Personal loans are the loans obtained for the personal needs of an individual, which may vary according to the borrower to borrower. Personal loans are charged higher interest rates of around 9-24% per annum, which may even go as high as 30% per annum from some lenders. The personal loans funds can be utilized for any purpose according to the choice of the borrower. Bank does not ask for any proof regarding the expenditure of the funds being wherever utilized. The personal loans are not even exempted under any income tax act; thus, the tax rebate cannot be availed by the borrower. Personal loans help boost the economy as people get the purchasing power in their hands even while not having sufficient bank balance. Banks approve the loans with minimum documentation, and thus, availing of the personal loans is easy. The minimum salary criteria for the approval of personal loans can vary according to the lender, but sometimes Rs.15,000 –Rs.25,000. Personal loans have various applications like home renovation, purchase of electronic goods, travel purpose, medical purpose, purchase of furniture, starting a new business, or expanding the business.ETC.
Banks expect a good CIBIL score while approving the loans of the lender. Bank expects a minimum credit score of 700 points or more. Thus keeping a clean track record of the credit history and maintaining a good credit score is very important. Banks may even approve personal loans in case of lower credit scores but at higher interest rates. The maintenance of a sufficient bank balance is also necessary for the borrower. Maintaining a lower bank balance may put a bad image that the borrower has too much spending tendency and thus may not repay the personal loans. Personal loans are mostly taken amongst the people from middle or else lower-income groups to satisfy their needs. The bank charges a heavy penalty in case of delay or default of the personal loans. Thus repayment of the loans on time is very much necessary. The banks also charge processing fees to the borrower in the range of 1-3%. There are also offers like pre-approved loans for the borrower, wherein even loans are available at 0% interest rates, especially on the purchase of white goods. Only processing fees are being charged to the borrower; in that case, no interest rates are applicable.
Following are the strategies to keep the credit history clean while applying for personal loans:
- Repay the loans or credit card bills on time if availed from the bank. Do not delay the payment of the credit card bill or else installments of the bank’s loans. This will help improve the credit score of the borrower.
- Avail lower amount of credit from the bank even in case of higher eligibility of the bank. It can help the customer easily repay the loans and help create better credit history due to minimum credit utilization.
- Maintain sufficient bank balance in the bank account. This helps the bank ensure that the borrower is stable and thus makes a clear way to approve loans.
- Ensure stable and consistent income to avail the personal loans easily. Having the running income is a major criterion for the banks to approve the personal loans.
- Do not avail excessive credit like multiple loans at a time or availing multiple credit cards at a time and utilizing the higher amount of credit as approved by the bank. This puts a bad impression, and the bank may doubt the borrower’s repayment capacity, thus rejecting the personal loans of the borrower.
So, not maintaining a good credit score is the major reason for the rejection of personal loans. Thus the borrower should maintain a good credit score. Also, the borrower should maintain sufficient bank balance and consistent income to avail of personal loans. Banks may clear the personal loans easily for the applicants having clean credit history and good credit history.