It’s no matter what your need is, a personal loan makes it easier to restrict the way of utilizing it. These are unsecured loans which means while applying for this loan no security or collateral you would require while applying for it, however, if you don’t qualify the eligibility criteria, your loan request will be denied.
Avoiding mistakes when applying for a personal loan for self-employed is essential to eliminate rejection of the application. Such refusals may not seem significant, and you might move to another lender. However, there is a high chance the new lender may also reject the same.
Usually, a financial institution updates your credit report when they reject your loan application. Another lender can deny your loan when it performs a credit inquiry and comes across your previous rejection.
Also, your CIBIL score decreases when a lending institution declines your loan application.
Hence, avoiding mistakes is crucial when you apply for personal loans to ensure your application makes it through the approval process. Some Common Mistakes to Avoid Include:
Also Read: Top 10 Reasons to Apply for a Personal Loan
1. Not Comparing the Lenders
The first mistake that borrowers make when applying for a loan is not comparing the lenders. When there is an emergency, most people don’t surf or search for lenders. They just like to choose lenders whomever they have already listened to in advertisements or choose the sayings of some people. But in actuality, you just give some time to your research comparing rates of interest and charges. It will not only help you to make the right decisions but also help you be confident in paying off your debt.
2. Applying with a Low Credit Score
You need to hold a minimum credit score of 750 to successfully apply for a personal loan with leading lenders. A high CIBIL score makes you more creditworthy for a loan and ensures you can repay it without defaulting.
Lenders need applicants to hold a 750 credit score as personal loans are unsecured or collateral-free. Having a high credit score is also one of the ways to get the best personal loan interest rates.
There are various ways you can improve your credit score, credit cards being one. You may need a high credit score when opting for a privileged credit card. In such cases, you can avail of a secured credit card sanctioned against a fixed deposit, exceptionally useful to increase the CIBIL score quickly.
However, you always have to pay the total outstanding amount in time and avoid spending more than 30% of your credit limit to see your credit score rise.
3. Applying for a Too-High Loan Amount
A financial institution may reject your application if it determines that the loan amount you have asked for is too high for your income.
Use a loan eligibility calculator to avoid coming across such refusals. This calculator tells you the loan amount you are eligible for depending on your existing debt, income/revenue, and other factors. Applying for the correct amount increases your chances of getting a personal loan.
4. Not Providing All the Necessary Documents
You have to provide all the documents mentioned below when you apply for a personal loan:
- KYC documents (Passport, Aadhaar, Driving Licence, Voter ID, PAN, etc.)
- Address proof (House rent agreement, municipality tax, any KYC document with the permanent address, latest utility bill, etc.).
- Proof of business documents (Trade License, Memorandum of Association, Partnership Deed, GST Registration Certificate, SEBI Registration Certificate, SSI Registration Certificate, etc.).
- Income tax returns of the previous year.
- Financial statements of the last year audited by a CA.
Financial institutions may also need you to produce documents other than the ones mentioned above.
5. Check Eligibility Criteria Before Applying
Besides checking the right amount or tenure, it’s your responsibility to check the required eligibility criteria beforehand. So at the time of approval, your loan application could not be rejected just because of you are not fulfilling these criteria. However, most of the eligibility criteria set by lenders are the same but some of them create differences. It may be possible that you are qualifying some of the criteria for particular lenders while all for others.
6. Not Fulfilling All the Eligibility Criteria
One of the crucial eligibility criteria that you have to satisfy is business vintage – your entity must be at least 3 years old. Additionally, you must be between the ages of 22 and 55 years to qualify for a Personal Loan. You can avail up to Rs. 30 Lakh with competitive rates of interest and minimum documents.
7. Never Hide About Your Existing Loan
If in the past you have availed any loan, or currently paying the EMIs for that loan, it’s never a good idea to hide the details about these. It will be always a good idea to discuss all your debt beforehand. Because it’s clear that at the time of verification, they will have all the required details.
8. Opting for a Long Tenor
Personal loans have tenors that can go up to 60 months. A longer tenor makes your EMIs affordable. However, it increases the cost of the loan (principal + interest) and hence, you end up paying more interest.
For example, your EMIs are Rs. 16,000 (approx.) and the total interest payable Rs. 97,000 (approx.) for a loan of Rs. 5 Lakh at a 12% rate of interest for 3 years.
Now, the EMIs decrease to Rs. 11,000 (approx.) while the total interest payable increases to Rs. 1.67 Lakh (approx.) if the tenor becomes 5 years for the same personal loan for self-employed individuals. Opt for a longer tenor only if you think the EMIs might put pressure on your monthly income.
Lastly, another mistake that borrowers make is applying for multiple loans at the same time. Each application lowers your CIBIL score, and multiple ones can decrease it drastically. Avoid these mistakes to successfully apply for a loan and get your application sanctioned quickly. Opt for lenders who offer such personal loans for self-employed individuals demanding only the basic eligibility criteria.
