A few important things one must consider before applying for a personal loan
Method of Interest Computation - The interest calculation method influences the rate of interest charged by the bank on the amount loaned. Interest on personal Loans is calculated by two methods - the reducing balance method and the fixed-rate method Generally, the interest paid by the borrower is lower when the interest is calculated by the reducing balance method and when the rate of reducing balance method and fixed-rate method is alike.
Interest Rate - The Personal loan interest rate dictates the amount that one has to pay in addition to the loan principal over the repayment term. The best personal loan from the borrower’s point of view would offer the lowest rate of interest. The best bet, in this case, would be to approach a reputed bank but it is also vital to compare the interest rates offered by various banks as the rate of interest differs in each bank. The rate of interest would also be subjective to the borrower’s income.
Processing fees - Processing fees are charged when the loan is disbursed to the borrower. Processing fees added to the interest rate determines the total loan amount hence lower the processing fees, the better it is for the borrower.
Part prepayment and foreclosure - An optimal personal loan should provide the borrower with the option of part prepayment or foreclosure of the loan before the end decided due date at minimum extra cost. These options allow the borrower to save on the interest amount paid by them, hence saving them money.
Flexible repayment structure - Generally, personal loans have a flexible payment structure that varies from 12 to 60 months. It allows the borrowers to repay through equated monthly installments (EMI), which allows a reduced impact on the budget of the borrower.
Tenure - The borrower needs to consider the duration of the loan. The borrower should opt for a bank that provides flexibility in the tenure. The perfect loan is the one that meets the time requirement of the borrower.
Should be easy to obtain - Personal loans can be obtained through simple documentation and disbursed quickly by banks, hence helping the urgent financial requirements of the borrower. Online facilities provided by banks such as Vijaya Bank Personal Loan it convenient for borrowers to apply for the loan, verify their documents and obtain approval for the loan.
Take a loan only when it is crucial - A personal loan should only be taken after a thorough assessment of the loan requirement and repayment capabilities. It is important to consider not only the short term but also the long term goals, before applying for a loan.
Thorough research - It is important to do thorough research of the banks and other financial institutions, and the various schemes and policies provided by them. Only after complete research, one should finalize from where they would take the loan.
Consideration of such factors would help an individual to get the perfect loan.
Factors that affect personal loan eligibility
Income - The stability of income of the borrower impacts their loan eligibility.
Credit score - The borrower needs to have a high credit score to qualify for a loan. A credit score of 750 and above is recommended.
Housing situation - Having your own house improves the chances of the loan being improved because the repayment capacity increases. While living in a rented house negatively affects the repayment capacity.
Other factors - Factors such as residing location, the company where the borrower is working, existing debts also impact the eligibility criteria.
Documents required to apply for a personal loan -
The borrower should be able to produce -
1.Proof of identity.
2.Proof of residence.
3.Proof of income.
Documents such as an Aadhar card, pan card, passport, driving license, etc. can be used for this purpose. The borrower also has to present lender-specific forms as well as passport-size photographs.
Read More:- What A Personal Loan Costs You