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Many individuals borrow small Personal Loans when they need money for urgent expenses, significant purchases, or debt consolidation. New-age lending institutions make these loans easily accessible through their websites and loan apps. However, before taking out a Personal Loan, you should be aware of several factors to make the right decision. Are you looking for a Personal Loan? Here are a few things to know.
Purpose of Borrowing the Loan
Don’t borrow just because you received a pre-approved loan offer. Think about the purpose for which you need the loan and what you will do with the loan money. You can use a Personal Loan for various things, including debt consolidation, medical bills, travel plans, education, or wedding costs. After identifying the loan purpose, calculate the expected expenses and decide upon an appropriate loan amount. Accordingly, make a repayment plan and apply for a loan after due consideration.
- Minimum and Maximum Amount Available for Borrowing
Lending institutions specify minimum and maximum loan amounts they may approve. It depends on their internal lending policy. Before applying for a loan, ensure the lender can provide the loan amount you require for your purpose. A smaller amount may not cover your considerable expenses, while a larger amount for a minor need could strain your finances. Check the lender’s loan amount limits before applying.
- Collateral Requirements
Although small Personal Loans come without any collateral for security, lenders may ask for a property or security for approval. If you fail to repay the loan on time, the lender may foreclose the collateral and sell it to recoup their outstanding balance. Check for a loan provider that offers loans without any collateral requirement.
- Interest Rates and Additional Charges
Compare loan providers’ interest rates and additional charges to get the best deal. The interest rate may significantly vary based on the lender’s policy and your creditworthiness. Additionally, loan providers may charge other fees, including prepayment charges, processing fees, and late payment penalties. Always read the fine print in the loan agreement to gain information about these charges. Moreover, evaluate the APR (Annual Percentage Rate) that accounts for both fees and interest.
- Repayment Terms
Give attention to the repayment terms offered by various loan providers. These significantly impact your monthly instalments and repayment tenure. Before applying for a loan, use an EMI calculator to estimate the EMIs for different loan plans. The longer the repayment tenure, the smaller the EMIs, but the higher the interest outgo. Therefore, aim to select the shortest possible tenure with conveniently affordable EMIs. Select a repayment tenure with EMIs you can easily afford within your monthly budget.
- Credit Score
Check your credit score before applying for a Personal Loan. Lending institutions determine your loan eligibility, interest rate, and other terms and conditions based on your credit history. If you have received a pre-approved loan offer, the lender must have already checked your credit report. This 3-digit number reflects your creditworthiness, based on which lenders determine your repayment capacity.
A solid credit rating improves your chances of approval at lower interest rates. However, obtaining a loan with a low credit score can be challenging. Therefore, check your credit score and the lender’s minimum requirement before applying.
- Lender’s Reputation
Before applying for a Personal Loan, get an idea of the lender’s reputation. Check their ratings and read reviews from previous borrowers. This will give you a sense of the loan provider’s customer service and how they handle disputes or complaints. You can check out their website to see any awards or recognitions they have earned.
- Eligibility Requirements
The eligibility criterion is the most important thing to consider before applying for a Personal Loan. Different loan providers have unique eligibility requirements. You must check the eligibility criteria for various lenders and choose one that best suits your condition. You will find some loan providers who need you to be in your current profession for some time before applying. Others have a minimum monthly requirement you must fulfil. All in all, check the lender’s eligibility criteria before applying.
- Documentation Requirements
They need your KYC documents and proof of income to verify your details. You don’t need to visit the lender’s office to submit these documents. Choose a lender that accepts their soft copies uploaded through their website or app.
Since the documentation requirements vary for salaried and self-employed applicants, prepare the documents according to your profession to meet the loan provider’s criteria.
- Approval Time
Different lending institutions have unique application procedures and approval times. A longer approval time means delayed disbursal. This might not suit you if you need a loan for an emergency. The time they take to approve the loan depends on the application procedure, documentation requirements, collateral requirements, formalities involved, etc. If you need a loan for an urgent expense like a quick home repair or medical emergency, look for a lender supporting a 100% digital loan procedure. Such lenders accelerate the loan process and provide approval in minutes.
- Repayment Capacity
Prepare for the loan’s repayment even before applying for it. One of the best ways to do that is to route your investment earnings towards EMI payments. Moreover, your income is sufficient to repay the loan. An EMI calculator estimates the monthly instalments well in advance, allowing you to plan the finances while prioritising the loan repayment. Factor in your existing financial obligations before borrowing a new loan. Cut down unnecessary expenses to adjust the EMIs conveniently into your monthly budget.
However, consider the above points before applying to make an informed borrowing decision. Leading NBFCs like Hero FinCorp provide small Personal Loans of up to Rs 5 Lakh at competitive interest rates and flexible repayment tenures of up to 36 months.
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Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader’s discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
