Things to Consider 7 While Applying for a Loan

Things to Consider 7 While Applying for a Loan

Overview

Financial assistance for the purchase of consumer goods, wedding arrangements, vacations, starting a business, is called a bank loan provided by a bank.  It does not require any network (protection against debt) and you can pay according to the time you need.

However, when you are a first time applicant, you need to consider how you are going to pay and how you will do it.

Below are some factors to consider before thinking of getting any kind of loan for you.

1. Affordability

You should always calculate how much is left in your earnings after taking care of all your needs like housing bills and other allowances.  The remaining amount can be used to pay the monthly installments for your loan.  Usually, most banks exclude offers and benefits of 40-50% of your income.  This makes it easy to calculate how much you will use to repay the amount.

2. Eligibility Criteria

Many banks and other lenders have different eligibility criteria.  By reducing the liability of the banks, you can get approval for your loan every month if you have a permanent job or income.  On the other hand, when a self-employed person applies for a loan it may or may not be available.  This is because banks do not want to invest in individuals who have irregular incomes and are unable to repay their loans on time.

Also, they consider the number of dependents you have as they reduce your EMI payment ability.  If you have someone as a co-applicant, that person should not be a minor and should have a steady income.  It gives you the benefit of the doubt getting more approval.

3. Rate of Interest

Most of our EMI payments include interest, which is the percentage charged on the principal amount.  There are two types of interest rate (ROI);  Stable and floating.  Fixed interest will continue throughout your loan repayment period or the first 5-10 years of payment.  Floating ROI fluctuations or changes according to RBI regulations, government policies or market conditions.  If you think the ROI is on the lower edge, take the standard ROI, which will only increase in the passing days, otherwise choose the floating ROI.  There are other sources, such as non-profit social groups, which offer loans without high interest rates.  So if you have a loan amount and these groups offer quick approvals with low interest rates.

4. Tenure of loan payment

It depends on your loan and affordability.  If you are looking for high debt, you should look for long term EMI fees with higher interest rates.  This way you pay more at your interest rate.  But on the other hand, for a shorter period, you have to pay higher EMI and lower interest rate.  But it depends on your affordability to repay each month.  If you opt for a longer term, you can make some payments before shortening your loan period.  Penalties for prepayment have now been withdrawn by most banks or are very low.

5. Credit Score

Whenever you apply for a loan, the bank or lender checks your credit score through the Credit Information Bureau (India) Limited (Sibil).  This company maintains your credit score because it tells you how qualified you are to get your credit approved.  They give you a score of 700 to 900 depending on your credit card bill payment, check bounce and how you maintain your bank accounts.  If you score above 750, your loan will be approved without any hassle.

6. Extra facilities

Do a comparative study between several banks or lenders and see who offers you the best facilities.  There are many banks that offer you 3 EMI free months and in some cases, the interest rate is reduced during the final payments.  There are other features like you can disable advance, flex plans and partial payment.  Choose a credit source that suits your payment needs.

7. Other Liabilities

If you are an individual who is already paying off some debts, stop and think before applying for your next loan.  At some point you may lose it logically, but as the payouts increase you may want to reverse your decision.  Do not use your entire income to pay off debts.

Another advantage of choosing a loan is that you can get a tax deduction that will only be charged on the interest paid along with the principal amount.  So if the payment period is long, you can apply for tax deduction.

The choice of bank or lender for loan approval requires more research, comparative research and the final decision should be made only after knowing which factors best meet your criteria for loan repayment.

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