One of the most common loans people use is the personal loan. The recent surge in the popularity of instant personal loans can be attributed to several factors. To begin with, lenders do not restrict or limit how the money obtained through a personal loan should be used. This means the borrower can use a personal loan for whatever reason.
Instant personal loan serves as a source of funding in times of need for practically any situation, including unforeseen medical expenditures, urgent international travel or home renovation.
Personal loans are usually unsecured in nature, meaning they aren't secured against any collateral, unlike a vehicle loan or home loan. Applicants are not required to pledge any collateral, such as gold or real estate when applying for a personal loan from non-banking financial companies (NBFCs) or financial institutions.
First-time borrowers may, however, find it challenging to understand the nature of these loans. Also, there are a few things to consider while submitting an online application. Here we have listed five crucial suggestions before submitting an instant personal loan application.
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Maintain a good credit score
Lenders consider a credit score a crucial indicator to assess a borrower's capacity to repay a loan. You may improve your credit score with simple actions like paying your credit card bills or loan EMIs on time. Avoid exceeding your credit limit by more than 30% if you want to keep a good credit history. You will find it easier to get a personal loan if you have a credit score of more than 750.
- Calculate your EMIs
EMI payments shouldn't deplete your savings and strain your budget. Calculating the EMI amount and ensuring capital availability to pay it throughout the specified tenure are necessary to prevent this from happening. Typically, EMIs should be less than 10% of your monthly income. If the EMIs are greater, you run the chance of using up all your funds, which will have a detrimental effect on your daily spending.
- Choose the lowest personal loan interest rates
Interest rates for personal loans often range from 11% to 20%. Even a slight reduction in interest rates can significantly impact the total cost of your loan. Remember that the highest interest rates will typically apply if you choose a modest monthly payment over a longer repayment period for convenience or other reasons.
Take note that despite how feasible it may seem, making smaller EMIs will ultimately result in you paying more for the loan overall. Borrowers should generally aim to spend between 35% and 43% of their income on debt, which includes payments for personal loans, mortgages, and auto loans.
- Assess your need for an instant personal loan
Taking out a loan is a long-term financial commitment. So, make sure to avail of a loan only when necessary. You should be cautious when taking out loans for projects that involve significant risk. Before you apply for a loan, you can ask a financial consultant to ascertain whether the reasons for obtaining a loan are financially sustainable. Any investment made without thinking may result in a significant financial burden.
- Choose a credible financial institution
You can choose alternatives from digital credit lending institutions approved by the market regulator Reserve Bank of India, in addition to traditional banks. Loan requests are verified and processed far more quickly by digital lenders, and disbursement frequently occurs sooner.
Do not submit multiple loan applications to lenders quickly, as each application would be treated as a hard enquiry. As a result, your credit score will suffer, which is never good. So, it is advisable to wait at least six months before applying for a loan again if the lender denies your initial application. If your loan application got rejected because of a low credit score, try to improve it in the next six months by making any unpaid debts.
Online lenders offer opportunities to take up a loan with a shorter term and a delayed repayment option (up to 30 to 90 days without late payment penalties). The ability to evaluate and compare interest rates, processing times, and other important criteria before choosing a loan is made possible by having various options.
Bottom Line
If used properly, an instant personal loan can be advantageous and help you handle an urgent cash crunch. Ensure your lender has a good reputation and that your repayments are made on time and consistently. It is crucial to keep in mind to use the loan for what it was intended for. When used properly, a personal loan can help you bridge a financial gap without putting your assets at risk.
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