Applying for the First Personal Loan in Life? Here is a Checklist to Follow
Starting your first job and becoming financially independent is one of the best feelings in the life of any individual. But as it is said, “With great power comes greater responsibility.” Now that you have started earning a salary, you need to be responsible for your own finances. This involves optimally utilizing your monthly income for all the essential expenses. Though, it is not uncommon for young millennials to face a cash crunch in the initial phase of career.
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In such a situation, Applying for a Personal Loan can be an alternative that you might want to explore. With multiple financial institutions offering Personal Loans, with varying terms and conditions, you might find it challenging to shortlist the best offer. This is where a borrower’s checklist can come in handy. Here is a first-time applicant’s list to your rescue:
1. Check CIBIL Score:
As this is your first Personal Loan, there are chances that your CIBIL Score might not have been generated. In such a situation, some lenders might not be interested in offering you a Personal Loan. It is thus important to assess your CIBIL Score before filling up a personal loan application. If your credit score is low, you must work towards improving it first. This will significantly improve your chances of being approved for a Personal Loan.
2. Identify a suitable lender:
The next step is to identify a suitable lender for your requirements. With multiple financial institutions offering Personal Loans, making a choice can be difficult. But there are no shortcuts here. Compare the available Personal Loan products by different lenders, understand their eligibility criteria, and once you are satisfied, apply with a lender with whom you have a better chance of success.
3. Prepare your documents:
You need to provide the lender with all the essential documents irrespective of the amount of the loan you need. So, it is advisable that you prepare multiple sets of the following document beforehand.
List of documents for Personal Loan Applicants-
- KYC Documents (Aadhar, PAN, Voter ID, Driving License, Passport, etc.)
- Income Tax Return for last 2 years.
- Form 26 AS and Form 16 for the last two years.
- Savings Account statement for six months.
- Salary Slips for the last six months.
If any of these documents are not available or are not updated, then procure it or get it updated as soon as possible.
Ascertain your requirements:
You should always remember that a Personal Loan is a financial responsibility that comes with an interest cost. If the money remains unutilized in your account, it will become a financial burden. So, make sure that you ascertain your requirements correctly, i.e., do not borrow more than what you require. Moreover, ensure that you select an amount that you can repay conveniently.
For instance, when you Apply for an SBI Personal Loan, the maximum amount available is Rs. 20 Lakhs. Do not apply for the maximum amount just because you are eligible. Apply for an amount that you indeed need.
Compare interest rates:
Personal Loan Interest Rates are the best indicators of the affordability of the loan. In simple terms, higher is the interest rate, higher would be the EMI amount, and higher would be the interest cost. Interest rates against Personal Loans vary significantly across lenders.
For instance, while interest rates for a Tata Capital Personal Loan start from 10.99% per annum, interest rates for a Bajaj Finserv Personal Loan start from 12.99% per annum. So, make sure you select a Personal Loan offer with the most competitive personal loan rates.
Select a suitable repayment tenor:
Selecting a suitable repayment tenor for a Personal Loan is extremely important as it is directly linked to the amount of EMI you will be serving. Longer is the repayment tenor, lower would be the EMI, but higher would be the interest cost, and vice-versa. The available repayment period for unsecured Personal Loans varies between 12 months and can go up to a maximum of 72 months. So, choose your repayment tenor wisely.
Compare the processing charges:
Some lenders try to attract customers with ridiculously low-interest rate offers on Personal Loans. Do not get swayed by such advertisements. Always make it a point to look at the APR, which includes the processing charges as well. In many cases, lower interest rates are accompanied by higher processing charges. To save yourself from falling into this trap, make it a point to compare the processing charges while selecting a Personal Loan offer.
Mode of application:
It is difficult to take out time from your busy schedule and go to the branch office of a lender to Apply for a Personal Loan. You must look for a lender who supports the online application process. This will allow you to complete your application at your convenience. Moreover, as the online application process is based on minimal documentation, the processing time is extremely quick as well.
Pre-payment and foreclosure charges:
This is another important aspect that you must have a look at while applying for a Personal Loan. While some lenders do not levy any foreclosure charges, others can levy up to 4% of the outstanding principal amount. If you have plans to foreclose your Personal Loan account or make part-prepayments, then it will be wise of you to compare these charges beforehand and take them into consideration.
With this checklist by your side, the entire process of applying for a Personal Loan for the first time would become relatively easier. It is advisable that you avoid applying for a Personal Loan for leisurely expenses and instead avail the credit during times of emergency only.
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