How Does The Purpose of a Personal Loan Affect its Approval?

When applying for a large loan, lenders usually ask why you need it in the first place. The lender may inquire about the reason for the personal loan to recommend better loan categories. You should always consider the purpose of a loan. This is to fix whether you need to borrow and whether you can afford to make payments. Failing on a personal loan can seriously impact your credit score, making it difficult to obtain other types of credit.

Does the reason for your loan matter?

Yes! The purpose of a loan is important because lenders use this information to fix not only your interest rates but also whether or not you qualify for a loan from that lender. While some lenders are quite flexible in terms of how you can use a personal loan, many have policies that govern how and when you can use the funds you borrow.

Including this data on a loan application allows a bank to assess the potential risk of lending money to an individual.

The borrower’s reason for needing a loan can also be a factor. How much money you need and how the debt will be repaid, which may be affected by the need, may make some types of loans a better fit than others.

Lenders may request specific facts depending on the type of loan requested. Understanding lenders’ factors when deciding who to lend money to can help you get approved. By not applying for too many loans and trying to keep your income and employment situation stable, you can increase your chances of not only receiving a loan but also being accepted to borrow at a friendly rate, resulting in a loan that costs less to repay over time.

What factors do lenders consider when making a personal loan decision?

Credit Report

A credit score is a number assigned to each individual that indicates their creditworthiness. You will receive a credit score as soon as you open a bank account. 

Income

The loan approval officer will verify your monthly income based on the loan amount. If your monthly income is good, that is, if you have enough money left over after paying your bills, EMIs, etc. The officer is far more likely to approve your loan. If you want a large personal loan but have a low monthly income, your chances of getting the loan are much lower. 

Age

If you are too young or too old, you may not be suitable for the loan. You don’t have enough credit history when you’re young and either still a student or new to the workforce. You most likely lack the financial stability to repay the loan.

Furthermore, lenders prefer not to make loans to people over 65. This is because people tend to retire at this age and may not have a source of income. 

So, what’s the point of getting a personal loan? Continue reading to find out why people get loans in the first place:

Personal Loan for Medical Emergencies– Even if you have the best insurance coverage, funds are required at such times. If you do not have enough savings to fall back on, applying for a personal loan can provide you with the necessary funds. These loan amounts are transferred to your account within a short period. This ranges from a few hours to 3-4 days.

Personal Loan for Business Expansion – It’s fortunate if you’ve been thinking about expanding your business. This is done to assist small and medium-sized entrepreneurs in expanding their operations.

Personal Loan for Home Renovation– Getting a personal loan when you need to do home repairs or change the architecture of your home is fairly common. If you have an upcoming event or want to repaint the house before the festival season, you can simply take out a personal loan with no collateral. In this manner, you can repay the amount in small and doable EMIs rather than spending a large sum all at once.

Personal Loan for Higher Education – Traditional education loans are subject to several terms and conditions. Some loans can only be gained if you are in a specific college category. They have strict repayment terms, and students must wait years to be debt-free. A personal loan is always a better option in such cases because there is no need to get one. Other benefits of taking out a personal loan when you need funds to further your education include the short loan term and low-interest rate.

Personal Loan for Paying Credit Card Bills – Because personal loans have lower interest rates than credit cards, the total interest amount and tenure are reduced. As a result, if you cannot pay off your credit card debt for whatever reason, consider taking out a personal loan to pay it off. This way, you won’t have to pay the high-interest rates or penalties that credit card companies levy when you don’t pay off your debts on time.

To summarise

If you’re looking for a personal loan, the purpose of your loan can influence which you can work with and how much you’ll pay. Finding a lender who shares your loan purpose and financial goals can make or break your overall content with the process.

To learn more about Piramal Finance, Visit: https://www.piramalfinance.com/.