Even though personal loans are borrower-friendly advances with favorable terms that make them easy to manage, they are high-risk lending avenues for financial institutions. It is primarily because of their unsecured nature that a lender keeps the fulfillment of eligibility norms a strict requirement, as well as the personal loan processing fees, rates, and charges a notch higher than secured advances.
Personal loans are an effective financial tool to fulfill various expenses, be it a medical emergency, wedding, or vacation. However, when applying for a personal loan, it is crucial to keep in mind the processing fees, rates, and charges associated with it. An eligible borrower need not worry, though, since such a levy is directly related to risk factors in one’s borrowing profile.
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Top 6 factors to check about your personal loan processing fees and rates
So, if you are an individual with a creditworthy borrowing profile applying for a personal loan, receiving approval for the advance at affordable rates and charges should not be a challenge.
That said, it is pertinent to keep a few factors in check when applying for a personal loan so that the lender receives your application positively, keeping your creditworthiness in mind:
Payment recurrence and total cost of the loan
When applying for a personal loan, it is pertinent to assess the total cost of your loan based on the essential personal loan charges to keep in mind. Some fees, rates, and charges levied on these advances are one-time, while the others may recur periodically. For instance, personal loan processing fees are one-time charges levied at a flat rate on the total loan amount. Contrarily, the interest rate is a levy recurring throughout the repayment tenor.
You must thus check and confirm such recurrence and plan your finances accordingly, counting them in to assess the total repayable cost. Further, you must find out ways to avail better interest rates on your personal loan as it can bring down the cost of your loan significantly and improve the overall affordability.
A significant chunk of the total cost charged over and above the principal amount of your instant personal loan comprises the cost charged for the risk your lender undertakes. Such risk is closely related to your credit profile reflecting past behavior based on loans and advances availed.
Lenders assess it through a primary check of your credit score, whereby the ideal score for favorable terms on your personal loan, including low personal loan interest rates, is 750 plus. It is possible to get a personal loan with a poor credit score too, albeit at a higher charge.
The loan amount and tenor selected
Your loan principal and tenor selected directly impact personal loan processing fees, interest rates, and other levied charges. As the processing fees are a flat charge on the loan amount sanctioned, a lower loan amount means reduced fees and vice versa. Simultaneously, a higher loan value and longer tenor represent higher risks to the lender, pushing up the interest rate as well. You must take heed of these factors when deciding on your loan amount.
Income and employment leverage
Your monthly income and employment stability play a crucial role in determining the overall cost of the loan. A high income would mean suitable repayment capacity and reduced risk of defaults. So, your employment stability would leverage your borrowing position for the best rate.
Lenders like Bajaj Finserv require you to be employed with a public/private company or an MNC for funding.
The financier also simplifies loan processing and helps save time with their pre-approved offers available on personal loans, credit cards, and business loans, among other financial products. Check out your pre-approved offer with your name and contact details only.
When you apply for a personal loan with the lender, or any other financier for that matter, make sure to provide all primary and secondary income documents to leverage your borrowing position. During repayments, access the Bajaj Finserv Loan Statement from time to time to make improved repayment decisions for additional interest savings.
Debt-to-income or fixed obligation-to-income ratio (FOIR) is a measure of your standing financial capacity for the purpose of borrowing and repayment. It indicates the part of your total monthly income allocated towards fixed liability repayments. It is ideal to maintain a FOIR of not more than 50% to secure funding at favorable terms.
Credit utilisation ratio
It is a ratio indicating your dependency on credit compared to your income. So, a credit utilization ratio refers to the percentage of credit utilized against the total credit available. The ideal ratio should be under 30% for you to keep the borrowing risk low and secure affordable rates and charges.