Checklist for First-time Applicants of Personal Loans
In times of financial crisis, a personal loan is a unique product that can quickly give you access to funds. The loan can be put toward anything you need, no matter how big or small. Due to this, personal loans are hugely successful in India. Personal loans are becoming more widely available from banking and financial firms. Technology has facilitated the distribution of this type of loan in many ways. The funds from a personal loan get transferred into your account within a few hours.
If this is your first time applying for a personal loan, there are a few things you should bear in mind. Please refer to the following checklist to apply for a personal loan.
Checklist for First-Time Applicants
Choose a Reliable Lender
Many banking and non-banking financial institutions are available to consumers today. Personal loans from these banks and credit unions might be quite appealing. But that is the case only if you take the time to shop around and get the best deal. It’s simple to be swept up in the glitz and glamour and forget to check the fine print. Thus, as part of an efficient personal loan checklist, you should:
- Carefully research offerings from reputable lenders
- Evaluate the various possibilities
- Make an informed decision.
Get the Necessary Paperwork Involved
Proof of Identity
It might be anything from a birth certificate, a passport, a driver’s license, a PAN card, or an Aadhaar card. All these will suffice as identification proof if necessary.
Proof of Address
For communication purposes, the bank needs to verify your current address. You can use utility bills, a passport, a bank statement or passbook, and an Aadhaar card as proof of residency.
Proof of Employment
The bank doesn’t need collateral for the personal loan. But it still needs assurance that you can pay it back. Thus, you will need all your employment information for this purpose. For this, you need two forms of identification as proof of employment:
Employee identification card
Employee company card
Duration of Employment
You graduate, land a job, and soon realize you must make a major purchase: a car. Due to the short term of your employment, the bank cannot approve your loan. The smallest length of employment required by banks is 12 months.
Work Experience
The bank will want to know that you have been a reliable worker. And you’re not someone who has taken extended breaks from work or been unemployed for a long time. Thus, you will need to provide letters of recommendation from former employers.
The Credit Report
A loan default can look very bad on your application. The bank will contact your banking relationships to verify your credit history. Form 16 from the current and prior years may be required under certain circumstances.
After applying for a personal loan, the bank will only approve it if:
They have confirmed that they can count on you to return the money.
After you’ve verified all the information, you’ll get the loan. The lender urges the borrower to make every attempt to repay the debt. Forget about damaging your credit score; this option will get that debt off your back for good.
Any application for a loan, including a personal loan, requires supporting paperwork. When applying for a personal loan, the standard documents requested by lenders are:
- Evidence of identity
- Proof of income
- Recent bank statement.
Suppose this is your first time applying for a personal loan. In that case, you can make the procedure go much more quickly and smoothly. You can do this if you compile and have ready all the necessary documents at the time of application.
Analyze the Fees and Charges
The acquiring costs of a personal loan are included in the interest rate. Foreclosure fees, processing fees, prepayment fees, and many more fall under this category. Before applying for a personal loan, you must be aware of these fees. That’s because failing to do so can cause you financial hardship down the road.
Evaluate the Interest Rate
There are a large variety of financial institutions that offer personal loans today. Lenders frequently use fixed interest rates to entice a customer base. As a result, buyers can feel they have secured the most advantageous loan terms possible. But, a flat rate is not very beneficial. That’s because it does not consider the decreasing balance after each EMI payment.
The interest added to the total amount you owe will make your pay significantly greater. Yet, before agreeing to the terms of a personal loan, calculate the interest component.
Think About Your Liabilities
A personal loan can be a useful source of quick cash in an emergency. But be sure to factor in any other loans you may already have. A firm grasp of your debt-to-income ratio is crucial. It is especially important to make payments on several loans and credit accounts.
If you’re struggling to make ends meet, taking out a personal loan won’t help. And it will have a bad effect on your credit score. So, you should only apply for a personal loan if your debt-to-income ratio is 30% or less.
Make a Repayment Plan
Learn the terms of the repayment plan before agreeing to a personal loan. Your repayment strategy should be clear. For example, use a personal loan calculator to determine your EMI for a set loan amount.
You must input your desired loan amount, interest rate, and term length to get a loan. Then the system for the due amount will automatically generate an EMI. And it is helpful to know the payable EMI to organize payments for your personal loan.
Request Information on Foreclosure Procedures
A loan foreclosure occurs when you settle your loan before the conclusion of the loan’s term. Lenders have established various procedures to prevent default on a personal loan. For example, lenders assess some prepayment penalties when you pay a loan early. That’s because they will not receive the sum they would have gotten from the loan’s interest payments.
As a result, before applying for a loan, investigate the regulations about foreclosure. Also, you will thoroughly comprehend the costs involved in closing your loan in the future.
Maintain a Record of Hidden Terms and Conditions
Personal loans are very attractive due to the attractive rates and terms you get. But before you sign anything, make sure you read the fine print and check all the conditions. If you don’t thoroughly consider these factors, your financial plans may need adjusting.
Conclusion
A personal loan is a savior in times of need. However, people new to the loan industry may have problems applying for the first time.
The factors above are critical for any individual applying for a loan for the first time.
You can rest assured that you will have a positive lending experience. Moreover, you’ll have access to funds whenever you need them if you follow these steps.