4 Rules while applying for Personal Loan - Personal Loan Blog - Tata Capital

Golden Rules to Remember While Taking Up Personal Loans

Mar 01, 2017

Personal loans, also called consumer loans, are life-savers during times of financial crisis. The greatest advantage of such loans is that they are unsecured, i.e. no collateral is required to be kept against the loan as security.

Besides, a personal loan does not require a guarantor. The most striking feature of these loans is that you may use the funds to finance any of your needs. The lending agency does not question you about the purpose of the loan.

Getting approval is not easy if you do not fulfill the personal loan eligibility criteria. The lender may decline your application if your credit score is not up to the mark. In order to prevent application rejection, it is important to be aware of all the aspects of the loan process.

Following are four rules to follow while availing of a personal loan.

  1. Borrow judiciously
    The most important rule in borrowing is taking only how much is necessary. Many-a-times individuals tend to borrow more than what is required. This leads to debt obligations in case you default on repayments. Non-payment of EMIs could affect your credit score, thereby reducing your chances of future loan approval. Hence, it is important to gauge your ability to repay, and borrow accordingly.
  2. Avoid numerous loan applications
    Though personal loans are a great financial tool to employ during a cash crunch, the key is to borrow only during an emergency. Do not avail of loans for petty reasons. You may end up paying differential interest rates by borrowing numerous loans. Instead, consolidate your debts and avail of a single loan. Also, avoid making multiple loan applications with different lenders at the same time. Lenders check your application history and may reject your application in such cases.
  3. Build your credit history
    One of the factors considered by lenders is your credit score. A low credit score indicates that there are high chances of you defaulting on payments. Moreover, the rate of interest on bad credit personal loans is high. In order to avoid higher interest rate, it is advisable to check your credit score before borrowing. Keep balances low on credit cards and pay off existing debts instead of moving them around.
  4. Be aware of various fees and charges
    Very often, fees and charges are not discussed when taking the loan. Lenders may offer an attractive interest rate but may levy numerous fees. It is necessary to be aware of fees like late payment charges and other penalties before signing on the dotted line. These elements may be negotiable from lender to lender. Negotiation will help in reducing the overall cost of the loan.

There are numerous factors to be considered before initiating the personal loan process. Follow the above-mentioned rules to have a hassle-free experience. Also, read the fine print of the terms and conditions of the loan agreement. Though it may be time-consuming, it will certainly provide clarity and give you peace of mind.