7 Things To Consider Before Taking A Loan
Whether you are applying for a loan online or from a brick-and-mortar institution, it is imperative that you gather all the important information. It will give you a better chance of getting your loan approved.
It will also help you to borrow at a competitive interest rate.
Before applying for a loan, you should be well-informed about a host of factors such as charges and fees, interest rate, credit score, etc. These will enable you to make the right decisions.
It will also help you to avoid the pitfalls such as borrowing an insufficient or excessive amount, getting the repayment plan wrong, or opting for the wrong lender in the first place.
Why Do You Need A Loan?
Is it a matter of life and death? Or, would you like to make a luxury purchase?
Depending upon your need of the moment, you may either go for a long-term loan or a short term one.
A long-term loan, typically taken for a car, home, or in the case of a medical emergency, builds assets or protects life.
A short-term loan, on the other hand, is not meant for frivolous borrowing.
In fact, it is recommended that you treat short-term loans the same way you treat your credit card – as a stop-gap measure used only during emergencies where you will get a quick reprieve.
Are You Eligible?
First things first!
Before approaching a lender, you have to make sure that you fulfill the eligibility criteria. Are you old enough to borrow? What kind of credit history do you have? Are you employed? Do you have your proof-documents in order?
In addition to the documents that are mandatory for you to furnish at the time of availing of the loan, you also have to keep your financial history handy.
Prudent lenders tend to perform thorough due diligence before allowing loan-takers to borrow money.
The Loan Amount
This is a no-brainer!
Getting the loan amount right is the key to successfully repaying it at a later stage, both in terms of your installment options, charges, and interest rates.
The rule of thumb is that you should only borrow the most essential amount – that which you cannot do without. You can always make arrangements for additional financial assistance later or even take another loan if required.
Negotiate Your Interest Rate
This is where a good credit history pays off!
If you happen to have a healthy score, you are a prime target by lenders for attractive loan options. This means that they are willing to compete with each other for your business.
As such, you can hard-bargain an interest rate that best suits your wallet. You'd be surprised by how much even a modest reduction in the rate can substantially alleviate your repayment woes.
Your Income Matters
Are you employed?
When it comes to loans, especially the short-term ones with quick repayment tenure and no collaterals, the employment status of the borrower becomes important.
Nature, profile, and earning capacity of the loan-taker directly affects the amount of money that he or she can borrow.
A Good Credit Score
The credit score, popularly known as the CIBIL score in India, is a measure of how creditworthy you are. It is calculated on the basis of your repayment history.
The range of the CIBIL score is between 300 to 900. If you have a score above 750, you're in luck!
A bad credit score implies that you have a chequered history when it comes to credit repayment. This could translate into a high-interest rate. It could even result in your loan application being rejected.
Fortunately, maintaining a healthy credit score is relatively easy. Simply pay your repayment options on time. Instead of having to remember the date of repayment every month, you could automate the entire process through your bank.
Another good way to ensure a healthy credit score is to reduce the number of credit cards that you are using. When you use the same card over and over and make your payments on time, it reflects upon your credit score positively.
The Fine Print
When availing of a loan, go through every line of the agreement document meticulously. Make sure that you understand the clauses that deal with your repayment plan and the consequences if you default.
Before you sign on the dotted line, you should be well-versed with the penalties levied, the charges, and the fees.
This will save you a world of trouble and headache later.
At mPokket, we understand the risks a borrower takes every time he or she avails a loan. This is why we leave no stone unturned to ensure that our customers have a seamless experience when taking money from us.
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