When in financial crisis, a personal loan can be your best option to tackle any immediate cash flow issue. However, there are many individuals who often struggle acquiring a personal loan. This is mainly because lack of proper knowledge related to loans and documents.
To clear such doubts and to make loan process easier, follow below mentioned recommendations:
- Know your credit score: It is very important to know about your credit score before you apply for a personal loan. This is because, the first thing lenders do is check your eligibility. If you have a low credit score, there’s a high chance of your loan application getting rejected.
- Improve your credit score: As it is very clear, to be eligible for a loan, a good credit score is a must.Therefore, it is always recommended to improve your credit score before applying for any loan. Credit scores are usually built when you’re an existing borrower in any form from a recognized lender.
- Ways to improve credit scores: When you borrow an amount from a lender, your credit profile is created. Now, when you pay EMIs on time, you acquire a good credit rating. Failing to pay EMIs on due time impacts your credit score and thus your eligibility for future loans decreases drastically.
- Be document ready: Keep essential documents handy. Documents like ID proof, income proof, ITR, updated bank passbooks, etc should be kept ready. These documents are required whether you apply online or offline.
Personal loans are generally collateral-free. This is what makes these loans quite popular in credit businesses. These types of credits are usually disbursed in a day.
Although, it is very important to be familiar with the interest rate types of the loan. Generally, the interest offered falls under two categories.
- Fixed interest levy system: If borrower chooses to opt for fixed interest levy system, the interest rate remains same throughout the loan tenure. Even though rate of interest is dropped or new guidelines regarding interest rates are released, the borrower must pay the same rate of interest throughout the tenure with no relief in rates.
However, this option can be quite beneficial in cases where usual market interest rates are suddenly hiked. Borrower enjoys same old rate of interest rates on existing loan.
- Floating interest levy system: In floating interest levy system,rate of interest is market dependent. Rate of interest keeps fluctuating throughout the loan term. Sometimes borrower enjoys lower rate of interests and sometime pays higher rate of interests.
When it comes to calculating interests rates, almost all lenders provide a free tool called a loan calculator. The manual calculation can be tough and time-consuming. To offer some relief, lenders provide loan calculators on their websites.
Using personal loan calculators is very easy and they produce accurate results. Here’s how you can use online loan calculators:
- Enter your desired loan amount
- Choose your preferred tenure
- Then, calculator shows you the exact amount with interest rates and EMIs.
After reviewing EMIs and interest rates, borrowers can easily decide on tenure. It is very important to know in advance about EMIs and interest rates. This enables you to plan your finances accordingly.
How to Avail a Personal Loan at Lower Interest Rates?
These tips will help you obtain a personal loan at a lower interest.
- Increase Your Credit Score: A high credit score is a sign that you are financially sound. High credit scorers are eligible for lower personal loan interest rates from banks and financial institutions. You should improve your credit score if it is lower than 750. If your credit score exceeds 750, you have a greater chance of getting a personal loan with a lower interest rate.
- Do not miss any payments: Your credit score could be negatively affected if you default on loan repayment or credit card payment. Personal loan interest rates are usually determined by the lender. They consider your past repayment history. Those with a track record of paying EMIs and credit cards bills on time are more likely to pay a lower interest.
- Watch out for available offers: Financial institutions often offer special interest rates during festive seasons or any such occasions. You may get a lower interest rate if you apply for a loan during this offer.
- Compare Interest rates: Before you apply to any bank for a personal loan, compare the personal loan interest rate charged by different NBFCs as well as banks. This will allow you to get a personal loan at an affordable interest rate.
- Use your work profile and company as an advantage: A high-paying job in a well-respected public or private company will make you a reliable candidate for the lender. Use this advantage to get a lower interest rate. A good company reputation can help you negotiate a lower interest rate, as the lender will be confident that you have the financial resources to pay on time.
- Negotiate with the Lender: If you are a customer of a bank and have a good relationship, you may be able to negotiate for a lower interest rate.
Top Reasons Why People Seek Personal Loans:
Personal loans are widely taken to encounter any immediate cash urgency. These urgencies can and cannot be limited to the following:
- To renovate house
- Buying new plots or a piece of land
- Paying existing debts
- To fund lavish holidays
- Paying for extravagant marriage ceremonies
- To fund children’s higher education
Before applying for a personal loan, you should consider a few things like the application charges, customer assistance, and Loan approval duration. Certain lenders may charge a one-time processing fee. If possible, choose a lender who doesn’t take such charges. Some reputed lenders who understand customer needs and provide tailored customer services are the ones to go for. Finally, choose a lender who is quick in disbursing the loan amount. This can be beneficial especially in times of urgent funding needs.