Every now and then, you may be in need of some instant extra cash to take care of one or many of your multiple wants. In such a case, it does make sense to opt for a personal loan. You can use the money to go on a vacation, splurge on your wedding, or you can invest in your own or other small businesses. There are hardly restrictions on how you can use the money. Because of this flexibility, the demand for small personal loans is on a rise.
Even the approval process for small personal loans is quite simple. But you need to keep a few things in mind before you go ahead and apply for a personal loan. Here are some tips that will not only make sure you get the best deal but will also prevent your loan application from getting rejected.
1. Check Your Credit Score
The first thing you should do as soon as you consider applying for a personal loan is to check your credit score. Knowing what your credit rating is will give you a clear idea of whether your personal loan application will be approved or rejected beforehand.
Factors like credit utilization, payment history, the age of your credit history and the types of credits you already have are some of the factors that affect your credit rating. If your credit score is over 750, it means you have higher chances of getting your personal loan approved.
If your credit score is too low, you can make a conscious effort toward improving it as a loan rejection can have a further negative impact on your score.
2. Check Your Eligibility Criteria
Apart from your credit score, there are other factors that determine your eligibility for a personal loan. These factors include your age, income, employment stability, employer, and the outstanding balance on previous loans you may have taken.
You should not have taken a personal loan in the past six months as well, as it may make the potential loan issuer reconsider approving your personal loan application. This is due to the fact that an additional loan will increase your financial burden, which loan issuers take into account.
3. Do Your Research
After you are done checking your credit score and if your score is above 750, you can go ahead and conduct research on different aspects like personal loan interest rate, maximum loan amount offered , loan tenure, prepayment procedures etc. Based on your needs, you can look around to see what each potential loan issuer can offer you. You can check their websites or call their customer support to ensure you get a clear idea of what you are getting yourself into. Do not settle until you have exhausted all your options.
Once all your options are laid out in front of you, chose the best one and submit your personal loan application. Make sure not to apply to multiple issuers at once as it decreases your chances of getting a loan issued from a single lender.
4. Read The Fine Print
After you have made your decision to take a personal loan from a specific lender, read the fine print before you sign up for the short-term loan. Even if you are planning to borrow only a small amount, read all the terms and conditions carefully. This will prevent you from getting into a difficult financial situation later on. Reading the fine print also ensures you are getting the best deal according to your needs and situation.
5. Plan How You Will Repay Your Loan
Finally, take some time out and carefully plan your finances. Though taking a personal loan does give you a lump sum amount to spend, you will be stuck paying EMIs for the entire loan tenure. Visualize how this is going to affect you and then take the next step.
Make sure that no more than 30% of your income goes toward paying the EMIs. This will not only give the loan issuer more confidence in your ability to pay off your loan, increasing your chances of getting your loan approved, but will also reduce your overall financial burden.