Your potential to borrow a personal loan is one of the most important facets of your financial life, as several of your life goals may depend on it. Whether it is funding your business, vacations, child’s higher education/marriage or bailing you out of emergencies; personal loans can be exceedingly helpful at different stages of life. However, before you make the important decision to borrow, you must be aware of the implications attached to it. Here we will mention what you should check in instant loan apps like mpokket, banks, NBFCs etc., before submitting an application for a personal loan on their website or app.
Compare amongst different lenders.
Before you zero on any lender, it is necessary for you to do thorough research and compare lenders across various parameters to avail the best deal. Do not blindly opt for instant loan apps as it promises to provide you with loan proceeds in a minute or so or with which you share a good relationship or where you find the lowest rate of interest. A lower rate of interest does not necessarily mean it is offering the loan at a lower cost. Along with interest rate, factor in other parameters like prepayment charges, processing fees etc., before choosing a lender. Take the assistance of online financial marketplaces to compare different offers available to you. Such platforms help by matching the borrower with the correct lender in accordance with their eligibility and needs.
In case you are interested in taking a personal loan through mpokket, one of the best instant loan apps in the financial market, you should conduct thorough research about it before you proceed. Mpokket provides 3 types of personal loans, namely, instant loan for students, instant loan for low salaried and instant loan for salaried and serves in just 5 locations – Delhi, Bangalore, Chennai, Mumbai & Hyderabad. As the name suggests, mpokket instant loan for students is a no collateral based loan helping students with short term personal loans of up to Rs 20,000 at a repayment tenure of 4 months. In the case of mpokket instant loan for low salaried, low salary earners earning a salary below Rs 10,000 can avail a loan of between Rs 1,000 and Rs 30,000 for multiple purposes. For mpokket instant loan for salaried, a loan ranging between Rs 1,000 and Rs 30,000 gets disbursed to meet their unplanned or urgent expenditures.
Choose your loan tenure wisely.
Loan tenure is one of the crucial factors incorporated by lenders for determining your month on month EMI outgo. There is no ideal figure determining your loan tenure. It varies from borrower to borrower based on their repayment capacity. However, note that lower loan repayment tenure, while equates to higher loan EMI, it results in reduced interest cost & vice versa. Keeping your EMIs at a manageable and comfortable level without burdening your finances is a smart move for any borrower. Your EMI outflow should be such that it does not create any adverse impact on your long-term goals and investments. If you can afford to repay your loan quickly without burdening your monthly investments, savings and expenses, you may opt for shorter tenure to save the interest cost. Thus, before opting for instant loan apps for submitting an application for a personal loan, ensure to check their repayment tenure. Usually, their repayment tenure for personal loans is shorter as compared to banks or NBFCs. Opt for instant loan apps for availing of personal loans only if you are comfortable with their provided repayment tenure. If not, then consider opting for some other lender.
Avoid inquiring about numerous lenders within a short span.
Every time you submit a personal loan, any other loan or credit card application, lenders evaluate your credit report to understand your repayment capacity. Such lender-initiated requests are treated as hard enquiries for which credit bureaus lower a few points from your credit score. Initiating multiple loan enquiries within a short time span can be disastrous as lenders view this as a credit hungry behaviour that not only lowers your credit score adversely but may also lead to loan or credit card rejection. Instead, consider making soft enquiries through online lending marketplaces as it does not have any negative impact on your loan approval and credit score.
Ensure timely repayment of existing loans and credit card bills
Your credit history starts to build up once you avail any form of credit, may it be a loan or credit card. Your past credit history, along with your credit score, is a vital parameter analysed by lenders before approving your loan. A disciplined approach towards existing loan and credit card repayment assists in building good creditworthiness, which in turn strengthens your credit history and improves your credit score. A good credit score depicts a score of 750 and above, which not only enables you to fetch better loan deals but also helps you to avail lower interest rates on loans.
Keep your FOIR (Fixed Obligation to Income Ratio) up to 40-50%
For smart borrowing, maintaining FOIR of up to 40-50% is usually recommended. This is one of the parameters used by lenders to determine your loan repayment capacity. The ratio considers all the fixed obligations that you are currently serving on a monthly basis, such as your credit card bills, loan instalments etc. Higher FOIR indicates that a significant portion of your income goes on paying your debts, leaving meagre room for managing your expenses, savings or taking another form of credit. Such borrowers are viewed by lenders as the ones having a high possibility of defaulting loans in future and therefore may hesitate to lend them. Even if they decide on lending such applicant’s, it is likely to be at a higher rate of interest.
Monitor guaranteed loan account
Co-signing, guaranteeing or being a joint borrower makes you legally accountable for timely loan repayments. In case of defaults or delinquencies by the primary borrower, the guarantor’s credit score also faces an adverse impact. As credit score is an essential criterion for determining the approval of your future loans, make sure to keep a close eye on the loan accounts where you are the guarantor. Ensuring full and timely repayment of loan EMIs in these accounts help to build your credit score.
Fetch your credit report at periodic intervals
Before applying for a loan, you must fetch your credit report and check for any discrepancies. Credit reports or credit history may contain incorrect information due to clerical errors. Moreover, it may also contain unlawful credit applications or transactions in your name. Such incorrect information in your credit report may decrease your credit score, lowering your chances of availing of a loan. Reviewing your credit report at periodic intervals may help you take an urgent step to improve your score. As all the 4 credit bureaus provide you with a free credit report once a year, therefore you may distribute your request for free reports in such a manner that you are able to review a report once every 3 months.
Maintain an emergency fund
Maintaining an emergency fund helps in keeping your finances stable in case of financial exigencies or sudden job loss. Ideally, your emergency fund must be at least 6 times your mandatory monthly expenses, including your insurance premiums, existing EMIs etc. Having inadequate emergency funds may propel you to redeem your long-term investments, including your down payment corpus for a loan or avail costly loans to address such situations. As you begin submitting your personal loan application, consider increasing your fund’s size to at least 5-6 times your expected loan EMI. Since an emergency fund would be required instantly, you must consider parking your fund in high yielding savings accounts, short term or ultra-short-term debt funds, as these provide the highest form of liquidity and minimal risk.
