Top Mistakes to Avoid While Applying for a Personal Loan
Banks in India offer many kinds of debt products like Home Loan, Car Loan, Two-Wheeler Loan, and in recent times some even offer medical loans and consumer electronics loans. In many cases, your loan requirement may not fall in either of these categories.
Personal Loan is the all-encompassing type of loan which you can take for any requirement that may not be fulfilled by any of the specific categories. This flexibility of Personal Loan is its biggest advantage, along with the fact that it is offered with a flat interest rate. A flat interest rate may be higher since this is an unsecured debt, but at the same time, it allows you to predict and plan for your future budget very well. This is because you per month Personal Loan installment will remain the same even when your income goes up. Another important factor is, most banks offer Personal Loans for a short period of time; for example, ICICI Personal Loans are provided for a tenure of 12 to 60 months. So, unlike Home Loan, you can wrap it up in a shorter period of time.
A Personal Loan is an unsecured debt product for banks. This means they do not keep anything as security from you while lending the money. As a result, the banks and lenders are extra cautious with these loans. Even a small mistake from your side can lead to rejection of loan application. Let us discuss some of the common mistakes that people make when they apply for Personal Loans and also find out how we can avoid them.
Ensure Proper CIBIL Score and Clean Credit Report
Credit Information Bureau of India Limited (CIBIL) is the most wide-reaching credit reporting service that is active in India. Almost all financial service providers rely on CIBIL score for making their lending decisions. CIBIL maintains a credit score for people based upon the credit services utilized by people and how prompt and regular they are in repaying their installments. All payments made in proper time will ensure that you get a good Credit Score. Most banks regard Credit Score above 725 as a good customer. Banks view anyone having a credit score over 800 or 825 range as a prime customer, and banks will consider them for their best offerings. If you want to apply for Personal Loan, always make sure that you have a good credit score. CIBIL can provide your detailed credit report for a fee. It is advised to check your credit report before you plan to start the loan process and get any wrong information on it fixed so that your credit rating is not impacted because of someone else’s fault.
Ensure Proper KYC Documents:
The most common mistake made by most people when applying for a Personal Loan is that their KYC documents are not complete. Some people fail to submit all KYC documents, either missing out on address proof or identity proof. Always keep in mind that most lenders specify in their application form what documents can be used as an address proof and which document can be used as an identity proof. Even if the form lists the same document, for example, your passport, aadhar card and driving license in both sections, you cannot just provide one and get away with it. Always provide two documents, one being from either list. Mark clearly in Personal Loan application form as to which document you are providing as an address proof and which one as an identity proof.
Ensure Proper Income Proof Documentation:
Ask any lending expert in all of the country, and you will find that the most common reason for why banks and NBFCs deny Personal Loan application is the lack of appropriate income proof. Income Tax returns are proofs that you made a stated amount of money last year. Most lenders will ask for recent proofs of income. For salaried people, this will be their most recent payslip and bank statement. For professionals and business people, the lenders will ask for bank statements of the last six months or so with incoming funds with consistency, like monthly or quarterly.
Ensure Proper Liability Declarations:
Many people have a number of Credit Cards, Home Loans, Car Loans, etc. already ongoing while they apply for Personal Loans. If you have any of these running, you have to declare all of them when applying for a Personal Loan. Based upon your income information and loan commitment information, the banks calculate how much loan amount you will be eligible for. The banks also rely on your CIBIL report to decide how much to lend you and for how long. This means that if you try to hide a loan commitment with the assumption that the bank will give you a higher amount of Personal Loan, this is most certainly not going to work. The bank will assume that you are not in good financial condition and are trying to hide many other financial commitments as well. They will not only deny your Personal Loan application but may also inform CIBIL to update your report about the application refusal. This will lead to a double impact where you were refused the loan and even got hit on your credit score.
Ensure Loan Eligibility Before Application:
Do not apply for loan amounts or durations for which you may not be eligible. Many banks allow you to check your eligibility for a loan and calculate how much loan amount you can get and how much EMI will you have to pay for the loan online. HDFC Personal Loan Eligibility Calculator is a special tool developed by HDFC bank to help you check how much you can borrow and what will be your monthly EMI. Check with these tools before you start the loan application process.
In addition to the most common mistakes discussed above, it is always best to read the full terms and conditions of Personal Loan before you apply. Remember, getting a Personal Loan is very easy as long as you follow the bank rules and ensure the due documentation.
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