What is a personal loan?
Unlike a specific loan that is a loan for a house, or an auto loan, which must be spent on a vehicle, personal loans can be used for almost anything.
Steps to get the personal loan
When should you go in for a personal loan?
Sometimes, you might have a large or unexpected one-time expense that you might be able to fund on your income like a child’s wedding, or house renovation or even a vacation. At these times, it is advisable to apply for a personal loan to overcome this temporary shortfall. We are going, to be honest; getting a personal loan isn’t easy. There are a lot of things you need to consider before you apply for a personal loan.
Types of Personal Loans
Next, we need to understand how personal loans works, there are two main types of personal loans, secured and unsecured.
A secured loan will usually give you lower interest rates, but you have to put something up as collateral for the loan, which means that if you don’t pay back the loan, they take your collateral.
Unsecured loans, these loans don’t require any collateral but will have higher interest rates. Banks in Pakistan providing unsecured loans are, Alfalah Bank, Faysal Bank, Dubai Islamic Bank, etc
Only Apply for What You Need
The first, and most obvious, is to decide how large a loan you actually need. This might seem like a ridiculous tip to include, but it’s important enough to reiterate. Before you apply for your loan, sit down and calculate how much money you will need.
From a lenders perspective, there is naturally a greater degree of risk attached to lending someone PKR25, 00,000 than there is to lending someone PKR50, 000, if all other credit factors are equal.
While you may only need PKR50, 000, you may also feel that it’d be great to have some extra cash left over to buy something else, treat yourself, or have a holiday.
However, depending on your profile, the extra borrowing may be the difference between being accepted and being declined.
Do not make multiple loan applications
It is tempting to apply to several banks/lenders at the same time in order to maximize your chances of being approved by at least one lender. This is not a good idea, When you do this, potential lenders get the feeling that you are ‘hungry’ for loan and need to apply to several sources to fund your expenses. Moreover, too many loan applications without corresponding approvals can lead to a drop in your credit score. Make sure you only apply to the place where you have the best chance of being approved.
Improve your chances to get better loan Conditions
You can improve your chances of getting approval for loans by:
Lower your debt: Stop spending on credit cards and come up with a strategy for paying down your balances.
Pay your bills on time: As much as 35 percent of your consumer profile is based on your payment history so make sure you pay all of your bills on time. If you are forgetful, set up automatic payments or monthly reminders.
Don’t close your unused credit card accounts: Unless your credit cards carry expensive annual fees, there’s no real benefit to closing them even if you aren’t using them. Your credit score will take into account the average length of time you’ve been using credit, so holding an account for a long time could actually benefit your score and will help you increase your chances for your loan approval.
Don’t open new credit: As you rein back your spending, avoid the temptation to apply for more credit cards. Lenders may consider you risky if you open a lot of new accounts in a short amount of time.
A large part of our eligibility criteria relies on the honesty of the potential applicant. Being dishonest or providing misinformation could damage a person’s chances of being successful when it comes to the credit checking and verification stage.
Provide information that is accurate throughout the application process. If you are honest but you are not successful, It will also help you take the steps you need in order to be seen as a responsible borrower.
If you are dishonest in your application, this could then lead to your application being declined, which will ultimately hinder your chances of securing loans from lenders in the future.
Research online and offline personal loan vendors up front BEFORE applying for a loan
Because each credit inquiry impacts your credit, the more banks that check your credit, the lower your score goes. Check the banks according to your financial standing, regarding which bank would be more interested to lend you looking at your financial profile and after a thorough research apply to that bank so that your chances to get an approval are better.
Don’t Apply for Fresh Loans without Paying off One
Lenders prefer individuals who are free from current debts. The probability of successful loan repayment deepens if borrowers have the previous history of successful repayments.
You may not qualify for a personal loan the first time you apply, but it is possible to improve your financial position and successfully qualify later.
You can apply for a loan again after you fulfil the criteria of the lending institutions, by meeting the eligibility criteria, decent credit history, and pay attention to your debt-to-income ratio and other things important to get the personal loan approved.
Also, make sure that you have been in the same job or company for at least six months before you apply. Banks want to see stable employment and a steady source of income so that you are able to make all your loan repayments on time. In the case of a personal loan, your income is very important as the banks do not have any collateral in case you default on your payments. If you have been changing jobs frequently, there is a good chance that your application will be rejected.
Once you understand the basics, you should spend some time researching the different loan types, examining which might work best for you. There are several different ways to get a personal loan, and not every type will be a good fit for your situation. Fully understand the type of loan you are getting, the loan period, the payment methods, payment amounts, and any other important information.