Today, availing of a personal loan has become simple, involving only a few steps for the completion of an online application for the advance. So follows the approval, often coming as quick as within a few minutes of application. Once approved, lending institutions usually disburse the financing value within the next 24 to 48 hours depending on one’s city of residence. Just as the process to apply for a personal loan has been simplified, various of its use features have been too.
When availing financing, it is always wise to be well aware of the important aspects involving your loan. We thus bring our list of some essential aspects related to personal loans that you must know before deciding on your loan application. Let’s take a look.
Qualification for the Advance
To avail of financing as a personal loan, you must be appropriately qualified. As most of these financing options are available as unsecured advances, lending institutions primarily stress on fulfillment of all eligibility criteria for loan approval. Some of the common requirements that lenders ask applicants to meet include age, occupation, income, and residential status. Make sure to check with your selected lender the eligibility requirements and confirm if you meet all of them before you apply for the personal loan. It shall help with hassle-free processing of your loan application.
Important Documents Needed
Another essential thing to know when availing a personal loan is the document requirement. Completing the required paperwork is mandatory for easy loan application verification, leading to quick approval of the advance, and the consequent disbursal. Once you have kept the documents handy for submission, the paperwork is completed in no time. These personal loan documents primarily involve paperwork related to KYC, which includes identity and address proofs, along with income, proof of employment/business ownership, and proof of occupation.
Criticality of Credit Score
A credit score is a crucial parameter that a borrowing individual needs to mandatorily fulfill when availing of a personal loan. The 3-digit number is a crucial indicator of one’s creditworthiness, thus allowing the lender to assess the risk involved with such a borrower. When you apply for a personal loan, your financial institution sends a hard inquiry related to your credit score and history to complete such risk assessment. Ideally, one should hold a credit score of not less than 700 when availing a personal loan. If your score is lower than this threshold, it is best to work on your credit profile at least 6 months before such application for it to reflect on your credit history by the time you apply.
One of the top priorities for a personal loan borrower when availing financing is that the advance should be affordable. To check its affordability, the following aspects must be considered.
- Interest rate levied
- Type of interest rate levied between fixed and floating options
- EMI affordability
- Total loan liability computed by the tenure’s end
- Additional fees levied on the advances
- Savings made on loan prepayment
You can compute your effective loan affordability for the loan amount and tenure selected with the help of an EMI calculator available online.
FOIR and Credit Utilisation Ratio
During the initial preparation stages for a personal loan, it can also be wise to check your Fixed Obligation to Income Ratio, which represents your total fixed monthly obligation as a percentage of your total monthly income. It helps lenders assess your repayment capacity. Similarly, the credit utilization ratio shows your overall dependency on available credit with you. Assessing these two ratios helps make necessary changes so your chances of loan approval increase.
When you apply for a personal loan, you can do so through a pre-approved offer, if available with your lender. Such an offer simplifies the overall processing of the advance and reduces the time taken in loan approval, thus helping with quick accessibility to funds.