Personal loans are quick but expensive. Keep EMI below 50% of salary, other checks for best offer

ET Now Digital
Updated Apr 30, 2021 | 09:45 IST

Personal loans are quick but are costly as they are unsecured. Interest rates may way anywhere from 9 to 24%. It's best to avoid this kind of borrowing but here are a few checks if you must

Personal loans are quick but expensive. Keep EMI below 50% of salary, other checks for best offer
Personal loans are quick but expensive. Keep EMI below 50% of salary, other checks for best offer  |  Photo Credit: BCCL

Personal loans are unsecured loans which are easy to access to come with signifiant interest cost. If you need funds in a jiffy for unavoidable personal needs, personal loans are the best. Given these loans are unsecured, lenders easily reject applications if found inconsistent with their set eligibility criteria.

In case, you’re thinking of taking a personal loan, here’s some factors to consider

Credit score: Maintaining a good score is the bedrock of your ability to get any loan be it loan. Four credit information companies (CIC) or credit bureaus like Equifax, Experian, CRIF High Mark, and CIBIL TransUnion provide their proprietary credit score and detailed credit reports in India. 

Credit score which is ubiquitously referred to as the CIBIL score is a three-digit number ranging from 300-900, which summarises an individual’s entire credit history. All credit bureaus provide this score. A credit score of 700 and above is considered as ideal. A higher credit score indicates good credit history and responsible repayment behaviour.

Ensuring healthy financial habits such as paying equated monthly instalments and credit card bills regularly. Those who have a credit score of greater than 750 are given the best loan offers. If at all your credit score is impacted by a fraudulent or erroneous entry, get it rectified immediately by informing the concerned CIC and lenders.

Ongoing loans: Lenders also assess ongoing loans of the applicant to determine repayment ability. The ongoing loan EMIs including the one applied for should not exceed more than 50% of applicant’s monthly income. This is a key factor that lenders take into account before deciding on a loan application. Another important factor is the employer’s profile.

Reduce loan enquiries: When you apply for a loan the lender requests your credit bureau to gauge your creditworthiness. A lender initiates a ‘hard’ credit history check when applying for loans. This marginally impacts your credit score.  Applying to multiple lenders impacts your credit score as there will be many enquires against your credit background.

Compare loans online: Personal loans are the costliest in terms of interest charged which can be anything from 9-24% per annum. It is prudent to avoid personal loans unless absolutely necessary. Experts suggest it is best for borrowers to first check with banks or non-banking finance companies that they already have a relationship with to get better offers.

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