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Things to Avoid when Applying for an Online Personal Loan

by Abhay Choubey
Personal Loan

Personal loans online have become a preferred loan option as they enable you to have access to instant funds in a hassle-free manner when you’re cash strapped. Moreover, since they do not require any guarantee or collateral to pledge, have no end-use restriction on the use of loan amount, and only require minimal documentation to avail a personal loan in Chennai, no wonder a personal loan has gone to become extremely popular with the masses.

While getting an instant loan online is convenient and relatively simple, there are a few things to consider. Unfortunately, borrowers who apply for personal loans frequently overlook some of the most critical aspects of the process, resulting in loan application rejection.

Top Mistakes To Avoid While Opting For a Personal Loan Online

  1. Making direct applications to several lenders in a short span:

When you submit a loan application to a lender directly, they obtain a credit report from credit agencies to assess your creditworthiness. A lender generates hard inquiries, and each one is recorded in the inquiry section of your credit report. Therefore, multiple loan applications in a short period will lower your credit score drastically. Also, that makes you appear as a credit-hungry and risky borrower, which leads to loan application rejection.

Instead of applying for a personal loan in Chennai directly, go to an online financial marketplace to evaluate lenders and choose the best one for you based on your credit score, income, and other personal loan eligibility criteria. While these marketplaces may also seek your credit report from the agencies, these queries are classified as soft inquiries and have no bearing on your credit score.

  1. Failure to examine your credit report

When you apply for an instant loan online, the lender will get your credit record from CIBIL or other credit bureaus to assess your creditworthiness. Your credit report reflects how responsible you have been while handling credit in the past. Banks and financial organisations often consider a credit score above 750 to be healthy to get approved for a personal loan.

However, if your score is less than 750, your application will likely be denied in view of other factors too. In addition, some lenders use credit risk pricing, which means they use your credit score to determine interest rates on your loan. In these circumstances, a higher credit score may assist you in obtaining a loan with pocket-friendly interest rates.

Given the importance of your credit report, you should study it before submitting an instant loan application online. This can help you discover any mistakes on your credit report before the lender pulls it up. If your credit report contains any inaccuracies, you can contact CIBIL directly to have them corrected as soon as possible. You can resume your loan application procedure once all of the concerns have been resolved, and you have made sure all the personal loan eligibility criteria are met.

  1. Not comparing offers from other potential lenders:

Given that personal loan interest rates can range from 10.35 percent to 24 percent per annum and even higher, it’s a good idea to use online financial marketplaces to compare and select the best loan product and lender depending on your credit score, income, and other criteria.

Make sure you’re not just comparing interest rates but other crucial aspects too. Before deciding on a lender, you should consider the processing fee, prepayment penalties, repayment tenure options, and other relevant terms and conditions.

  1. Ignoring your ability to repay:

Lenders determine your repayment capability by calculating your Fixed Obligation to Income Ratio (FOIR), which is the percentage of your current income spent on debt repayments. Since lenders prefer applicants with a FOIR of 50-60% (including the new loan’s EMI), make sure you choose a loan duration whose corresponding EMI puts your FOIR within this range.

Borrowers with a reduced repayment ability might choose a longer repayment period to get a cheaper EMI. However, because a longer-term means a greater overall interest outlay, try prepaying your personal loan anytime you have extra cash. While doing so, be sure that the entire savings in interest costs surpass any prepayment penalties imposed by your lender.

  1. Alternative lending possibilities aren’t being considered:

Alternative lending possibilities, such as top-up house loans, loans against stocks, loans against property, and loans against FDs, should also be considered.

These loans, like personal loans, have no limits on how they are used and frequently have lower interest rates and longer terms than personal loans. In addition, the majority of them have similar eligibility like personal loan eligibility criteria. Existing house loan customers, for example, can take advantage of top-up home loans with interest rates as low as 8% p.a. and terms as long as 30 years, depending on the residual home loan term and balance.

Similarly, persons with substantial long-term investments can consider taking a loan against their securities to cover financial shortages at lower interest rates without selling their assets.

Concluding Statement

Thanks to the leading digital lending platforms, people can now acquire an instant loan online. While many lenders in the market provide loans at competitive rates, it’s always a good idea to complete your research before choosing a lender for a personal loan in Chennai.

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