At some point in time, you may need a personal loan. There are several reasons for taking a personal loan, like buying a car, purchasing an apartment, covering wedding costs, etc. A personal loan can make your dreams come true. And today, you’ve got lots of choices when it comes to taking a personal loan.
There are also many free apps and personal loan calculators that can help you calculate the installments and interest. Now the question is: can you secure a personal loan or not?
A Few Critical Things to Consider When Applying for a Personal Loan
Numerous personal loan lenders can offer you instant cash if you meet their requirements. Here are some critical things to consider before you even think of taking a personal loan:
1. Your Credit Score
The first thing to consider is your credit score. You must do everything you can to boost your credit score before applying for a loan. Make sure you pay your bills, credit card fees, and other expenses without delay to secure a solid credit score.
The lender calculates your credit score based on the information you provide, so make sure your documents are accurate. Check the qualifications and prepare the documents in advance to fulfill the lender’s requirements.
2. Your Eligibility
You must meet the following basic requirements before you can apply for a personal loan.
- You must be at least 18 years old.
- You must have a regular source of income.
- You must be a legal resident of a nation.
- You must provide information about your current financial situation.
3. Purpose of the Loan
Not all types of personal loans are the same; some personal loans are secured and specific, while others are unsecured. Understand the different kinds of personal loan options available before selecting the right loan option for your needs. It’ll boost your chance of getting the loan.
4. Extra Fees Associated with a Loan
Some personal loans have other fees besides regular interest. Lenders can charge fees for the establishment, early exit, servicing, early repayment, insurance, etc. of the loan. Understand all the extra fees and charges before applying for the loan.
5. Interest Rates
The interest rate is something you need to consider at the very beginning. You need to compile a list of potential lenders before applying for a loan. Select the lowest possible interest rate for your loan. With that said, you should also calculate the total cost and risks associated with that specific loan.
6. Your Repayment Capacity
Lenders want to know your repayment capacity before they grant you the loan. They check out your Fixed Obligation to Income Ratio (FOIR). You should ensure this ratio is between 40-50% before you consider applying for a personal loan.
Lenders calculate FOIR by checking your income used in debt repayments, including your monthly installments and credit card payments. If you have a lower repayment capacity, you can choose a more extended repayment period but it may have a higher interest rate.
If you can, pay more money than the monthly installment of the loan. You can try generating a side income from your home to help you deal with the interest repayment. It’ll also help you to have multiple sources of revenue.
7. Number of Loan Applications
It’s essential to know your options before applying for a personal loan. You can easily compare lenders’ interest rates and other fees by visiting online comparison websites. However, you must avoid applying to many lenders for your personal loan.
When a lender pulls out your report from a credit bureau, they will know your financial history. A rejection of a personal loan decreases your credit score. Also, if your lender finds out that you are applying to multiple lenders for a loan, they’ll consider you a credit-hungry person. And, no lender wants to do business with an unreliable applicant.
8. Your Employment History
One of the things that worries a lender is an applicant’s employment history. No lender wants to grant a loan to a person with frequent job switches. Numerous job switches mean the applicant doesn’t have a regular and reliable source of income.
Your lenders expect you to pay the installments on time. Therefore, have a stable employment history to boost your chance of getting the loan approval.
Final Thoughts
Securing a loan can help you fulfill your dreams or get you out of trouble. If you prepare well before applying for a personal loan, there’s a high chance that you’ll secure the right type of personal loan. Keep the above points in mind to get the perfect personal loan for your needs.
