A home is a safe haven we make for ourselves, the one place we want to get back to at the end of a tiring day. Buying a home is a big decision, looking at financial solutions to improve it is another.
If it’s an emergency and you need to revamp your home, a home improvement loan might just be what you need to help make your home perfect. Educating yourself, through research, and making sure you are aware of the the types of loans available to you is vital when it comes to applying for a loan.
Most individuals might not even know of the first things to do when it comes to applying for a loan, and that’s alright. Each loan differs, from a car loan or a Personal Loan in India, and each comes with its own benefits.
Here are a few tips to keep in mind when looking for a Personal Loan to use for your home improvement project.
- Find the Right Loan
This is the simplest, yet the most complicated, process of applying for a loan. It’s about keeping in mind exactly what you’re looking for in a loan. This means estimating approximately how much your home improvement will cost you, and whether or not that is negotiable in any way. Get in touch with the people handling your renovations and ask them for their opinions—this will give you a better idea of what you are dealing with.
Once you have an estimate in mind, estimate around 10% to12% of it to unforeseen expenses. This will give you an idea regarding the total amount you’re looking at in the long run. Now, try to see how much of the amount required you can cover, personally. Once you’ve done all that, you will have your loan amount in tow.
- Know your Credit Score
This point is often overlooked, usually because borrowers assume that the bank will do the necessary. But, keep in mind that a below-than-average credit score can greatly reduce your chances of getting a loan sanctioned. Not to mention that the interest rates and repayment options might be compromised because of this number.
In fact, your credit score has to fall under a minimum category of the bank or NBFC you are applying at. If it doesn’t, they will have every right to deny your request for funds.
Other things that might hurt your chances of loan approval, because of a bad credit score, include bad repayment history, derogatory credit report, frequent missed repayments, and perpetual lateness. Make sure you have a track record you can boast of.
- Find out Loan Eligibility
For obvious reasons, this is the most essential tip to keep in mind before applying for any kind of loan. Each bank or NBFC has its own specific set of criteria for eligibility; however there are general conditions that you will need to fulfil across the board. These include proof of employment of at least the past year, identity proof (you can give a copy of your passport, your driving license, or even PAN card), and your tax documents. These might differ between salaried and self-employed individuals, but always have these documents at hand before applying for a loan. These documents help the lender decide the upper limit of your loan, and even influence the interest rate and tenure. Also, calculate the EMIs that you’re willing to give out each month. You can use tools available online, such as a Personal Loan eligibility calculator, to help you with this step.
- Interest Rates
Just like any other loan, a Personal Loan for home improvement comes with interest charges. Since there are factors that affect interest rates, like whether you are an existing customer or you have a stellar credit score, make sure you research the best available interest rates before signing on the dotted line. Also, keep in mind that a Personal Loan come with a higher interest rate than others, because it is usually an unsecured one. So, if you opt for a Personal Loan to carry out your home renovations, factor the high interest, and higher EMIs, into your proposed budget.
- Tenure of Loan
This factor is probably the second most important thing after the interest rates. The tenure can, and will, directly affect your EMI. The EMI is normally calculated using three features of your loan—the interest rates, the tenure, and the amount of loan. In other words, the EMI is inversely related to the tenure of your loan. The longer the tenure, the lower will be your EMI, and vice versa. This simply means that you must weigh the alternatives keeping in mind your repayment capacity before finalising on your tenure.
- Read Documents Carefully
This might seem like an obvious point but it’s also as often over-looked as checking one’s own credit score. Before signing your final loan approval documents, read through each and every statement carefully, and clear any doubts you may have at the earliest. Once your signature is on that document, you’re legally entitled to fulfil everything that it mentions. Getting trapped in a legal issue amidst your home improvement period is the last thing you need.
- Unexpected Charges
Always remember that any bank or NBFC will always have processing fees, administrative feed, and even a service charge tied to it. So, it is strongly advised that you have a transparent conversation with your lender regarding all costs that you, as an applicant, will need to cover outside of the loan that you’re taking. This will help avoid any confusion in the future and make your loan approval smooth for both yourself and the lender.
By keeping these seven handy pointers in mind, you will be able to find an ideal solution to your home improvement problems.