A personal loan has, over the decades, especially due to speeding financial inclusion, become one of the most popular loan options in the lending industry, more so for people requiring urgent funds to meet various financial shortfalls like medical emergency, home renovation, etc. The key reasons behind such immense popularity have been zero restriction on end-use of funds, quick and even near-instant disbursal, minimum documentation, and absence of any collateral or security requirement. However, although such aspects are clearly indicative of the prime features of instant personal loans of top lenders such as SBI personal loans, the unsecured nature of these loans often leads to lenders taking up a slightly cautious approach when approving applications.
Hence, to avoid the personal loan application from getting rejected, ensure to not commit these financial blunders when taking it:
Ignoring your credit profile
One of the initial and crucial filters checked by lenders for assessing personal loans is their credit score. Those having good credit scores generally have more chances of getting the loan approved, as they are considered more credit disciplined and, therefore, carry lower credit risk for lenders. Some lenders also tend to offer better interest rates to those having a higher credit score. At the same time, those with a poor credit score may either face rejection or lenders levy higher interest rates to make up for higher credit risk for the lender.
Hence, get hold of healthy financial habits such as timely repayment of your EMIs and credit card bills, maintaining a healthy credit mix, containing your credit utilization ratio within 30%, and monitoring co-signed loan accounts can assist you in building and maintaining a strong credit score and ensure you get lowest Personal Loan Interest Rates.
Not choosing the right loan tenure.
Lenders consider applicants’ ability to repay personal loans when evaluating loan applications. The requirement in terms of eligibility here is that the applicant’s monthly EMI obligations (including new EMI) should ideally be around the mark of within 50% of net monthly income. Borrowers should hence, select a personal loan term that keeps their monthly obligations within this range. Keep in mind that applicants with EMI repayment obligations generally hold lower chances of getting their loan application approved. Those with larger repayment commitments should choose a longer repayment period, as this will lower the EMI and boost both EMI affordability and loan eligibility.
Not comparing amongst various prospective lenders.
With lots of lenders like fintech, NBFCs, and banks offering personal loans, this loan’s interest rates tend to widely range amongst them, making it difficult to strike deals with lenders offering the lowest Personal Loan Interest Rates. Imperative for prospective borrowers to compare the personal loans offered by as many lenders as possible before going for SBI personal loans. Thus, start your process by checking with financial institutions with which you already have a banking relationship in order to inquire about their personal loan features. When comparing the various options, don’t limit your comparison to just the aspect of the lender’s interest rates. Before submitting an application to any lender, compare other loan features such as tenure, processing fees, loan amount, prepayment charges, and so on.
Submitting direct loan applications to multiple lenders
Whenever you apply for a loan and aim to fetch the lowest Personal Loan Interest Rates, all lenders tend to fetch your credit report from the credit bureau to evaluate your creditworthiness and repayment behavior. Such lender-initiated credit report requests are termed as hard inquiries by the credit bureaus, each of which gets included in your credit report and pulls down your credit score by a few points.
Furthermore, submitting multiple inquiries in a short period of time may portray you as credit-hungry, which may cause some lenders to reject your personal loan application. Hence, avoid directly submitting loan applications with multiple lenders in order to prevent significant damage to credit score, which can further result in loan rejection.
Ignoring possible and alternative loan options
When thinking of availing funds from options like SBI personal loan to fulfill financial shortfalls, it’s crucial for people to take into consideration other possible loan options like digital/physical gold loan, home top-up loan, loan against FDs, etc. Similar to the personal loan options like SBI personal loans, these loans do not involve any end-usage restrictions. Most of the time, some of these alternative loan options usually involve relatively lower interest rates as well as longer repayment tenure vis-a-vis personal loans. Hence, in order to make sure to strike a deal with the most suitable loan option and lender as per your financial requirement and repayment capacity, it becomes crucial to compare numerous feasible loan options before selecting any.
Borrowing loan more than the requirement
Another serious financial mistake that many people make when taking out personal loans is borrowing more than they need. This holds true especially for those having higher repayment capacity, who get tempted to avail a larger amount of loan upon knowing their high loan eligibility. Such people frequently overlook the fact that taking out a loan, particularly a relatively expensive one like a personal loan, entails paying interest on top of the borrowed principal. The more you borrow, especially if it exceeds your actual needs, the more additional interest costs you will incur, taking money out of your pocket. Over-borrowing may even push you to strain your financial health in order to repay the borrowed loan, thus potentially increasing the risk of default.
Therefore, ensure that you borrow only what you need and will be able to repay comfortably. Moreover, remember that one of the best ways to avail lowest Personal Loan Interest Rates is to borrow only the amount you are eligible for and actually require, after factoring in your income, credit score, repayment capacity, and other existing liabilities.
Doing frequent job switches.
When evaluating your personal loan eligibility, another parameter often considered by many lenders like SBI personal loan is the employment history and stability of the applicant. Lenders may be hesitant to lend to applicants who frequently switch jobs because it may be interpreted as a sign of career instability, and such people may also be deprived of getting the lowest Personal Loan Interest Rates. Thus, try to avoid frequent job changes, especially if you intend to take out a personal loan shortly within the next few months or so.
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