The First Timer's Guide To Applying For A Personal Loan

A personal loan is a hugely popular personal finance tool in the hands of upwardly mobile, tech-savvy younger individuals. You might have many demands on your income, and find it difficult to save money for travel, or splurging on an expensive phone, or even buying essential home appliances. But if you have never applied for the personal loan before, you might want to read this article before you do.

Are you about to apply for a personal loan for the first time? Read the following points before you do to eliminate the chances of the loan request being rejected:

#1 Check your credit score before you apply.

As a first-time applicant, you might not be aware of the single most important factor that determines your loan eligibility, and whether you will have a loan approval in the first place. It is called ‘credit score’. It is a number assigned to every individual based on their age, monthly income and repayment ability. It is computed and maintained by credit rating bureaus like CIBIL and Equifax, though personal loan apps also use their own AI-backed algorithms to check your financial behaviour. If you have never applied for any loan before, your credit score will be based purely on your income and past repayment (of bills, mostly). If you have borrowed other loans but never a personal loan for salaried individuals, then you will have a credit score that lenders can check. Find out what your credit score is before you apply – if it is not between 750 and 900 points, you should not apply.

#2 Get all the information about the loan.

Using a personal loan app eases application and disbursal processes. It also makes researching the product simpler – browse the loan in detail, from eligibility criteria to repayment terms, and from interest rates to documents list. Apps also have chatbots and are quick in responding to customer queries, so be sure to check their FAQs and ask all your questions till you have no doubts about the loan.

#3 Close old debt, wait awhile, then apply for the personal loan.

Lending institutions are wary of approving personal loans for salaried individuals if you are servicing older loans already. You might have a credit card loan, home loan or a car loan to your name. If you have more than one loan to your name at the time of applying for the personal loan, it means that your monthly income is compromised: it must stretch itself to pay EMIs for different loans every month. The more the EMIs cut into your monthly income, the less you are left with to spend on other essentials. It just means that you have a reduced spending capacity. EMI spends exceeding 50% of your income are not recommended. The personal loan app may reject your application if it finds a lower repayment ability. So before you apply for a personal loan, make sure to clear your outstanding loans first.

#4 File your documents correctly.

Another reason why banks and NBFCs reject personal loan requests, is incorrect documentation. They list the required documents (income, personal ID and residence proofs, bank statement showing salary credit and a photo ID). You might inadvertently miss out on filing some document, or furnish incorrect information. Or your document(s) might not be updated. Whatever the case, the lender can flag down the wrong application. You may be given time to correct the documents list, or the application may be rejected. Most lenders offer extra time to rectify the lacunae in the documents. But if you are unable to, the application might get rejected. Always study the list of required documents and file them in the order asked, taking care that the documents are correct and latest in scope.

Conclusion

Whether you apply for the personal loan to a personal loan app or a bank, the above points still apply equally. However, you might find the process much easier and faster with a loan app

• they have faster checking and approval processes, and they disburse the loan amount within minutes of approving the application.

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