Types of Loans
How To Apply For A Loan?
Now that we have a complete understanding of the different types of loans and their purposes let us know how to apply for a loan.
It is commonly believed that applying for a loan is a complicated process, but in reality, it is not. Banks and NBFCs are putting their best efforts to make the process as hassle-free as possible. With the right sets of documents, availing a loan will not be difficult.
Here are the most common steps involved in a loan application:
Step 1: Filling up the application form
Every bank or NBFC will have its own application form. Ensure that all fields are filled in with correct and genuine information. Never sign a blank form and leave it to the loan executive to fill up later.
Step 2: Submitting documents
The loan executive will give you the list of documents required for a loan application. Usually, the most common documents are:
- Pan card
- Address proof
- Income documents
- Other documents as required by the bank or NBFC (can be property documents in the case of a home loan or LAP, vehicle purchase documents for auto loans, details of the course pursued in the case of an education loan and so on)
- Tax documents
Step 3: Loan approval
Once you have submitted the necessary document, the loan approving department will assess the eligibility for approving the loans. Various things are taken into account during this process. The loans department may ask for additional documents if they deem fit. It is advisable to comply with their requirements for smooth and fast processing of the loan.
Now, we come to a very important aspect with regards to loans – CIBIL Score.
What is CIBIL score?
A CIBIL score is a person’s credit score which is prepared by summarizing his/her credit history and credit profile. It shows a person’s past credit behaviour – his borrowing and repayment habits with different banks, NBFCs and other lenders. It is a 3-digit number ranging between 300-900. The closer it is to 900, the stronger is the credit profile.
CIBIL score is shared information which is accessed by all banks while evaluating a loan application.
Why is it important?
The CIBIL credit score plays an important part in any loan approval process. This is the first screening criteria applied by any financial institution while reviewing a loan application.
People with a high credit score are always given preference because they have a good history of repayment of loans.
But that does not mean that people with a low credit score will not get a loan. However, enhanced checking is done by the bank or NBFC and the chances of the loan not getting approved go up.
How can you ensure a good CIBIL score?
The CIBIL score is solely based on your credit history and past payments. Building a healthy credit profile is always helpful.
Here are a few things you can do to build a good CIBIL score:
- Always pay your dues on time.
- Try to use as little credit as possible in your credit card, so that the total outstanding remains in your control.
- Take loans according to your repayment power. Consider your monthly income and expenses and then understand how much you are able to pay as EMIs. This is the best way to avoid going into a debt trap.