Some of the key criteria that are considered by the lenders before approving such loans are the income level of the borrower, credit and employment history, and his repayment capacity.
People look for a personal loan for various purposes – be it a medical emergency or to make a big-ticket purchase. A personal loan is an appropriate choice to get funds without much hassle. A large number of people are now taking personal loans for their big-ticket purchases, even for buying a house or a car, and for children’s higher education, among other things.
An unsecured personal loan offered by banks and NBFCs helps individuals meet their personal needs. Some of the key criteria that are considered by the lenders before approving such loans are the income level of the borrower, credit and employment history, and his repayment capacity.
Experts suggest, while choosing the tenure for a loan, one should try taking a longer tenure. Opting for a longer tenure loan will lower your EMI outgo, at the same time also enhance your overall interest burden. Typically, it is suggested to choose a tenure between 1-5 years or 12-60 months. Lenders might offer other tenures but it usually varies on a case by case basis.
Additionally, the availing of personal loans has also increased nowadays due to banks willing to offer pre-approved personal loans, especially to their existing customers. Both banks and Fintech companies offer such pre-approved loans based on the borrower’s income, credit profile, and stability of employment. Having said that, before taking such pre-approved loans compare the interest rates charged by various players. Keep in mind, that the total of your EMIs should not exceed 40 to 45 per cent of your take-home salary.
According to experts, it is important for an individual to understand his/her financial needs and then choose without hampering their budget, before opting for a personal loan. Note that, you should not try to opt for more than you actually require, as, in the end, you only have to pay it off.
One of the most common mistakes borrowers make while opting for a personal loan is by not differentiating between essential and lifestyle-based personal loan requirements. According to experts, it is better to avoid taking a personal loan on lifestyle-based requirements as the interest rates and other charges on personal loans are very high. Unlike a home or a car loan, a personal loan is not secured against any asset, hence, the borrower does not put up collateral to avail it as it is an unsecured loan. In case of a default, the lender cannot auction anything of the borrower, because of which, interest rates on personal loans are higher, as compared to the car, home, or gold loans. There is also has a greater perceived risk when sanctioning a personal loan.
Note that, defaulting on such loans, might not be a good idea as it reflects on the individual’s credit report and causes problems for loans in the future.