Availing a personal loan is one of the best ways to manage your diverse financial needs. Whether you need financing for a high-end purchase or for a medical procedure, a multipurpose personal loan can come in handy. However, before applying for a personal loan, you must check the important parameters that influence your loan eligibility and affordability. Whether you apply through a loan app or through a conventional lender, financial awareness will help you get an instant loan at better terms.
The amount of loan that you can avail from a lender depends on your loan eligibility. However, there are several parameters that can influence your loan experience. Read on to discover 8 most important things that you must check before availing a personal loan.
8 parameters to check before availinga personal loan
1. Consider your total monthly income
Your income is one of the most important factors that influence your instant loan eligibility. Since personal loans are unsecured loans, lenders rely on your monthly income to estimate your repayment capability. Most loan apps set the minimum salary requirement at Rs. 15,000, while some may have a higher eligibility of Rs. 25,000. However, it is important to note that the higher your salary, the better is your loan eligibility.
2. Compare the interest rates on the loan
When availing an instant loan, you must consider the interest rate levied on the loan by the lender. Today, there are several lenders offering personal loans at varying interest rates. You must conduct an in-depth market research to find the lenders offering the lowest interest rate along with the best loan features. Check the lender’s websites as well as the loan apps. Even a slight difference in the interest rate can have a significant impact on your total interest pay out.
3. Check your credit score
Your credit score is an indicator of your financial health and previous repayment behaviour. A good credit score is very important for getting an instant loanapproved from a reputed lender. Though some loan apps may approve your loan despite a low credit score, it might affect your interest rate and other loan terms. Thus, you must check your credit score and take necessary measures to improve it. You can visit the official website of a credit bureau and check your credit score.
4. Calculate your debt-to-income ratio
Most debt tools are designed to help the borrower meet their financial gaps. However, if not used responsibly, then it might be very difficult to manage your debts. That’s why most lenders check your debt-to-income ratio, to determine your loan eligibility and maximum loan amount. Ideally, your total monthly EMIs should not exceed 35 to 40% of your total monthly income. Having a major chunk of your salary occupied by EMIs can make it hard for you to manage your finances.
5. Consider the loan fees
- While researching for a personal loan, most people compare only the interest rates. Though the interest rate is one of the most crucial parameters, you must not ignore the other charges associated with an instant loan. The most common charges on a personal loan are processing fees, loan application fees, penalty charges, loan transfer fee, and pre-closure fee. You might get concession on some of these charges when applying through a loan app. In addition to that, applying for a personal loan during the festive season can also bring you great offers.
6. Consider your employment status
Along with your monthly salary, your employment status too plays an important role. If you are employed in the government sector or in a reputed MNC, then you might check for pre-approved loans or salary loans. These loans are exclusively offered to salaried individuals at very low interest rates. This is because of the high income stability and repayment guarantee associated with such customers. However, if your employment status does not fit the criteria, then you can apply for a quick loan through a loan app.
7. Length of employmen
Lenders generally prefer borrowers who have been at their current job for a longer period of time. This is because it indicates stability and a higher likelihood of being able to repay the loan. People who stick to their jobs for long periods are considered stable and committed. These individuals are less likely to quit their job and thus, are considered low-risk candidates. Thus, lenders prefer to give higher loan amount at attractive rates of interest to people with stable job history.
8. Know the sole purpose of the loan
While a personal loanis flexible in terms of how you can use the money; it is always better to understand the purpose of your loan. Knowing the exact purpose will help you estimate the right budget and prevent you from over-borrowing or under-borrowing. It is also helpful to mention the purpose of your loan to the lender as they might expedite the process to help you meet an emergency need.
Availing a personal loan isa seriousfinancial commitment and you must make sure that you are making the right loan decisions. But in order to do so, you must have the financial awareness about the most important parameters that influences your loan. So, whether you are planning to avail a loan in the near future or you have all your finances sorted except for an unforeseen emergency, making a note of the above factors will help you secure the best personal loan!