Because of innumerable instant personal loan apps, taking a personal loan has become easy. But even when it is easy to get a loan, you must know its process and nitty-gritty before availing of an instant loan to get the best deal and avoid rejection of your loan application. Get smart about instant personal loans reading this piece.
With easy access to credit, many borrowers take the loan process for granted and get rejected for future loans because of poor credit history and bad credit scores. This article talks about how you can be smart about taking instant personal loans and stay out of the rejection cycle.
The new-age personal loan offerings
Digital interventions, technology, and instant personal loan apps have made it easy for lenders to reach borrowers and offer them things they can afford with their current earnings.
With online platforms and lending apps, the loan market has changed its loan giving process. Today, you do not have to save in bits and pieces before making a considerable expense or purchase. With the online system of providing loans, you do not have to wait in line for hours or wait for weeks to get approval for getting a loan. Instant loans today are available quickly within hours or a day.
Personal loans are growing in popularity in India year on year. They are an affordable alternative to credit cards as they help you make big life purchases while you also save on interest.
But you have to be smart about taking instant loans
You must have a clear purpose for taking a loan and a sound repayment plan before taking on a personal loan. Whether you are looking for a personal loan to finance a home renovation, consolidate debt, fund education, or finance your international trip, you must have a goal before taking on an instant loan.
With easy access to credit, people take the loan system for granted and get rejected on making applications for further loans from instant loan providers. So, if you are among the ones who use instant personal loan apps or are planning on using them, you must be smart about them.
5 ways to borrow money to get the best deal and avoid loan rejections in the future
Below are the five ways in which you can borrow money to get the best offer and avoid loan rejections in the future:
- Take loans for a short term: Opting for longer loan terms will look like a great deal on first look. You only have to pay a minuscule amount every month, and you get what you need now! Almost all instant personal loan apps offer flexible loan terms or loan terms of up to five years.
But by opting for longer tenures, your interest ends up being much more because of the increased period. So, remember that long terms mean higher interest pay-out and keep your loan term as short as possible.
- Do not borrow more and what you can’t repay: While borrowing an instant loan, keep in mind that your overall EMI outgo stays lower than 50% of your monthly income. If you want to determine what your EMI outgo must be as per your monthly income, you can use an EMI calculator. Then, find out the monthly EMI option that you can pay before taking on a loan.
- Avail tax benefits, if you can: Government offers tax benefits on personal loans under Section 24(b) of the Income Tax Act, 1961. If a personal loan is used for purposes such as home renovation, paying education costs, etc., you can deduct the interest paid on loan from your taxable income.
Also, if you take a personal loan to get tax benefits, it does not make sense to take the loan just for tax benefits. If you want to be smart about it, compare the effective cost of the loan with the potential returns you could earn by investing the amount.
- Pay your dues on time: Huge extra interests or penalties could be saved if you are disciplined and pay your dues on time. Missing a couple of payments might not look like a big deal, but it also adversely impacts your credit score and impairs your chances of getting a good loan in future. In addition, experts say that if you have an ongoing debt, you must not compromise on your debt payments by making investments or saving.
- Avoid taking loans for impulsive buying: When you take a loan for your impulse purchase, you borrow heavy interest rate loans just for a one-time shopping spree. Emotions rule shopping decisions, a factor that marketers all around the world play on. So, do not borrow with feelings for optional expenses. Note that doing retail therapy with loaned money is a bad idea.
9 questions you must ask yourself to make sure you are all set for a new personal loan
Are you going to take a personal loan? Well, you should do it smartly.
Ask yourself the following 9 questions to make sure that your loan application is not rejected, and you get the best personal loan terms:
- Exactly how much money do I need?
The first smart step you should take before taking an instant loan is to ask yourself how much money you need. In general, lenders offer instant personal loans from Rs. 5000 to Rs. 5 lakh. So, do not jump for the maximum amount eligible to you and loan only what you want. If you need less than Rs. 5000, you may consider saving it up in advance or borrow the amount from a friend.
- What’s my credit score? Is it good enough?
Before applying for a personal loan, know your credit score to ensure that you can qualify for it. Online lenders lend money to loan applicants with a good credit score. So, gauge your eligibility from your end first. There are many good online sites from where you can get your credit score.
- How would taking on a new loan affect my credit score?
Having personal loan credit and repaying it on time will strengthen your credit score.
While adding a new loan can boost your score, there is no sense in taking one unless you need it. For a good credit score, focus on just two factors: credit utilisation and on-time payments.
- After what time and during what duration would I have to pay it back?
You are to begin repaying your instant loan after three months. Most lenders offer repayment terms from three months to five years. Both your monthly payment and interest rate get impacted by the loan term you choose.
- Can I pay back every month without fail?
While applying for a personal loan, you can choose the repayment plan and term that works best for you. For example, some people prefer their EMIs as low as possible and have no issue paying back the loan over several years. On the other hand, others like to repay their loan off as fast as possible and choose the highest EMI.
While choosing a loan with maximum EMI and a short term has the minimum interest attached, ensure that you can pay that EMI every month without fail.
As a rule, you must aim to spend no more than around 35% of your income on debt.
It’s hard to get a loan approved with a debt-to-income ratio of over 40%, and if approved, it can lead to cash flow problems for you.
- How long can I wait before getting the funds?
While some lenders disburse funds on the same day they are approved, others may take up to 10 business days to clear the formalities. So, if you need quick money, go for same-day cash disbursing lender.
- Total how much interest would I have to pay?
Your interest rate depends on elements like your loan amount, term, credit score, etc. For example, interest rates for instant loans can range between 12% to 35%. Typically, you get the lowest interest rate when choosing the shortest term possible and have an excellent credit score.
Personal loan APR is often fixed for the life of your loan. So, if you are planning to take a personal loan for debt consolidation, you can keep your interest rate or APR in mind.
- What options do I have?
If you’re looking to consolidate or pay off debt, you have other options like balance transfer loan amount, 0% APR credit cards, etc. Similarly, you can consider all the possible financing options before taking on an instant loan for your purpose.
- Would I be charged any other fees?
Personal loan lenders charge fees like loan processing fees, service charges, etc., other than interest. Also, there are prepayment charges and post-payment charges that you must know of before applying for a loan. It’s best to avoid such charges if possible.
Personal loans are an excellent substitute for credit cards. Still, just like any financial product, they are only beneficial to you when you have a detailed plan of using the product to your benefit.
Apart from going through the above list of questions, make a soft inquiry on your preferred lender’s website or on a loan app comparison website to see your options without the search damaging your credit score. Then, after you know your standing, you can follow through with a hard inquiry.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs