Applying for a loan can be a daunting task, especially if you are not sure about the eligibility criteria, interest rates, documentation, and other aspects of the loan process. However, with some research and planning, you can avoid common mistakes and pitfalls that can lead to loan rejection or higher costs.
Here are some dos and don’ts that you should follow when applying for a loan in India.
Before you decide to take a loan, assess the requirement that you need it for. Every loan is a commitment to pay monthly EMIs for the specified term of the loan, which means that it will be an added expense in your future budget, along with interest. Evaluate if the loan you are taking is for a productive purpose or not. For instance, you have unpaid credit card bills to pay off but you are taking a personal loan to fund your vacation. That will just land you in more debt. So, ensure that you use your loan money productively.
Applying for multiple loans at the same time can hurt your credit score and reduce your chances of getting approved. This is because every time you apply for a loan, the lender will make a hard inquiry on your credit report, which will lower your score temporarily. Moreover, having multiple loan applications can indicate that you are credit hungry and desperate for funds, which can make lenders wary of lending to you.
Before you take a loan from a lender, do some thorough research on all the options available to you. Don’t just blindly go for the first lender who approaches you with a personal loan offer. If you keep a lookout, you have a good chance of finding a lender who may offer you a lower rate on a personal loan with better terms. Also, ensure that the loan you choose suits your requirements.
Before you sign the loan agreement, make sure you read and understand all the terms and conditions of the loan, such as interest rate, tenure, processing fees, prepayment charges, late payment penalties, etc. Some lenders may have hidden clauses or charges that can increase your overall cost of borrowing or restrict your flexibility to repay the loan. If you have any doubts or queries, ask the lender to clarify them before finalizing the deal.
Your credit score can make or break your chances of getting a loan. Given that these are unsecured loans, the risk involved is much higher for the lender. As a result, the lender will favor applicants who have a higher credit score as this will indicate better repayment capacity of the borrower. A credit score of 750 and above will land you a good chance of getting a personal loan with a lower interest rate and good terms.
One of the biggest mistakes that borrowers make is to borrow more than they can afford to repay. This can lead to financial stress and default in the future. To avoid this, you should calculate your monthly income and expenses and determine how much EMI you can comfortably pay without compromising on your essential needs and savings. Use the free EMI calculator on ZET to find out how much loan amount and tenure will suit your budget.
Before you apply for a loan, make sure you meet the eligibility criteria of the lender. Different lenders may have different criteria based on factors such as age, income, occupation, credit history, etc. If you do not meet these criteria, your loan application may get rejected or delayed. You can check your eligibility online on the lender’s website or use an online eligibility calculator to find out how much loan amount you can get based on your profile.
Availing of a loan involves some documentation and it is important to submit documents that are approved by the lender under each category to avoid loan rejection. Some of the common documents required for a personal loan are identity proof, address proof, income proof, bank statements, etc. Make sure you have all these documents ready and updated before applying for a loan. Also, ensure that all the information is provided in the application form.
Download the ZETapp to explore a wide range of financial products such as Business Loan, Instant Loan, and Personal Loan. Find the perfect solution for all your needs on ZET.