending institution checks your repayment history. This history is recorded for each of your financial transactions, from bill payments to loan repayments. Those with a history of periodic late payments for bills (i.e. routinely paying after the due date) or missing EMIs, or worse, being issued notices from lending institutions over missed payments, find that their online personal loan application is rejected. No lender wants to do business with an individual with a propensity to default on loan repayments.
● Interest rates on personal loans are higher than other loans.
If you are a first-time loan borrower, you might not be aware of the structure and interest rates charged on personal loans. Do note that personal loans are unsecured loans, i.e. the lending institution does not take any physical security or collateral from you while approving the loan. The lender checks your credit score, income and repayment history before loan approval, and these are the only ‘securities’ you need to furnish. Hence, the lender charges a higher rate of interest on the unsecured product. Do not compare personal loan rates with those of secured products like home and car loans – it’s like comparing apples and oranges without making you none the wiser.
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● The lender does not ask why you need the money.
The best thing about personal loans is that the lending institution does not concern itself with why you need the money. You may need it for a medical emergency, or to pay for a foreign holiday, or simply to buy home appliances. The lender will not ask what you need the money for, nor how you intend to use the money (whether in a lump sum or in phases, like you would be asked when borrowing a home renovation loan). If you clear the credit score and income parameters, the lender will just go ahead and process the loan request without asking any other questions.
● The loan request is processed quickly.
Even the documentation process for online personal loans is simple. Leading loan apps ask you to upload a set of four to five documents on the app, and the processing begins. Meanwhile, the credit score is checked even as the documents are vetted for accuracy. When all is found correct, the loan is approved in just a few hours of receiving the request. Thereafter, the loan amount is disbursed directly to your savings account.
● Loan apps process the loan faster than traditional lenders.
Since loan apps have a fully digital processing and application process, they waste little time in approving the application. Where a traditional lender such as a bank may dither over processing the loan quickly, a leading loan app will process the loan request in half the speed. Loan apps have a simple application and documentation process, and the approval (or rejection) of the loan application comes through quickly – this helps when you need the loan money for an emergency.
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Conclusion
Though applying for a personal loan is quite simple, being cognizant of some hitherto unknown facts about it always helps. We hope the points enumerated above aid your understanding of the loan product and what it entails.
