Personal loan checklist: Pre and post-disbursal financial strategies
A personal loan can be an incredible financial tool whether you’re addressing unplanned bills, planning a wedding, addressing a medical emergency, or consolidating debts. However, you need to properly organise your finances preceding, and following, any personal loan to mitigate debt traps and preserve your credit. When using a systematic approach to build financial intelligence before and after a loan, follow this process.
Pre-disbursal financial planning
1. Evaluate the need
Before you apply, ask yourself if you really need to request this loan. Do not request a personal loan to cover impulsive or discretionary purchases. Ensure the purpose, whether it is debt reduction, home improvement, or education aligns with your long-term financial goals.
2. Assess your repayment capacity
Count your income obligations like rent, EMI, insurance premiums, and daily expenses. To understand what you spend monthly, utilise a personal loan EMI calculator. The best debt-to-income ratio is below 40%, so keep that in mind for good financial health.
3. Compare offers and interest rates
Never take the first loan offer on the table. Instead:
- Interest rate (fixed versus variable).
- Fees for foreclosure and processing.
- Availability of flexibility and alternatives for prepayment.
Often, for salaried and creditworthy individuals, banks and NBFCs will release almost pre-approved personal loan offers under lower rates.
4. Check your credit score before applying
Lenders will also review your credit score before approving a personal loan. If your score is higher than 750, you are likely to receive loan approval, and in turn, receive better terms and interest rates than if your score were lower. Ideally, if your score is low, focus on improving your score before applying.
5. Gather all of the right documentation
Typical items will include:
- Verification of identity.
- Verification of address.
- Pay stubs or income verification.
- Verification of bank statements.
To avoid being declined or delays in processing, have all documentation accurate and up to date.
Post-disbursal financial planning
1. Budget around the EMI
Change your monthly spending plan to accommodate the EMI. When you have agreed to take out the loan, make critical needs a priority and do not use credit cards, especially if they involve high interest.
2. Avoid taking multiple loans
If you have more than one EMI, your credit rating may drop and your cash flow may be very restricted. Always pay back your personal loan before considering more loans.
3. Opt for part-payment or foreclosure
If you get a bonus or extra money, consider making a partial loan repayment. This will shorten the time you keep the loan and the total amount of interest paid. Ensure that you confirm there are no fees for a pre-payment before continuing.
4. Set-up auto debits
You lose your credit score along with fines, and there are ways to make sure you are on time every month for your EMI payment, either by setting instructions to auto-debit or sending reminders to yourself to pay.
5. Track your credit report regularly
Monitoring your credit report ensures your loan repayments get reported correctly while at the same time helps identify inconsistencies.
In conclusion, depending on your financial discipline levels, a personal loan could either support your flourishing or create debt. You can ensure proper repayment, maintain your credit worthiness, and pursue your goals stress-free if you make a good plan before the loan and after borrowing the personal loan.
Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
