A personal loan demands your income proof and a desirable credit score in most cases. Getting a personal loan is not difficult mostly, but if you follow certain steps, you can get one relatively easily with low interest rates. The purpose for which you are looking for a personal loan can change the process involved, but a few things always remain the same here.
Why do people prefer personal loans over others?
Personal loans can be taken to meet variable needs as you are not answerable where you are using that money once the loan is approved. In the most unplanned life, we can need money in any phase. It may be that you want to expand your business, repair your house roof, or repay an ongoing loan. Health issues are also something people are facing now and then, and this money can be used to pay any medical-related bills.
Knowledge about your credit score
Never miss to check your credit score before you apply for a personal or any other loan. Based on your credit score, the annual interest charges may vary from 8% to 35.99%. If your score hits 800 or above, you are on the winning side, and those who fail to pocket 580 scores come under the bad category. Bad or reduced credit scores make it tough to obtain a loan. Lenders may find it difficult to give a big sum in this case. If your credit score is good, you may get a loan at a low rate. You can also get a repayment tenure of seven years. The standard term of repayment is five years. Don’t miss out on checking your credit score, which is available for free on some of the credit issuers.
Never miss to pay your bills on time
Your payment history greatly influences your credit score. Try to be regular in paying your bills.
Low credit card balance
Try to keep the credit card balance as low as possible. Your credit utilization ratio is a direct parameter that decides how much debt you are carrying.
Don’t open too many new accounts
Applying for several credits results in a lower credit score. Try to avail of a restricted credit application.
Understand What’s Required
Before you decide to apply for a loan, consider the requirements with the loan. It will have a great effect on your interest rate, repayment schedule, and all kinds of fees involved. You can also use a personal loan calculator. You can pay it off before time.
Add all the fees in the loan calculation. Interest rates vary but remember that APR is not an accurate way to assess the cost of the loan because chances are you will pay it back within months, not over the course of an entire year. You do not have to be anxious to get the interest amount at a later stage.
Checking Loan Providing Websites
Websites offering personal loans might give you an idea about the terms and interest rates. You can use them on a personal loan calculator to have a rough idea of your EMI.
Preparing Documents
A list of documents stating your identity, income proof, residential proof, tax returns, and others are commonly asked by lending companies when you reach out to them for a loan. Stay ready with them to initiate the process simply.
Basic Qualification Requirement
Evaluation of your income and debt ratio, credit score, income, and collateral are basic requirements for a personal loan.
Credit score
As mentioned, a good credit score is always favored if you are looking for a personal loan and vice versa.
Income
Your income bracket is often an indicator of whether you can repay the loan or not. People with regular and fixed incomes can get the loan easily. In the adverse case you need to onboard a cosigner for a better amount of loan.
Debt to income ratio
Lenders check your payments towards their credit and the income that you earn every month. This is what debt to income ratio is! If the ratio is high, you may not get the loan at all.
Collateral
Though personal loan comes under the unsecured criteria, some lenders bring secured options for the borrowers. You can offer your assets like jewelry, antiques, or vehicles. The drawback is you may end up losing your asset if you repay it.
Educational Degree
A good educational degree also helps you easily get a personal loan.
Check what documents the lender may ask for
Doing detailed research about the documents may help you to get approval quickly.
Check out the list of documentation for your convenience:
- Identity proof: A number of documents like nationality certificates, birth certificates, passports, state-related IDs, driver’s licenses, and more fall under this category.
- Address proof: Address proof where you have been living is essential here. It might include utility bills, property papers, rent agreements, or proof of your ID with the same address. Credit card statements at that address might also work.
- Income Proof: Here, you can give your pay slip, tax returns, or sometimes a 1099 form to be eligible.
Some lenders may process the verification electronically, whereas others may go for the physical documents verification process. You can also upload the documents on the websites if this feature is available.
Keep these documents ready and get your approval quickly. Paperwork is mandatory to get a personal loan.
Before taking a personal loan, evaluate where you are going to use it and whether it is going to add worth to your ongoing situation. If you are taking it to meet bills, check if you can repay them on time.
The Bottom Line
Getting approval if you are trying to get a personal loan is not complicated, but following these tips may simplify the whole process. Comparing the lender’s list and the features they offer is something you should never miss. It might be the case that you may get the same loan at a much lower rate of interest if your research power is good. Remember, you are taking the loan to improve your situation and not to fall into a debt position!
