New Delhi: A personal loan can help manage unexpected expenses. It can provide much needed funds for a major purchase, to cover medical bills or to consolidate debt. No matter the reason, it can give you instant access to cash.
But before you apply for an instant loan, it’s important to be aware of the dos and don’ts to avoid any potential financial pitfalls. This way, you can make informed decisions and maximise the benefits of your loan.
Personal Loan: Dos
Taking a personal loan requires careful planning. Keep these tips in mind:
- Build A Healthy Credit Score
Your credit score determines your creditworthiness. Issuers can get a clear idea of your repayment management behaviour by checking your credit history. The CIBIL score is a three-digit number (ranging from 300 to 900), with a score above 685 considered ideal for borrowing.
Any lender may reject your loan application or offer a loan with a higher interest rate if your score is not good. Here’s a table of different CIBIL score ranges and their significance for loan approval:
| Range | Significant for Loan Approval |
| <300 | Poor (your loan is likely to be rejected) |
| 300-620 | A low score (needs improvement) |
| 620-749 | Good credit score (you are eligible for loans with a fair rate of interest) |
| 750-900 | Excellent score (You are eligible to get the best loan offers) |
To improve your credit score, you can:
- Pay your dues on time
- Automate your payments to maintain punctuality
- Reduce the number of active credit cards
- Use your old card with a good credit score
- Regularly track your progress
- Look For the Best Interest Rates
To get the lowest interest rate, you should explore and compare different lenders’ rates. Select the lender that provides competitive interest rates on personal loan, flexible repayment options, and fewer additional fees. You can check the interest rates and repayment terms of different instant loan services easily on lenders’ websites.
Here are the interest rates of some of the top personal loan apps:
| Moneyview | 14% p.a.* onwards |
| Navi | 9.9% p.a.* onwards |
| Fibe | 9% p.a.* onwards |
| IDFC FIRST Bank | 10.99 p.a.* onwards |
| IndiaLends | 10.75 p.a.* onwards |
Disclaimer: These rates are subject to change over time. Visit the official website or app to check the current rate before applying.
- Calculate All Costs
Personal loans are also subject to other charges like:
- Late fees
- Processing fees
- Prepayment charges
- Document verification charges
Study the terms and conditions and keep them in mind to determine your cost of borrowing.
If the terms are unclear, don’t hesitate to seek clarification. Do not apply for a loan from any provider that is not completely clear about their policies. Hidden charges will add extra expenses to the total amount you must repay.
- Consider Your Requirements
It’s important to assess your needs and borrow what is necessary. Higher loan amounts often come with increased interest rates and fees. You can always go for loans that charge interest only on the usage instead of the approved amount. You can also opt for a loan with flexible repayment options.
- Check Eligibility
Issuers will inquire about your credit score, age, income status and debt obligations to determine eligibility. Every time you apply for a loan, they repeat the inquiry process. It’s called a hard inquiry, which can negatively impact your credit score.
Before applying, checking your eligibility is essential. Apps that provide loans have an inbuilt calculator to check eligibility. Third-party platforms can also help you find the best loan options based on the details you provide.
Personal Loan: Don’ts
Watch out for these mistakes when taking a personal loan to avoid any unnecessary trouble:
Going For the Lowest Interest Rate
Avoid going for loans only based on a low interest rate. Always check all the other fees associated with the loan. Many providers offer low interest rates to attract customers but make up for it in other ways, such as:
- Hidden fees
- Prepayment fees
- Penalties
- Other expenses
Ignoring Your Credit Score
Your credit score is arguably the most important factor reflecting your eligibility to borrow funds. You should never ignore it. Track your credit report for a few months before applying for a loan and take measures to improve it if needed.
Don’t worry! You can check your credit report once a month. Doing so will not impact your credit score.
Borrowing Unrequired Money
Overborrowing can land you in a debt trap. That is why you should only borrow the amount you need. Thoroughly assess your needs, calculate the required amount, and then proceed with the loan.
Applying For Multiple Loans
Don’t take on too many loans at once. It can add to stress and lower your credit score. Every time you apply for a loan, it shows up on your credit record and can bring your credit score down. Having multiple loans adds more bills to manage, making it both challenging and expensive.
By considering these dos and don’ts, you can choose the best personal loan app to match your needs. Maintaining a good credit score will keep you one step ahead. Tracking your credit record is easy and helps you stay on top of your financial health.
Just download the OneScore App and enjoy its lifetime-free credit report and score facility. It can provide you with personalised insights on improving your score. You can also use its tracker to track your progress. What’s more, you can get loan offers from OneScore directly and apply for a loan based on your credit score.
