The personal loan market has been growing steadily over the last few years. A month on month comparison between January 2019 and 2020 shows that in 2020 the personal loan segment witnessed a growth of 16.9% per cent. The number is expected to be higher for the first financial quarter of 2020-21 because of the havoc caused by the Coronavirus.
The Global Lockdown has led to the loss of incomes, and a personal loan is an easy option in these difficult times. Nearly all banks, NBFCs, HFCs and other creditable lending institutions offer this type of credit. While personal loans are readily available, it is essential to keep a few dos and don’ts in mind before filing a loan application.
The Personal Loan Dos and Don’ts
Conducting a thorough Investigation
Many first-time borrowers do a quick Google search for “personal loan apply” and visit the first of two results. Who has the time to search the nearly 700 crore searches that the search engine can produce in less than 100 seconds?
Do – a thorough search requires you to visit the website of at least 3-7 lending institutions. Follow this up with comparing the eligibility, terms and conditions and interest rate.
Don’t –hesitate to get in touch with customer care executives to understand processes and procedures. It will help tick-off the lending institution not suited to your loan requirement.
Understanding your Financial Obligation
Every person has a credit and debit account – earnings vs expenses. An income could be salaries or income from property, shares, etc. Costs would include but not be limited to your daily needs, travel expenses, shopping, insurance premium, educational expenses and EMI or other loans.
Do – create a checklist of necessary and avoidable expenses. Let us assume; you take a personal vehicle for the daily commute. Appropriate expenses will include insurance premium, service costs, petrol, and parking. However, a new car stereo will fall under avoidable expenses.
Don’t – overlook upcoming expenditures such as a planned trip or school admission. It is also necessary to prepare for financial contingencies. It ensures you have sufficient funds to repay EMIs on their due dates.
Calculating the EMI
The most crucial aspect of any retail loan is the equated monthly instalment or EMI. With each EMI, the borrower pays back some part of the principal amount and interest to the lender.
Do – use the free EMI calculator offered by all lending institutions. You can use these easy-to-use tools multiple times. Input loan amount, tenure, and interest rate to get the EMI instantly. Adjust tenure or loan amount to calculate an EMI that you can afford. Read the amortisation table to know the principal amount and interest amount paid with each EMI.
Don’t – forget that you will pay the EMI every month. Missing out on a single EMI leads to a penalty. Take time to understand the penalty clause as well are prepayment charges before you fill the loan application form. It is also recommended to sign up for direct debit / ECS facility so that you don’t miss out on EMI payments.
Partnering with a Trustworthy Lender
Did you know that there are nearly 10,000 NBFCs registered with the Reserve Bank of India? The number of lending institutions increases exponentially when banks and Housing Finance Companies are added to the mix.
Do – get answers to these questions – How long has the NBFC been in operation in India? Is it a stand-alone institution or does a respectable parent company back it? Do customer care executives have clarity in their communication? Do they discuss all applicable costs and charges?
Don’t – forget to read reviews. It is a great way to judge the lending institution’s trustworthiness. With so many choices, searching for the right lending institution can seem like a Herculean task. But reviews, ratings and communication are necessary for informed decision making.
Following Processes and Protocols
We have already mentioned the need to understand the processes and protocols. Once you have finalised the lender, you need to follow each process and protocol. One of the essential protocols is for eligibility and documents.
Do – remember that your credit score is one of the most important criteria to meet. Typically, you require a CIBIL score of 750 for loan approval. Other eligibility criteria include age and income. Personal loan documents required include proof of age, income and residence. In case you are not meeting the requirements, you can explore the option of taking on a co-borrower.
Don’t – file an incomplete or incorrect application. Missing out on the documents required by the lender is an incomplete application. It will lead to rejection which will harm the credit/CIBIL score.
Personal loans are one of the most accessible loans to get in India. Following the above dos and don’ts can undoubtedly help you to choose a lender and loan amount that suits personal requirements. Ensure that you are filling and filing application only when you are 100% sure!