There are times in your life when you need to consider a loan option. However, you must first determine the purpose of the loan before heading the loan path and arrive at the amount and tenure of the loan correctly.
We are seeing a lot of ads these days offering quick, collateral-free loans, low-interest rates, etc. However, you should keep in mind those points when applying for a loan so that the loan approval process is seamless; let us explain them in detail.
Strengthen your credit score:
When applying for a loan, the first step is to check your credit score, a figure that represents the credit ratings of a person based on his credit history.
A credit score allows the investor to determine the probability of a person being able to repay his debt. The factors considered in the estimation of the credit score are loan history, the total amount of debt due, debt form, and age, among others.
Your credit score reliability depends on your repayment history and track record, and any interest delay or failure can have a negative impact on your credit score. The stronger the credit score, the greater the chances of acceptance of your loan. You need to start working to improve the credit score well before applying for a loan.
Mind the interest rates:
The second step is to check the existing interest rates provided by various lenders before applying for a loan. Test different loan rates and terms to ensure that you have the best option for your requirements.
Do not be surprised if your friend is charging less interest on the same amount of loan as yours. Loan interest rates depend on a variety of factors such as inflation, government policies, wider lender policies, and the volume of loan, duration, class, risk category, etc. in an individual capacity.
At IIFL Finance, we adopted risk-based pricing, which at the time of sanctioning is achieved by taking into account parameters such as the financials of the customer, credit profile and prevailing market rates. Accordingly, as stated by IIFL Finance, the interest rate may change from time to time.
The interest rate may be constant, i.e. interest rate on your debt will not adjust during the loan tenor, or adjustable, i.e. the interest rate may vary based on the average rate.
The correct information is the key:
The third step to get the desired loan closer to you is to provide the lender with your correct information.
Financial institutions require a few records, such as bank statements, proof of income and proof of address, before starting to approve the loan application. Records are required to determine your financial status, debt commitments, or to identify any fraudulent activity.
While income and requirement details are necessary to determine the availability of the loan, address verification is conducted to verify if any illegal acts have been performed using the credentials and also to guarantee that your information has been accurately registered.
In addition, the current bank statements are required to check the existing financial responsibilities, while credits in your bank account may be considered to be suitable for the loan.
Be KYC ready:
When applying for a loan, the fourth step you need to take is to be KYC ready.
As per the Indian Reserve Bank, before lending to any applicant, it is necessary to complete such verification. For these checks, the common term used is called KYC i.e. Know the client, which is used to identify the consumer. This process helps ensure that the financial institution’s services are not misused.
The Reserve Bank of India has approved six commonly accepted documents as Officially Valid Documents (OVD) for the purpose of producing identity proof and address viz. Passport, Driving License, Voter Identity Card, evidence of ownership of Aadhaar number provided by UIDAI, NREGA Work Card and Letter released by the National Population Register with name and address information.
It is necessary to send any of these papers as proof of identity and proof of address. In the event that the OVD does not have the modified address, additional documentation as specified by RBI will be identified as considered OVD. Also, apart from the list of OVDs listed above, PAN is a required report.
KYC documentation must be updated on the basis of the financial institutions ‘ risk assessment. Therefore, compliance with the requirements of the financial institutions to send KYC documents at regular intervals is mandatory.
Once you have chosen the type, amount and tenure of the loan that will help you fulfill your financial obligations, make sure you have a plan in place to repay the loan on time as well. This is known as financial prudence! Financial prudence often stops people from making common mistakes. It is therefore important to plan well in advance and invest in places where strong returns can be generated.