Personal Loan For First-Time Borrowers
First-time Personal Loan applicants should understand eligibility criteria, credit history, application procedures and lender requirements before borrowing. A good credit score can improve loan eligibility and help secure better terms, while steady employment and responsible EMI repayments can help borrowers build a stronger credit profile.
Understanding credit scores, eligibility and repayment can help first-time borrowers make informed loan decisions | Representational Image
There are two types of people in this world – those who do not believe in borrowing money ever (including Credit Cards), and those who rely on credit and EMIs to pay for various expenses. When the non-borrowers find themselves in a financial fix and need funds urgently, they typically break their deposits or use up their savings.
As a last resort, they may apply for a loan, against their wishes. In most cases, they apply for a Personal Loan. This article is for such first-time Personal Loan applicants.
Everything You Need to Know as a First-Time Personal Loan Applicant
As a first-time borrower, you must understand the many qualities that make a Personal Loan an appealing choice for most applicants. Here are some facts you should know as a first-time applicant:
● Unrestricted Usage:
Whether you are averse to the idea of applying for a loan ever (and applying due to an emergency), or simply looking for one to start ticking off items/goals on your bucket list, a Personal Loan can come to your aid. As one of the most versatile and flexible financial facilities, this loan comes with no end-use restrictions. This simply means you can use the funds to pay for all kinds of expenses. Lenders typically don’t enquire why you need the loan. They only care that you can repay it.
● Having Past Credit Helps
While lenders are happy to lend you the money, they need assurance in your ability to repay the borrowed sums. This, they gauge, by assessing your credit score. If you don’t have a credit score, your chances of loan approval may be impacted. You can remedy this by applying for a joint loan with someone who has a credit score. You may also pledge collateral and apply for a Secured Loan. Let this obstacle be your sign to start building your own credit score.
● Eligibility Matters
Every lender sets various eligibility criteria, which you must fulfil, to improve your chances of loan approval. These criteria typically include your age (which should be 18-60 years), your net (in-hand) monthly income (which should ideally be ₹15,000+) and your employer (government, private, MNC, etc.) Lenders also assess how long or steadily you have been employed, with 1-2 years of consecutive employment, with the same employer, tipping the scales in your favour.
● The Loan Application Process
Most first-time Personal Loan applicants are surprised to know that the loan application process is no longer complicated. You don’t have to supply endless documentation and wait for days to get your loan approved. Instead, you can apply online, upload scanned copies of the required KYC documents (ID, age, and address proof), and employment proof and voila – your application will be submitted.
What’s more, if everything is in order, your lender may approve the loan within minutes, and funds will be disbursed into your account within hours of application. Isn’t that great?
● Choosing the Right Lender
As a first-time applicant, you may be better off choosing a lender with whom you have an existing banking relationship – your own bank, for instance. So, if you have a Savings Account, a Fixed Deposit, and/or any other investments with a specific bank, that bank is more likely to approve your loan request, even if you do not have an existing credit profile. Your long-term relationship with the bank gives them sufficient insight into your financial habits and makes loan approval a breeze.
By borrowing from a known lender, and repaying the loan EMIs per the stipulated tenure, you can start building your credit history, and get your own credit score.
Why Credit Score is Crucial When Applying for Personal Loans
When it comes to any loan, including a Personal Loan, you will hear the term credit score again and again. In fact, a good credit score is a vital criterion, based on which lenders assess your loan eligibility. This score is critical because it gives lenders insight into your credit-handling behaviour. You typically need a score of 750+, out of a possible 900 points, to get instant loan approval.
Besides enhancing your eligibility, a good credit score gives you the upper hand when negotiating loan terms, especially the interest rate, which ultimately determines the total cost of the loan.
A great way to start building your credit score is to get a starter Credit Card, charge it for some expenses each month, and pay the Credit Card dues on time.
Final Note: You never know when you may need a loan. Much as you may try, you cannot control when your financial circumstances may change. As such, it is always best to practice good financial behaviour, including building your credit history. A good credit score, coupled with steady employment, makes obtaining Personal Loans, even as a first-time applicant, incredibly easy.
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