Are You Ready For A Personal Loan?
If you are considering a Personal Loan, this is your quick guide to finding out if you are ready for one. Read to know Now!
Often, personal loans help finance the most important or urgent purchases. They are the best loan option for various needs, such as vacations or home renovations. A personal loan, however, is an obligation and a commitment. It is crucial for an individual seeking a personal loan to conduct thorough research and evaluate their options.
Before seeking a personal loan, you should prepare yourself to ensure you have the necessary documentation or fulfill the eligibility criteria. Financial institutions offer these loans based on their set personal loan eligibility criteria. Here are some factors that lenders consider before granting a personal loan.
1. Your Current IncomeWhen banks sanction a loan amount, they consider your current monthly income to determine your ability to repay it. Banks are also interested in the debt amount you owe. Lenders check your debt-to-income ratio to determine if you can repay the loan. You have a higher chance of being in the good books of lenders if this ratio is lower.
2. Credit Score
This score is the most critical factor in the personal loan application evaluation. Lenders check your credit score to determine your creditworthiness. They can consider you a risky borrower if you have a low credit score.
Lender protects themselves from this risk by adding higher personal loan interest rates while reserving their best rates and terms for creditworthy borrowers. Your chances of finding a suitable personal loan are slim if your credit score is less than 640.
3. Payment History
Credit scores are closely related to your payment history. Lenders generally seek assurance about your ability to repay your loan. If you've made on-time payments in the past, your chances of getting approved will increase.
Missed payments can stay on your credit report for up to seven years. Therefore, you must avoid missing any EMI payments to maintain a good payment history and rapport with the financial institution.
4. Employment RecordsApplicants with stable employment histories are more likely to get approved for a personal loan. In contrast, lenders are less likely to consider people who switch jobs frequently. Job stability is vital for them to trust your work profile.
5. Calculating Equated Monthly Installments (EMIs)Monthly instalments for equated loans are calculated based on current income and other financial obligations. An EMI calculator can help you figure out your monthly EMI based on your financial resources, or you can ask the lender to let you know in advance.
You must pledge valuable assets as collateral if you apply for a secured personal loan. Home and vehicle loans typically have collateral related to the loan's purpose. You can avail of a secured personal loan with a wide range of assets, including cash accounts, real estate, investment accounts, gold coins, and precious metals.
Note: The lender can repossess the collateral if you default on your loan or fall behind on your payments.
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7. Origination Fee
Borrowers are often required to pay origination fees for personal loans even though they are not part of the qualification process. These fees cover the costs of running credit checks, processing applications, and ensuring the loan closes.
These fees typically range from 1% to 8% of the loan amount based on factors like an applicant's credit score and loan amount. In some cases, origination fees are collected as cash at closing, while others are financed or deducted from the loan amount.
How Do You Proceed If The Lender Rejects Your Personal Loan Application?There are many reasons why a lender may deny your personal loan application. Your credit score is too low, or your DTI is too high. Depending on factors like employment stability, income, and other outstanding debt, it is also possible that you requested more money than you can repay.
Here are a few steps to take if a lender denies your loan application.
• Get a detailed explanation of the reason behind your application rejection.
• Make sure your loan application is accurate and free of errors.
• Reduce your current debts to improve your credit score.
• Make sure your credit report is accurate.
• Boost your income.
• Check the requirements of different lenders.
• Reduce the amount of your loan.
• Employ a co-signer if required.
Apply For A Personal Loan With IIFL FinanceIIFL Finance offers comprehensive and customised personal loans to meet your capital needs. Calculate your repayment obligations using the personal loan calculator. With a personal loan, you can instantly receive up to Rs 5 lakh with a quick disbursement process. If you wish to apply for a personal loan online or offline, please visit the website or nearest branch of IIFL Finance and provide your KYC information.
Frequently Asked Questions
Q1. What are the documents required for a personal loan?
Ans. Personal loans require the following documents:
• Proof of identity (passport, voter ID card, driving license, or Aadhaar card)
• Proof of address (passport, voter ID card, driving license, Aadhaar)
• Statement of bank accounts for the past three months (passbook for the past six months)
• Two most recent salary slips or current salary certificates with the most recent Form 16.
Q2. What is a good reason to get a personal loan?
Ans. Borrowing a personal loan for debt consolidation is common.
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