We’ll answer all your questions and more in this article. We’ll give you all the best tips and tricks to choose the personal loan that will perfectly fit your financial situation.
So, let’s start at the beginning:
1. What is a personal loan?
To answer this question, we have to take a step back and see what a loan is, in general. A loan is a sum of money dispensed by a bank to a customer to serve a predetermined purpose. All loans have a few terms attached to them, which include:
- Tenor: the loan repayment period
- Interest rate: a percentage the bank adds to the sum it dispenses and constitutes its profit
- Fees: the amount the bank charges in exchange for offering the service.
A predetermined purpose for the loan means that the bank will offer you funds to achieve a specific goal. For example, an auto loan is used to buy a car, an educational loan is used to receive a degree. For these loans, the bank probably has special tie-ups with the entities that offer these products or services that allow it to offer exclusive benefits to loan applicants.
However, some people might need funds for purposes not covered by other loans. This is where the personal loan comes in. Bank customers can apply for a personal loan if they need to borrow a certain amount on short notice, to furnish their homes, to cover some unexpected expenses, etc.
2. How can you apply for a personal loan?
Getting a personal loan from any bank is a straightforward process. All you need to do is apply to the bank via its numerous channels, provide the required documents, and obtain the bank’s approval.
The documents required vary depending on your finances and your relationship with the bank. Proof of income, employment, residence, and more are all required to prove to the bank that you will be able to pay back your loan.
On the bank’s side, the process to give out a loan involves several departments working together to strike a balance between giving you the best terms for your financial case, while looking out for the bank’s interest, and following the guidelines to reduce the risks attached to lending.
The bank checks your financials, other loans, or credit cards, and based on all that information, it decides the amount, tenor, and interest rate.
3. How can you get the best loan for your financial situation?
Navigating the bank’s requirements and benefits for personal loans can be a difficult task, since it involves specific expressions, calculations, and requests. The first thing you need to do is to specify the amount you need and the optimum period for you to pay it back in. Both of these items, in addition to the interest rate, will decide the amount you will need to re-pay monthly, quarterly, semi-annually, or annually, depending on the nature of your income.
The bank will specify the interest rate for your case. Taking into consideration several factors, including your total balance in the bank, the duration of the loan, how risky the bank deems you, and the prevailing interest rates in the country.
Following your request and submitting all the required documents, the bank will respond with your status, whether it’s approved or denied and the terms of the loan, including the total loan amount, interest rate, tenor, and your repayments’ frequency and amount. If any of these terms are unclear, apart from the interest rate, you can ask a bank employee for clarification. You can increase the loan amount, decrease the repayment period, and repayments’ amounts, as long as it’s within the bank’s policy, to ensure that the loan you have taken out works for your needs.
In the next part of the article, we will explain how a bank decides on the loans it gives out, what a credit score is, and how to make sure the bank will consider you an attractive customer.