Need Urgent Loan Due to COVID19? Avoid These 5 Mistakes
2020 has been a year of hardships for individuals, businesses, and countries on whole. Globally economic growth has been stalled for many quarters all along due to dual stroke on health and economy. Job loss, salary cut and sluggish business revenue are buzz words in every household, across the world. People are struggling to reset their finances and eventually looking out for additional funding sources to stay afloat. Here in this article let’s take a deep dive into the ins and outs of applying for loan during COVID Times. With 40% to 60% of borrowers of public sector banks reportedly opting for 6 months Moratorium in India, it is important to understand how the additional loans will affect the finances. Is it even recommended to apply for a Personal Loan with moratorium?
Let’s find out the top 5 mistakes to avoid when you need bank financing during troubled times. We will also discuss the suitability of various bank products such as Credit Card Advance, Home Loan Top Up, Gold Loan, Loan Against FD and Personal Loan for different borrower groups.
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1. Not Assessing Credit Repayment Capacity
First things first, always assess your repayment capacity before applying for a loan. As a rule of thumb you should resolve to maintain a FOIR of below 50% at all stages in life. That being said, you need to ensure that your monthly fixed obligations including your EMIs and Credit Card bills are never beyond half of your net income. In most cases, the lender will assess your repayment capacity before approving or sanctioning your loan. However, you yourself should make the pre assessment before applying for a loan. In many cases, you may find a Personal Loan deal at higher rate of interest despite high FOIR percentage. You should never apply for such a loan for 2 reasons: 1) It will hurt your day-to-day lifestyle and 2) you may eventually find it hard to repay high cost EMIs with the prevailing cash crunch. The way out: Assess your repayment capacity and opt for a loan that is available at affordable rate of interest. You should never apply for high cost loans just to meet current obligations. This can quickly put you under a debt trap. In case you are finding it difficult to repay your current loans, consider to consolidate all loans and Apply for Loan Against Property. A secured loan will reduce the EMI burden and also get you access to the required funds.
2. Not sticking to adequate loan mix
Credit Mix is another important criterion to consider before availing the loan. A credit mix entails the types of credit accounts you hold in your portfolio. You should own a good mix of secured and unsecured loans. You Car Loan, Home Loan and Gold Loan are some examples of secured loans. While Personal Loan and Credit Card Outstanding are unsecured loans. Now in case, you already have a Personal Loan and a Credit Card bill to serve, it would be fruitful to apply for a Secured Loan such as Gold Loan or Loan Against Fixed Deposit at a low rate than applying for another Personal Loan. Too many Unsecured Loans hurt your credit rating and thus lenders will offer you a high rate of interest. It is thus recommended to choose the mix of loan as per your existing loan obligations.
3. Not shopping around
It is always advisable to opt for the most affordable loan deal available in the market. It is so common to accept the first offer that you enquire from your banker. Always set out the terms of loan you seek and then negotiate with the perspective lender. Make sure you do not start a hard query for assessing loan eligibility. The best way out could be contacting a loan comparison website like MyMoneyMantra and compare different loan options by filling the loan form. This way you can avail of the best option for your profile.
4. Missing available offers
Another common blunder committed by the some of the borrowers is missing out available offers in their inbox. You can always check your internet banking and look for available options. If any offer as per your requirements is present there, you can contact the lender and negotiate for even better terms. The lenders are more at ease serving the existing customers. Another good way out is to choose the loan against your fixed assets and cause least disruption in your life during the difficult times. You can apply for Loan against FD, Loan against Used Car or Gold and avail of more flexible terms to suit your needs. In all these options, there will be minimal hassles and lower EMIs despite low score or low eligibility.
5. Impact on credit score
Last but not the least, it is important to assess the impact of additional loan account on your credit score. Whether you are applying for a secured loan or an unsecured loan, a hard query is placed on your credit information report as soon as you submit the loan application. Till the time you repay your loan, the credit history will keep on reflecting on your credit report. This is why it always recommended repaying your bills before time. A delay in repayment is marked as a red flag on your CIBIL report. Too many red flags challenge your score and reduce the credit worthiness, thereby prompting lenders to reject such applications. Following all these rules, you should carefully asses the loan eligibility before applying for the loan.
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