A personal loan can be availed for any purpose, whether to mitigate home renovation requirements or unexpected medical expenditures; it serves as a supplementary funding source in times of urgent needs. Unlike a car or gold loan, a personal loan is an unsecured loan option. This means the loan is not secured against any specific asset you own. While availing of a personal loan, you are not required to provide any security like real estate assets or gold.
Thus, if you are one of those looking to apply for a personal loan to meet cash mismatches, it is crucial to understand the characteristic of the loan and what essential steps you should consider before you hit the personal loan apply online button.
Check out some quick steps before you apply for a personal loan:
Check your credit score
A credit score is an essential metric that the lenders utilize to determine your potential to repay the loan. Simple acts such as maintaining a balance between secured and unsecured credit options, repaying credit card bills and EMIs by the due date, holding a CUR (credit utilization ratio) of within 30 percent, etc., can create a strong credit score. Ideally, a strong credit score equals 750 and above. Thus, maintaining a good credit score will boost your chances of getting a personal loan.
Select the lowest interest rate
Personal loans generally have a higher rate of interest that ranges anywhere from 10-24 percent p.a. Thus, even a slight drop in the individual loan interest rate can create a huge difference. Note that if you go for a low monthly repayment over long tenure out of convenience or other reasons, it will have the highest interest outgo. Thus, ensure to avail the lowest personal loan interest rate and a suitable repayment tenure as per your repayment capacity. Do not unnecessarily opt for a higher repayment tenure to avail of lower EMI, as doing so may make you lose out a lot in the form of interest outgo.
Compute EMIs carefully
Personal loan EMI repayments must not wipe out your investments and savings and burden your finances. It is vital to compute your EMI amount and check your repayment capacity over a stipulated repayment tenure to ensure this does not occur. Lenders prefer your monthly repayment obligation, including your new personal loan, to be under 50-60 percent of your monthly income. You can calculate your EMI quickly using the personal loan EMI calculator.
Before you hit the personal loan apply button, ensure that it is available for the right reasons and not for any speculative purpose. Besides this, it is also essential to ensure that your lender is a transparent player and that your repayments are consistent and prompt to maintain a good credit score.