If you are looking to avail a personal loan, the initial and most crucial choice you must make is how much amount should you borrow. It is possible for you to find a wide range of banks and NBFCs with distinct loan offerings. You can avail of a loan of anywhere between Rs 50,000 Loan and Rs 20 lakh. Few personal loan lenders may even allow you to avail a loan amount as high as Rs 40 lakh. Back to the question, how should you decide the loan amount you want from the lender? Listed here are 3 questions you must ask yourself to make the correct choice.
What is the minimum loan amount through which you can accomplish your goals or objectives?
Obviously, the most essential parameter in deciding how much amount you must borrow is how much you require. You do not want to avail a bigger loan amount than required and be stuck with a bigger monthly repayment with additional interest expense for no reason. And you also do not want to end up with a very small loan amount to mitigate your purpose. There are times it is easy for you to decide how much you must borrow. If you are looking to use your personal loan to meet your debts, for this, you can add up all the outstanding balances that you look to refinance or consolidate. This would endow you with the overall target amount that you can request from the lender. This will endow you with the overall amount you must request from the lender.
If you consider some other cases besides this, it may be a little difficult. Like, for instance, you are getting a home repair, and you do not know how much the ultimate spending will come up. In such a case, you will have to make an informed decision. And you may want to avail yourself of higher loan proceeds for this purpose. Note that in this case, you always can prepay your loan through the additional proceeds that are left. This eliminates the need to of availing another loan later. Also, you can consider other alternatives, like using your credit card and then converting the final outstanding amount into affordable EMIs.
How much can you repay?
You will also want to factor in the impact of your loan upon your monthly financials when determining how much you must borrow. In case you decide you require a sum of Rs 3,00,000, for instance, but monthly repayments of such large amounts would be difficult for you to meet. As an outcome, it could interfere with your crucial financial goals; then, in such a case, you must either consider availing of a lower loan amount or opting for a higher loan repayment tenure to lower your EMI burden. For this, consider using the ICICI personal loan EMI calculator or Bajaj Personal loan EMI calculator. With these calculators, you can easily determine your EMI and tenure as per your repayment capacity. Such calculators usually ask for 3 simple details, namely – the required loan amount, offered interest rate and preferred repayment tenure. Based upon the inputted details, the calculator shows the EMI, interest component and the overall loan amount. In case you are not satisfied with the result, you can consider making changes to the inputted details to derive a preferred result.
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How much overall interest will you repay over time?
Lastly, you must think about the major picture and ensure you are comfortable with the interest component over time. Otherwise, you will find yourself selecting a loan with higher repayment tenure only because it has an affordable monthly repayment. And you can be stuck paying a huge interest component for your loan. Ensure to opt for the shortest tenure possible as per your repayment capacity to reduce your overall interest cost.
By factoring in the above 3 questions, you can ensure that the financing you secure makes complete sense for you and you are taking the correct decision.
How can you improve your personal loan eligibility chances?
To improve your personal loan eligibility changes, you must consider factoring in the below-listed points:
Maintain a credit score of at least 750 and above. This can be done if you follow good credit behaviour. These include repaying your existing credit card dues and loan EMIs on time by the due date, maintaining a lower credit utilization ratio (CUR) of under 30 percent, maintaining a balanced mix between secured and unsecured loan options etc. Note that a strong credit score comes across as a financial character certification, which projects you as a disciplined loan borrower. If you hold a good score, you are categorized as a candidate with low risk, and lenders may offer you a lower interest rate also.
Avoid multiple loan enquiries.
In the quest for immediate finance, you may land up making various loan enquiries simultaneously with numerous lenders. Each time you make an inquiry, the lender will draw your credit report that will show your credit history. It will reflect you as an individual desperate for credit, and you will carry no good impression in front of the lender. So, you must avoid applying with multiple lenders in a short time span.
Repay your existing debts
Try to reduce all your existing loan obligations by repaying a few of your debts. Doing so will assist in ameliorating your debt-to-income ratio. This will help improve your personal loan eligibility.
Declare all the income sources
In addition to regular income, if you have any other income sources like interest on deposits, rent, dividends or other income from investments, ensure to declare such sources to ameliorate your personal loan eligibility chances.
Add in a co-applicant
You can include a co-applicant having a good credit score and a stable and regular flow of income to ameliorate your personal loan eligibility chances. The co-applicant can be your parent, spouse, or child. Also, note that in case you fail to repay your personal loan EMI on time, this would not just impact your credit score but also negatively affect your co-applicants credit score adversely.
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