How Can I Get a Personal Loan for the First Time? 7 Points To Keep In Mind

Looking for loans for the first time? but have no credit history? Explore options designed specifically for first-time borrowers! Let’s be real: taking out a personal loan for the first time can feel overwhelming with so many lenders around with different interest rates and confusing terms. 

What is a Personal Loan?  

A personal loan is a type of loan that one can use in case they have an urgent financial requirement. It is typically a type of unsecured loan, meaning you do not need to pledge any collateral to avail the loan. Since it’s an unsecured loan, the lender checks the credit score and income source to determine the creditworthiness of the borrower. They usually have fixed interest rates with fixed monthly instalments that the borrower is required to pay within the agreed-upon tenure.   

This loan can be used for several purposes like debt consolidation, medical bills, covering wedding costs, or even funding your holiday.  

Before you apply for a personal loan for the first time, it is important to consider a few key factors to ensure you choose the right loan for your needs. To help you make a smart decision, we have put together seven key factors you should be aware of before finalizing your loan.  

7 Essential Tips for First-Time Personal Loan Applicants

1. Assess Your Financial Needs:

Before taking any loan, it’s important to ask yourself: Do I really need this? Can I afford it? Borrowing more than you require can put you at risk of a debt trap.  

For example, Priya,  she wants to buy a car and is considering getting a loan. Before applying, she carefully evaluates her monthly salary, fixed expenses, and savings to determine how much she can comfortably allocate toward an EMI. By doing this, she ensures that the loan fits within her budget, helping her manage repayments smoothly without compromising her other financial commitments. 

2. Check Your Credit Score:

Lenders check your credit score when you apply for a loan to assess your creditworthiness. A low credit score implies the borrower may have many defaults or excess credit utilization. A high credit score implies responsible borrowing with timely payments. Most lenders require a credit score of more than 750.

Ensure you have a good credit score or build a good credit score before you apply for a loan to improve your chances of loan approval and get loan approved at favorable terms. Make sure you make timely loan and credit payments to maintain a solid credit profile. 

3. Compare Lenders and Loan Options:

Check different types of lenders and their terms to choose the best fit for you. You can take help from any online loan EMI calculator to compare EMI amounts and select the one that best fits your budget. Choose a credible lender with a good reputation in the market. Additionally, check for other charges like processing fees, late fees, and defaults that the lender may charge. Check for these charges before you finalize the loan. These charges may look small, but they can significantly increase your overall cost. 

4. Understand Your Loan Repayment Capacity:

Evaluate how much you can comfortably afford to repay each month after considering your salary, additional income sources, and any existing debts. Take a close look at both fixed and variable expenses, such as rent, groceries, transportation, dining, and travel. Ensure that your new loan payments fit within your budget without putting a strain on your finances. 

5. Prepare Required Documentation:

Most lenders require some common documents for loan applications, like identity proof (PAN and Aadhar card details), income proof (salary slips, bank statements), and address proof (electricity bills). Ensure you have all the documents ready before you begin the loan application process. 

Many lenders have online websites and apps that you can use to apply for a loan. The documentation is paperless, with only Aadhar and PAN card details, along with basic personal details required. 

6. Avoid Borrowing Beyond Your Means:

Determine the exact loan amount you need before choosing a lender. Avoid applying for more than required, as opting for too large of a loan amount can also increase the chances of defaults or late payments. A high loan amount means a larger EMI amount with a high interest rate and a longer loan tenure. 

Borrow only the required amount to keep the EMIs manageable, ensuring timely payments, thereby reducing your financial stress. 

7. Seek Professional Advice if Necessary:

If you are unsure about any aspect of a loan application, seek professional help. Additionally, if you have any doubts about specific loan terms, you can directly contact the lender to address them.

Easy Steps to Borrow First Time Loan?

Once you decide on a lender that fits your financial goal, you may apply for your first loan. Here are the general steps to apply for your first-time loan:

Check Eligibility: You must check if you fulfil the eligibility criteria of the lender for quick loan approval. Every lender has certain specifications like minimum monthly income, minimum credit score or age criteria.

Begin Loan Application: Most lenders these days have a digital process where you can apply for the loan online on their website or app. Fill in your details like name, number and other details. 

Submit Documents: For documents, submit PAN card and Aadhar card details along with income proof (if required). Ensure you have given the right details and documents for faster loan approval.

Loan Approval: Once the application is submitted, the lender will verify your details and check your credit score to determine your creditworthiness as a borrower. Based on your profile, the lender will set the loan amount and terms. 

Loan Offer: The lender will make a loan offer with an approved loan amount based on your credit profile. Choose the loan amount and tenure that best suits you. 

Loan Disbursal: After the offer is accepted, the lender will directly deposit the loan amount in your bank account. 

Conclusion  

Getting your first personal loan is a big financial step. However, it can be a smart financial decision if you borrow responsibly. Before you apply for the loan, understand key factors like lenders, interest rates, credit score, repayment capacity, tenure and so forth, to choose the best loan option for you. With the right approach, borrowing can be a smart financial tool that helps you with repayment while managing your existing expenses.