Tips to remember while buying a personal loan

Personal loans are the most common loans borrowed by people. There are many reasons why it is so popular like no restricted use of funds. This means a borrower can take a personal loan for any particular purpose like funding a vacation or a wedding or child’s education. The other reason why personal loans are so popular is that they are unsecured loans. Which means that there is no security or collateral involved in such loan unlike a car loan or house loan. Also, considering that there is no collateral involved in a personal loan, the documentation required is lesser as compared to secured loans.

Even though the application process for a personal loan might look easy, there are a few tips that you must keep in mind while buying a personal loan.

1. Evaluate your need – There are numerous reasons for which one may apply for a personal loan. It is essential to evaluate your needs and then apply for the loan. No matter how easy it is to get a loan, every loan is a commitment, and you have to bear the monthly installments.

1. Research well – Make sure you do thorough research before you decide from which lender to buy a personal loan. There must be various banks and financial institutes offering personal loans to you, do not make a blind decision. Find everything about the offerings and clauses, compare them and then decide.
2. Check credit score - As we discussed above, personal loans are unsecured loans and therefore, the risk is higher for the lending party. Thus, the lender will choose the applicant with a higher credit score only. This guarantees the lending party that the applicant will repay the loan in time. Usually, a credit score above 750 is considered a good credit score. Aim at keeping your credit score on a higher level to get easy approval.
3. Compare interest rates – A key to making the best decision is comparing. Personal loans being unsecured loans come with specific interest rates. The interest rates on personal loans vary from bank to bank. If you have a good credit score, you can get a lower rate of interest. Make sure you compare the different interest rates offered to you while choosing the lender.
4. Eligibility check – Check the eligibility criteria of the lending bank or financial institute before you apply for the personal loan. Income and employment stand as crucial factors amongst all the eligibility criteria as they help to estimate your repayment capacity.
5. Check pre-payment policy – Pre-payment of loan is a facility that is offered by some banks and institutes. Check with the lending institute or bank you choose if they provide the facility. Pre-payment of loan amount usually comes with some charges that are to be paid by the borrower. Discuss the details with the lending party prior to applying for the loan.
6. Avoid multiple applications – It is a common misconception that applying at various banks will increase the chances of getting your application approved. Well, the case is reverse. Multiple applications may have a negative impact on your credit score and reduce the chances of getting your application approved.
7. Re-apply only after six months – If in case your application for a personal loan gets rejected, do not hurry to apply for next. Wait for at least six months, work on the reasons it got denied, improve your credit score and re-apply. Multiple rejections can drop down your credit score.

Hi I am Atish Nayar. I am working as freelancing agent.