Personal loans are quick but expensive. Keep EMI Below 50% of Salary, Other Checks For Best Deal | Photo credit: BCCL
Personal loans are unsecured loans that are easy to access and carry significant interest charges. If you need funds in a jiffy for unavoidable personal needs, personal loans are the best. Since these loans are unsecured, lenders easily reject applications if they do not meet their eligibility criteria.
In case you are considering taking out a personal loan, here are some factors to consider
Credit score: Maintaining a good score is the foundation of your ability to secure a loan, whether it is a loan. Four Credit Reporting Companies (CICs) or credit bureaus like Equifax, Experian, CRIF High Mark and CIBIL TransUnion provide their exclusive credit score and detailed credit reports in India.
The credit score, commonly known as CIBIL score, is a three-digit number ranging from 300 to 900 that summarizes an individual’s overall credit history. All credit bureaus provide this score. A credit score of 700 and above is considered ideal. A higher credit score indicates a good credit history and responsible repayment behavior.
Ensure healthy financial habits such as paying regular monthly installments and credit card bills. Those with a credit score above 750 receive the best loan deals. If your credit score is impacted by a fraudulent or erroneous entry, have it corrected immediately by informing the relevant CIC and the lenders.
Outstanding loans: Lenders also assess the applicant’s outstanding loans to determine his repayment capacity. The IMEs of the current loan, including the one requested, should not exceed 50% of the applicant’s monthly income. This is a key factor that lenders take into account before deciding on a loan application. Another important factor is the profile of the employer.
Reduce loan requests: When you apply for a loan, the lender asks your credit bureau to assess your creditworthiness. A lender initiates a “hard” credit history check when applying for a loan. This has a marginal impact on your credit score. Applying to multiple lenders has an impact on your credit score as there will be many inquiries about your credit history.
Compare Loans Online: Personal loans are the most expensive in terms of interest charged, which can range from 9-24% per annum. It is prudent to avoid personal loans unless absolutely necessary. Experts suggest that it’s best for borrowers to check with banks or non-bank finance companies they already have a relationship with first for better deals.