Personal Loans can be obtained without collateral and used for numerous purposes, including small or big purchases, debt consolidation, medical expenses, etc. The book size of Personal Loans in India has increased to Rs. 8 lakh crore from Rs. 6 lakh crore as on March 2022. Interestingly, non-banking financial companies (NBFCs) have disbursed maximum Personal Loans. There has been a 25% surge in outstanding portfolios in the last two years.
It is easy to repay a loan in monthly instalments over a loan tenure of one to five years. Depending on your cash flow and payment diligence, you can choose a convenient tenure. You can find the personal loan requirements below to apply online effectively.
Personal Loan Requirements
Review your Credit Report
Lenders check credit scores to know a loan applicant’s financial reliability. It is important to know for them as they provide funds against a personal loan without collateral. Individuals with a high credit score of 750+ have greater chances of quick approval for a personal loan. If the data on your credit report is not updated or inaccurate, it can lower your credit score. It can be a clerical error, like a wrongly spelt name, incorrect address, an open loan account that you have closed earlier, and others. Such errors in credit reports show your credit profile is risky. Therefore, review your credit report before submitting your personal loan documents. You should request the credit bureau to rectify any errors as soon as possible.
Look beyond Interest Rates
Many individuals overlook reading the fine print and know the loan terms & conditions. It is necessary to make prudent decisions as this print consists of processing costs, repayment schedules, prepayment charges, preclosure penalty, interest rates, and the method to calculate interest. These are small things that may lead to an increased loan cost. Research well and estimate costs to get the maximum benefits from a loan.
Find Suitable Repayment Tenure
Longer repayment tenure can decrease your EMIs but will increase the overall borrowing cost. You should prefer a shorter-term loan. Also, whenever you have extra funds, you can prepay a part of your loan to lessen your debt burden. Using a personal loan EMI calculator online, you can find a suitable loan term that neither burdens you with EMIs nor increases your interest cost. With renowned NBFCs like Fullerton India, the repayment tenure is flexible (12-60 months).
Have a Steady Source of Income
Whether a salaried individual or a self-employed person, you can avail personal loans. The lending institution will verify your employment and income history to ensure that you can repay the borrowed funds conveniently within the stipulated time frame. To get a loan offer with a high loan amount, you can show an additional income source like dividend income, rent, etc. It will boost your loan eligibility. Thus, steady income and mentioning an additional income source will work in your favour significantly.
Keep the Debt-to-Income Ratio Low
Lending institutions check your current debts. A high amount of debt indicates a higher chance of missing an EMI. Debt-to-income ratio (DTI) is a metric to evaluate your current debts. All your monthly debts, including your credit cards, mortgages, etc., are added and divided by your monthly gross income. Lenders prefer a lower percentage for your DTI. The maximum DTI preferred is 40% by most lenders. Therefore, you should maintain a low DTI to get loan approval. Ideally, you should utilise a maximum of 30% of your credit limit to keep your DTI low.
Determine How Much You Want to Borrow
You must know the required amount to borrow beforehand. You should not apply for a high loan amount unnecessarily. It will prevent you from financial burden during the loan tenure. You can use a personal loan EMI calculator online to estimate the EMIs for a loan amount.
Gather the Necessary Documents
You must submit the necessary personal loan documents to the lender to obtain funds. You should be ready with the required documents before approaching a lender. You can complete the loan process online with the required documents in digital form. Basic documents required include:
- Identity and address proof
- Salary slips
- Income tax return
- Bank statements
This way, you can apply for a personal loan effectively. If you meet the eligibility criteria well, you can apply for up to Rs.25 lakhs. Simply go through the personal loan eligibility criteria defined by the lending institution and apply online.
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