What would you do if you don’t have enough savings and require additional funding to pay your medical bills, or looking for down payment for New car, plan a wedding or take a family vacation? In the current world there is easy access to funding in the form of personal loans. You may go for personal loans for your life goals or in case of emergency.
What you understand about Personal loans:
Personal loans are the unsecured loans without any security or collateral, that you may use at your discretion. It would be approved by bank solely on the one’s income and their credit score. If your Credit score or CIBIL is more than 750+, then your chances for approval would be higher. But, as I have seen sometime new borrowers and those who have not been able to keep up their repayments or EMI on time, do have low credit score.
CIBIL is the consolidated report which track the past records of your credit behavior and determine to evaluate the intention of the borrowers to repay the loan in future.
However, you can improve the credit score by taking personal loans or using credit cards and paying their bills on time. But improving credit score with personal loans by debt consolidation is one of the prudent ways an individual can follow. An outstanding credit card bills would more harm to your CIBIL score if you miss any of your payment, the interest part would keep accumulating on the outstanding balance and that could cause a havoc on your CIBIL score.
Which is why, taking a short-term personal loan is always better against taking a loan on your credit card (or maxing out your credit card limit, however tempting it looks). With online apps available in the market, you can get a personal loan in a few clicks and the best part is that they serve people with zero credit history as well. Not only this, auto-debit of EMIs through NACH ensures that you don’t miss or delay the payments and decrease your credit score.
To start building or repairing your CIBIL score, you can use a personal loan and pay all your EMIs on time. Such small personal loans are easier to pay and help improve your CIBIL score eventually and incrementally.
For instance, if you have a salary of 15,000 INR per month and have never taken a loan or used a credit card previously, your credit score will be 0 or -1. That makes it very difficult for you to get a loan, since banks and NBFCs reject the loan application. However, PaySense can offer you an instant personal loan of Rs. 5,000 to Rs. 2,00,000; which you have to repay in a duration ranging from 3 months to 24 months. Let’s assume that you take a loan of 5,000 for 3 months and pay your EMIs regularly on time, your credit score will start increasing. After 3 or 4 such short-term instant personal loans which are easy and affordable to pay, your credit score will improve to 650 and above within a year.
What you need to take care while applying for personal loans.
Do not apply for multiple loans at the exact same time: Every time you apply for loan, a hard enquiry is created, and it reflects in your credit score. More number of hard enquiries can negatively affect your credit rating. Avoid applying for personal loans with multiple lenders.
Review the loan arrangement: Prior to signing the paperwork, browse through the terms and conditions of the loan agreement carefully. Concentrate on the penalty clauses for missed or delayed personal loan EMI payments.
Decide in your loan amount attentively: First and foremost, assess your need for a personal loan. If the purpose of the loan is to construct your credit and nothing else, then you can borrow a small sum or small loans. This way, you can build your credit, not worry about a having a massive debt.
Make your EMI payments on time: Delayed, partial or missed loan EMI payments may negatively impact your credit rating. Whether it’s a personal loan or credit card, your credit history plays a significant part in determining your credit rating. Use the personal loan EMI calculator to get a loan repayment schedule for the selected loan amount and tenure. Your monthly EMIs should not exceed more than 50 percent of your monthly salary.
In summary, you may use short term personal loans to not only enhance your credit rating but also debt consolidation. A lower-interest rate personal loan may be used to pay off high interest debts. Therefore, select a personal loan with a lower rate of interest, flexible and affordable repayment schedule option to build your credit score.