Gone are the days when people used to apply for loans only for big-ticket purchases like buying a car or a home. But with the help of digitization and advancement in technology, the lending process in India has completely transformed which is why today people are applying for loans to fund even their vacations or other small ticket purchases. Earlier, applying for a cash loan was a laborious task which required spending hours to visit a bank, standing in long queues with numerous documents and waiting for weeks and even months to hear from a bank for loan approval. But today online finance providers have combined financial services with the latest technology to promote quick, hassle-free and paperless loan approval and disbursal.
These days, the process of availing instant loans from online lenders is swift and smooth for consumers but one needs to keep a few things in mind when applying for a loan from digital lenders.
Eligibility Criteria
Different lenders have different eligibility criteria. So do check the eligibility criteria before applying for a personal loan. Most lenders prefer a borrower to be in the age group of 21-55 years earning a required minimum amount annually.
Credit Score
It is important to check your credit score. It might not be impossible to get a loan if you have a bad credit score but it surely is difficult. Strengthen your credit by borrowing and repaying even small loans. There should not be any defaults on previous loan payments or credit card dues.
Avoid multiple applications
Apply from a particular lender only because most lenders check existing application status. Applying for loans with multiple online lenders can have a negative impact on your credit score and can further obliterate your chances of applying for one in near future.
Loan History
Ensure to maintain a gap of 6 months between a new loan application and a previous one. This is because if you have applied for a similar loan from a lender just a few months ago, then a lender would not burden you with new debt obligation and repayment.
Realistic personal loan amount only
Apply only for a loan amount that you can easily repay. Applying for unrealistic amount can lead to disapproval of loan. This is because every time one applies for a loan, there is a check conducted by the lender on borrower’s income and his or her repayment ability. Also, it is important to ensure that the total of EMIs from loans do not exceed 30% of the income.
Strike a balance secure and unsecured loans
Secured loans are the loans which require a collateral whereas unsecured loans are the ones which do not need any collateral. It is important for a borrower to strike a balance between both the loans to improve the credit score and to reassure the online finance providers that the loan would be paid back on time.
Job Stability
A personal loan is an ‘unsecured’ loan which means there is no need of a collateral while applying for it. This is exactly why you need to show that you have a steady source of income so that the lender is reassured that you can repay the loan on time.
Assess the ability to pay EMIs
Only you know your ability to repay a loan, not even your bank. So do an honest assessment. If you feel you cannot service the EMIs of a loan, do not take it because failure to service EMIs can cost you penalty and spoil your credit score.
Although, availing instant loans have become extremely easy for consumers today to fulfill their requirements and needs but it is important to apply for loans wisely to avoid it from becoming an uncalled-for liability. Avoid taking fast loans for investment purposes or taking bonds because they might not match the rate of interest you pay for the loan. Also, try not to apply for a loan to buy luxury watches or high-end bags. Instead, you may use the money for emergency requirements or to build an asset.