A personal loan can be a great help to fund the sudden financial emergencies or a good way to build a credit score. Numerous institutions like banks, credit unions, or private money lenders are available in the market who will provide you the funds. They lay down different terms and conditions based on which you pay back the money over a fixed period of time. The interest rate varies with each provider and so does your agreement with them.
You need to do some homework before you finalize your lending partner. The first and the most important step is to decide what your need is and then determine how much you need to borrow. Next comes chalking out a plan to finance your expenses as you will require to pay the monthly instalments on time.
The personal loan comes under unsecured loans, which means its EMIs will be higher than the secured loans. Thus, you need to do a thorough comparison of all the pros and cons of the various lenders. Once you decide on which lending institution you want to go with, you need to personally get in touch with them and apply.
Though the procedure to apply may vary according to the lender, the basics remain the same.
Documents For Loan Application
You will need quite a few documents to get the approval done. The faster you are able to furnish your proof of identity, address, employment, duration of employment, work experience and credit history, you are ensuring your request is processed quickly. You can read about this in detail in our previous MoneyTap article on Checklist for a personal loan.
Apply for the Loan
Once all your documents are ready with you, you need to walk in or apply online. A bank representative collects and goes through your documents and checks for any sort of discrepancies. He resolves the ambiguities in terms of documents submission and gets the signature from the customer post application submission.
Some lenders come to a decision immediately, while others need a few days to cross verify your credit history, income levels and your loan requirement. Here comes the role of loan underwriters. They do internal credit checks and review the files and verify all the authenticity of the supporting documents submitted with your application. For example, they call your employer to check your employment details that you have furnished. Credit shocks are the last thing that you want as a surprise after submitting your application.
Based on his findings, your loan gets approved or rejected. Your application now goes to the higher authorities for approvals. A mathematical formula is applied to calculate your affordability for EMI, deviation matrix and sanction power. Your request reaches the Operations Department for disbursement after the bank sanctions a final amount.
The request finally goes to the regional operations department who transfer the fund to your account. The actual amount depends on the type of loan approved and may vary according to the loan agreement. It will exclude processing fee deduction, any upfront installment that was decided on during the signing of the agreement, and service tax.
Now that you have received your loan, spend it where you want to. Do remember to follow your repayment schedule; as once the loan is disbursed you need to be regular with your EMIs. The repayment can be done through ECS or postdated cheques, whichever was decided during the loan agreement.
Apps like MoneyTap make the personal loan scenario much more flexible. Even though the full amount is credited to your account, you start paying for the amount you have used, unlike personal loans. These type of credits require negligible paperwork and are approved much faster.
Whichever option you opt for, remember, at the end how you repay your current loan will affect your future applications.