There are two types of personal loan
- Secured Personal Loan
- Unsecured Personal Loan
When you take out a secured personal loan, then you are required to offer the creditor collateral.
However unsecured personal loans don’t require any kind of collateral, although the creditor has the option to sue you and take money from your paycheck or the bank account if you aren’t making any payments.
- Both the unsecured and secured personal loans are the installment loans, which means that you receive the entire amount upfront and then make monthly payments.
- Generally, if you’re approved for the loan, then you’ll be able to choose between the different repayment periods which are available such as 24, 36, or 60 months.
- The interest rate may, however, range from below 5 percent to over 30 percent, and there’s often a minimum and maximum amount which you can thus borrow.
Fixed and Variable rate of interest
- You can choose between a fixed and a variable rate loan.
- A loan with a fixed interest will have the same interest rate throughout the life of the loan
- Which means that your monthly payment would never change.
- Variable-rate loans thus often start with a lower interest rate than a fixed-rate loan.
- However, variable interest rates can also be increased in the future, which can lead to
- Higher monthly payments, and
- A greater cost to you over the lifetime of the loan.
- If you can repay the loan quickly, then a variable rate may save money.
- If you want a definitive budget for the future, then a fixed-rate is the way to go.
Reasons to reject the personal loan application
- The borrower’s income plays a major role in influencing the bank’s decision. If the income is unable to sustain monthly repayments then the application for a Personal Loan is likely to get rejected.
- The bank would also check your job profile to assess the stability of your current job.
- If the borrower is on probation, they have a temporary job, or they are constantly switching jobs, then the borrower may not get pre-approval from his bank.
- However, he loses his job at the time he applies for the loan and the time his loan gets sanctioned.
- In case there are any other changes in his financial situation then the bank would have enough reasons for a loan denial even after giving him a pre-approval.
- Banks would also consider the financial situation of the company which the borrower is working for.
- Also, if he is already paying EMIs on another loan, then his income minus the EMI will be considered for approval.
Bad Credit History
- Before lending any amount, any lender, whether it is a bank or another financial institution, would first verify the borrower’s credit history.
- Defaults on various situation
- Previous loans
- Overdue loans
- Court judgments
- Skipping EMIs, and
- Late payment of
- Telephone, and
- Credit card bills are all factors that impact credit history.
- If the borrower has been a loan guarantor to someone who is in default the bank will consider the borrower accountable. However, credit score affects the personal loan.
All the details provided by the borrower on his application will be verified. If any incorrect details are provided, then the bank would have a good reason to reject the request.
Previously Rejected Loans
- If any loan application that has been previously rejected. This thus greatly reduces his chances of loan approval.
- Thus, to avoid your personal loan application from being rejected, the borrower should always check his credit score before applying. You can get a personal loan quickly.
- He can get a copy of his credit record from CIBIL and then can sort out any issues thus found.
- Moreover, he must find out his bank’s requirements for granting a Personal Loan.