A personal loan is an unsecured loan offered by financial institutions to borrowers. While the money is borrowed as a lump sum, it is repaid in equated monthly instalments (EMIs) over a period. A personal loan is easy to apply for and is disbursed relatively quickly, provided one fulfils the eligibility criteria. A personal loan can be used for almost any purpose and the lender does not ask the borrower the end-use of the loan.
Uses of a personal loan
A personal loan can be used for various purposes, a few of which are listed below:
Follow these steps to get a Personal Loan quickly:
1. Apply online: It is best to apply for a loan online from the comfort of your home. You do not have to visit the branch. Given your busy schedule, you may not get time to visit the lender and apply for a personal loan. Digital-first lenders such as Poonawalla Fincorp offer quick approval to online loans, provided a few conditions are met.
2. Choose your lender and then apply: Before applying for a personal loan, it is better to do your homework. Compare the rates and services of different lenders online and then apply for a loan. Applying to multiple lenders has three disadvantages—firstly, you end up wasting time following up with numerous lenders; secondly, multiple enquiries on your credit score can affect it adversely and thirdly, keeping track of loans from multiple lenders can be a hassle.
3. Maintain a good credit score: A credit score is one of the most important factors checked by lenders before considering your application for a personal loan. A credit score of 750 or higher is considered to be very good and you may get a lower interest rate or a higher loan amount from the lender. A lower credit score reduces your chances of getting a personal loan and could even result in rejection. Hence, try to keep your credit score as high as possible by following good credit practices.
4. Maintain a decent account balance and history: Always keep a decent account balance and a good account history. This gives the lender the confidence that the borrower has the capacity to repay.
5. Reveal all sources of income: When applying for a personal loan, it is best to reveal all your sources of income. If you are a salaried individual, apart from specifying your salary, you should reveal any alternate sources of income—rent received from any owned real estate, equity dividends, part-time income, consulting fees, etc. “The more the merrier” since a higher income increases the confidence of a lender and improves your chances of getting a loan.
6. Keep all documents ready: Most lenders require only a few documents for disbursing a personal loan. However, it is better to keep all these documents ready, so that your loan processing time will come down. Typically, the following documents are required:
1. KYC—Aadhaar or PAN
2. Address proof—Passport, utility bill or rent agreement.
3. Income and financial document—Bank account statement and salary slip of last three months.
4. Proof of employment—Certificate of employment for salaried persons and degree certificate for professionals such as a chartered account (CA), company secretary (CS) or a doctor.
7. Apply for a loan amount that you can repay: Don’t go in for a loan amount just because the lender is willing to lend. Check your actual requirement and apply only for the amount that is necessary. Secondly, make sure that you will be able to pay the EMIs without straining your finances and existing liabilities.
8. Check the debt-to-income ratio: A debt-to-income ratio is the ratio of your monthly EMIs against your monthly income. Check out your debt-to-income ratio and try to keep it as low as possible. Lenders prefer the ratio to be less than 45-50 percent. A lower ratio indicates a comfortable financial position and increases the confidence of lenders. A higher ratio implies that your liabilities are significantly higher compared to your income and you could be at risk of default.
If you follow these steps, you are likely to get approval for a personal loan quickly. A funding need could suddenly arise as an emergency and hence it is better to do your homework so that you are prepared. Even if you need a Personal loan for a less urgent reason, it is better to follow these steps so that you can save time.
It is also important to read all terms and conditions carefully before you apply for a personal loan so that there are no unpleasant surprises later.
It is advantageous to apply for a personal loan from a good lender such as Poonawalla Fincorp, which follows transparent policies and a customer-first approach.