It is a well-understood fact that credit has assumed an important place in our life. Credit helps us own assets that are difficult to own just out of savings. In addition, it also aids us to tide over emergency situations. Loans and Credit Cards are two important types of credit available in the credit market (for individuals).
You might understand the hardship and inconvenience caused when a loan is rejected. The true value of credit is realized only when it is available when you need it the most. Imagine you have a family member admitted in a hospital due to a medical emergency and you are badly in need of funds and if your loan is rejected at that moment, it only adds to your distress and agony. And not to mention an added Hard Enquiry on your Credit Report.
We have many clients who often approach us for tips to consider before applying for a loan so that their loan applications are not rejected. For the common benefit of many of our readers, we have put together some of the best tips that you should consider each time you apply for a loan.
What are Some of the Top Tips to Consider Before Applying For a Loan?
# Tip 1: Evaluate your Need for a Loan
This is one of the first and foremost tip that we would like to give anyone who is thinking of taking a loan. Credit is available quite easily these days. You could either approach either the traditional lenders or fintech firms. However, before you approach any of them, sit down with a cool mind and evaluate if you really need this loan? Are there any other sources of meeting this expenditure? Are you creating an asset with this loan or is it for expenditure? Beware of loans that you avail just for incurring expenditure of some sort.
These questions are important even if you have a sufficient income and are confident of getting a loan approved. If you have valid reasons for availing this loan, go ahead. However, at the same time, remember that you will have to pay back this loan.
#Tip 2: Finalize the amount of loan needed
The amount of the loan applied also plays an important part in the decision on the loan application and also on your repayment. Once you have finalized the need for a loan, go a step ahead and finalize the quantum of loan that you need. This will depend on the other sources of funds you can pool in for this need, the capacity to pay EMIs and also the existing debt in your credit portfolio. So if you are already saddled with too many debts in your portfolio, then it may be good to clear off some of them before applying for a fresh one.
If it is a home loan that you are considering to take, then you would need to think about the down-payment on the loan. This can start anywhere from 20% of the project cost depending upon the cost of the home to your credit score and other factors. You can also take time and decide on the preferred tenure of the loan during this exercise.
#Tip 3: Check Your Credit Score
A good credit score is an absolute necessity if you are dreaming of availing any loan. A lender looks for a customer who is worthy of the credit being availed and responsible with his/ her credit. A credit score is the only measure of creditworthiness of an individual that is available to the lender. Hence, it makes sense for an individual to apply for a loan only after ensuring that he/ she has a good credit score.
Experts advise that one should check their credit score at least once in a period of 3-6 months. And if your are applying for a loan, credit score should be checked as soon as you think of a loan. This is required so that you have ample time to bring up your credit score to the required levels. Many factors of your loan are dependent on your credit score, hence a good credit score of 750 or higher is preferable.
Additional Reading: How long does it take to improve my credit score?
#Tip 4: Check for Best deals on Loans
The rate of interest charged on a loan and other terms and conditions play an important role. It makes perfect financial sense to not jump at the first deal that comes across your way for the loan. There are processing charges and other additional charges also that need to be taken into account while checking for various deals on loans.
There are a lot of aggregator websites that have loan deals from a number of lenders. You do not have to go any far; you can check out the best deals for any kind of loan right here at CreditMantri. We also have loans tailored to suit your credit score. So even with a little lower credit score, we might have something in store for you.
You could also check with the bank with whom you have a savings account. They would be more than ready to lend to their own customers, especially if you have had a good and long banking relationship.
#Tip 5: Negotiate for Deals
Often individuals take the bank's word for rate of interest and other conditions while going in for a loan. They forget that they could negotiate with the bank on reducing the rate of interest by a few basis points or reduce the processing fee or throw in some other benefit. However, the most important tip to be remembered here is that only those with good credit scores will have the ability to do this, as lenders will not like to miss out lending to a highly creditworthy customer.
Additional Reading: How does your Credit Score affect your life?
#Tip 6: Be Ready For Additional Queries
Lenders would want to be doubly sure about lending to a borrower that he/ she will repay on time. While creditworthiness is one of the ways of ensuring the same, lenders may have other queries on the nature of your employment, other income, proposed ownership status of an asset, etc. Do your homework well and be prepared for all sorts of questions that may be raised. If you can answer the queries confidently, then the lenders are reassured of lending to you.
#Tip 7: Plan for EMIs in advance
Though this is not exactly a tip that helps you before applying for a loan, this will help you over the long term and help you remain credit healthy. A loan application to approval takes some amount of time, utilize this time to plan your expenses so that you can comfortably meet your EMIs. This way you have less chances of default on EMIs and more chances of having a good credit score.
The implication of a hastily availed loan can be felt all through the tenure of the loan. Therefore, it pays to go through all the suggested tips in detail and then sign on the dotted line of your loan application.