Financial institutions provide credit to individuals to help them meet fund requirements, such as medical emergency, wedding, or a dream holiday. These loans are offered based on their credit history. The Credit Information Bureau (India) Limited (CIBIL) collects information from financial institutions to maintain credit scores for individuals across the country.

Availing of personal finance loans allows individuals to overcome any liquidity crises. However, before applying for the loan, it will be beneficial to know the procedure and the pros and cons of such credit facilities.

Understanding the loan application process

Most financial institutions in the country offer personal loans to individuals. However, the procedure may vary from one lender to another. Understanding the process and the rules and regulations of the institutions before making the choice is recommended. It is advisable to review the loan application form to comprehend the terms and conditions in order to make an accurate decision.

Here are four steps to follow before applying for a loan.

1. Check the interest rates

Each lender levies different rate of interest. Some institutions may offer fixed rates while others may offer reducing balance rate of interest. In the latter calculation, the interest is charged on monthly reducing balance determined after decreasing the Equated Monthly Installment (EMI). However, with a fixed rate, the interest remains the same during the entire loan tenure.

2. Determine the Equated Monthly Installment (EMI)

Lenders determine the loan amount based on the income of the applicants and their credit score. It is important to choose an EMI that may be repaid without facing financial constraints. It is advisable that all the EMIs do not exceed 50% of the borrower’s monthly income to prevent a liquidity crisis.

3. Understand the documentation

Some of the commonly required documents include an identity, age, and residence proof along with the duly filled application form. Furthermore, applicants may need to provide details of their income and bank accounts to the lenders.

4. Confirm the loan eligibility

Applicants must use a personal loan online calculator to determine their eligibility before applying for a loan. Any individual aged between 21 years and 58 years may apply for such loans. The minimum net monthly income must be at least INR 25,000 with two years of work experience. An online calculator will help borrowers to know the approximate amount they may procure as a loan.

Having understood the loan application procedure, here are three benefits of applying for such loans.

1. Collateral not required

Unlike other credit facilities like home or auto loans, personal loans are unsecured. This means borrowers do not need to provide any personal asset as collateral against the loan. In case an individual fails to make timely repayments, the risk of losing the asset is eliminated with these loans.

2. Quick approval

These loans require applicants to submit some basic documents for receiving approval. Furthermore, these are unsecured credit facilities that make it easier for lenders to sanction the loans. Since the loan approval is primarily based on the credit history of the applicant, an easy personal loan is disbursed within a short period of time.

3. Affordability

Contrary to belief, these loans are available at competitive interest rates. Furthermore, the processing fees and other charges are nominal, which makes it affordable for individuals to avail of these credit facilities.

Personal finance may be used for any legal purpose. This provides flexibility to the borrowers without limiting the use of these funds. Several financial institutions offer these loans and provide loan-related information on their websites.Individuals must conduct extensive research and review these details in order to land the best deal.

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A 25-year old is done with college and is probably into his first job. At the threshold of adulthood, he wants to fulfill several dreams in a short period of time. Most people believe that having a credit card is an important factor of becoming an adult. However, there are many individuals who think such cards are unnecessary. Just like investing is not necessary, having a card is also not a necessity. So then why would a 25-year old need one?

Here are five reasons why having a credit card at the age of 25 is beneficial.

1. Deposits are Not Necessary

Some merchants who accept debit card payments require the customers to also pay a higher deposit at the time of booking. In case a person is unable to execute the plans, the merchants are still able to earn some of their cash deposit amounts (because there fund is done after deducting a certain sum). These are similar to security deposits and may become inconvenient. A credit card eliminates all such difficulties for the users because merchants do not require deposits for such transactions.

2. Deferred Payment

When an individual uses a debit card to purchase any product or service, the money is immediately deducted from his bank account. On the other hand, a credit card purchase does not have to be paid until the next payment due date. For example, if a cardholder purchases something using his card on the 1st of a month and billing due date is 31st of the month; he enjoys an interest-free period of 30 days. Although this may not seem like much, being able to make purchases without the need to pay upfront cash may help users save a lot of money over a longer period of time.

3. Affordable Home Loan Interest Rates

Many people think that they may receive better discounts and close a home purchase faster if they pay in cash. However, if a person has used his credit card responsibly and made timely payments, this is reflected in his credit score given by a credit rating agency like Credit Information Bureau (India) Limited (CIBIL). A higher credit score is beneficial in reducing the interest cost on home loans and other types of borrowings. This makes it less expensive for people to buy their dream home. Furthermore, paying the mortgage installment with a card reduces the actual cash outflows and helps prevent financial difficulties.

4. Reward Points

Most card companies provide excellent reward-based credit cards for their customers. These issuers allow the cardholders to accumulate reward points on their spending. These are redeemable against several offers, such as travel deals, air miles, or purchasing some products and services. In addition to the reward points, users may enjoy cashback offers and benefit from signup bonuses that make credit cards more beneficial.

5. Develop Credit Score

A 25-year old may not have any credit history. However, he may need to avail of a loan in a couple of years to purchase a home or any other asset. This period may be used to develop a good credit score using a credit card. When an individual utilizes his card responsibly and has no delays in payments, it has a positive impact on his credit score. Having a strong credit score has several direct and indirect benefits, such as increased possibility of receiving approval on loans and lower interest rates.

People often find lots of information on how using a credit card may have severe outcomes, such as financial distress and debt traps. However, using a card wisely also has many benefits. However, before applying for a credit card, it is important to check credit card eligibility and understand the terms and conditions related to credit cards.

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If you’ve recently tried to borrow some money or take out a credit card but have had the dreaded rejection email or letter, it’s pretty much certain that there is something amiss with your credit score. This can seem like an enormous setback, an intractable problem that is going to wreck your plans and prevent you from getting on in life.

But, bad credit scores are not only highly common; they are highly fixable too. Many hundreds of thousands of people in the United Kingdom suffer impaired credit ratings and yet still manage to borrow money through the so-called sub prime lending sector.

Furthermore, given good financial management and discipline, these people are able to fix their credit scores so that, after a certain period, they regain access to more mainstream forms of credit.

Credit scores explained

There are three main credit reference agencies in the UK – they are Experian, Equifax and CallCredit. These organisations hold data on every person who has borrowed money, holds a utility or insurance account or a mobile phone contract. This data includes information that includes existing and past addresses, the payment history on each account (whether payments are and have been kept up to date), a record of any defaults, bankruptcies or county court judgements (CCJs).

The information is straightforward. You can apply to one or all of the reference agencies for a copy or your record (for the payment of a small fee) and you should be able to see immediately where your problems lie if you’re having trouble getting access to credit.

But, it is how the agencies and financial organisations interpret the data that results in a credit score. This number – usually between 300 and 900 (although this varies according to which agencies figures are being used) – is an expression of risk that a borrower represents to a lender. The lower the score, the higher the risk. Some agencies will express that risk as very poor, poor, fair, good or excellent. Very poor might be a rating between 300 and 400 while good and excellent might extend all the way from 700 up to 900.

Those judged to be very poor are likely to have difficulty getting access to most forms of credit. They will struggle to be accepted for loans, credit cards, bank accounts and even mobile contracts. This rating may even affect their ability to get a new electricity or water account set up.

People with poor credit ratings are likely to be rejected by many lenders, but some will consider their applications. However, they are likely to face higher interest charges, lower loan amounts and, sometimes, requests by the lender that they put up some form of security before a loan is issued.

Fair credit ratings are in the middle of the pack. If you fall into this category, you will find that you will have a wider choice of loans and credit cards than people in the categories below you. However, it is almost certain that you will have to pay higher interest charges than people in the higher categories.

People with good credit ratings will be accepted for most loans and credit cards that they apply for. There is a small chance that they will have to pay slightly higher interest charges. Excellent credit ratings are the ones which we all aspire to have. People in this category are almost guaranteed to be accepted for any form of credit and will pay the lowest interest rates and charges.

How to fix a bad credit score

While the immediate situation can seem bleak, it is perfectly possible to repair your credit score with time and discipline. There is no ‘quick fix’ but experience shows that people with poor or very poor scores can get back to good and then excellent within a couple of years. Here’s how they do it:

1. They make their repayments on time

Your financial mistakes will fade over time as long as you start behaving responsibly now. That means making payments on time, every time from now on. Over time, this good behaviour will start to outweigh the late or missed payments on your credit record.

2. Settle accounts

If you have got a bit of money in the bank, consider whether you should pay off a credit card balance or loan rather than splashing out on something new. This is particularly good and viewed very favourably if you’ve maxed out your cards because it will reduce your overall debt to income ratio and will have a pretty rapid effect on your credit score.

3. Get a ‘credit builder’ credit card

Some of the big banks and major financial organisations offer versions of their mainstream credit cards for people with poor credit records. You’ll hear these referred to as ‘credit builder’ or ‘credit repair’ cards and although they will come with lower credit limits and higher APRs than those offered to people with good credit records, they will allow you to quickly demonstrate financial rectitude by repaying a small amount of borrowing on time. This will be reflected on your credit record every time you make the payment.

4. Look at your credit records

It will cost you just a few pounds to get hold of your records from the major reference agencies. It’s worth doing because it will allow you to see where the problem areas are and take corrective action or to turn up any mistakes on your record. If there are mistakes, you should write to the agencies and explain them. The record will generally show your credit score so you will know how much work you have to do.

5. Take out a guarantor loan

This is an excellent way to rebuild a credit score. A guarantor loan will allow somebody who has a bad credit score to use the record of somebody else to borrow money. A friend or family member will stand as guarantor for the borrowing, becoming liable to make the repayments if the borrower slips up. As a result, the lender looks at the score of the guarantor, not the applicant, but every repayment made on time is recorded on the borrower’s record. Over time, this will improve a credit score.

Article provided by Mike James, an independent content writer in the finance industry working together with technology-led finance broker Solution Loans, who were consulted over this post.

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It’s a sickening feeling. You have never had trouble with credit in the past and have not had problems accessing a loan. Then, one day, after you’ve spent time filling in an application for a loan with the bank, a letter or email arrives telling you that you do not meet its lending criteria and that, regrettably, it has declined your request.

For some, being turned down for credit is a shock but not a major disruption. But for many others who had banked on accessing credit to fund a new car, carry out home improvements or consolidate other loans, being turned down by the bank isn’t just embarrassing, it can throw their lives into turmoil.

If this is you, then you’re in good company. Up to one third of all applications for credit in the UK were turned down in 2014, most of them by the mainstream banks. For many hundreds of thousands of ordinary consumers, that wasn’t because they were reckless with money or had failed to make good on debts in the past: it was simply because they didn’t meet the banks’ more rigid criteria that emerged in the aftermath of the financial crisis.

Happily, there are now a growing number of alternatives for borrowing for people who can’t get hold of the money they need when they apply either to their bank or other mainstream lender. Despite being rejected elsewhere because they have a bad credit rating, millions of people now have access to loans from the burgeoning market in these types of loans. Although some of these types of loan come with higher interest rates and lower total capital sums, there is a good chance that you will be able to borrow the money that you need despite having a bad credit rating:

Personal loans

Thought you would not be able to get an unsecured personal loan because the bank’s computer says ‘no’? Think again. Many lenders now have products that are designed for people with poor credit ratings so if you’ve been declined by your bank or somewhere else, you may still be able to borrow a substantial amount of money without having to offer some form of security.

Personal loans for people with bad credit ratings tend to have higher higher interest charges than those offered to people with excellent credit ratings and the sums on offer may also be a little lower. As part of responsible lending policies, these lenders will still carry out credit checks and affordability assessments but these criteria are usually a little more relaxed than those undertaken by the major banks.

Homeowner loans

If you own your house and it is worth significantly more than you originally paid for it, then there’s a good chance that you will find an organisation willing to lend you a significant sum of money. A whole raft of new lending organisations now offer homeowner loans for sums that range from £5,000 all the way up to £250,000 and beyond. It all depends on how much equity you have in your property.

The loan is secured on your house meaning that these types of products are not available to tenants or those in shared ownership schemes. It also means that should you fail to keep up with the repayment schedule, the lender could repossess your house.

The big advantage with homeowner loans is that the interest rates are generally lower than those that come with other forms of bad credit funding. That said, the interest rates may be variable so might change throughout the term of the loan leaving you unable to make repayments should your circumstances change.

Guarantor loans

If you can’t get a personal loan and don’t own your own home, your options become more limited but it is by no means impossible to secure the money you need. Guarantor loans are a rapidly-growing part of the market and work because they open up borrowing to people who don’t have a good enough credit rating to borrow money on their own. These types of loans are based on the principle of somebody else standing as security to guarantee your loan repayments. That person could be a relative, a close friend of somebody at work who knows and trusts you enough to take on this responsibility. While the very large sums that are offered with homeowner loans are not available, it is still possible to borrow up to £12,000 with a guarantor loan.

Credit unions

Prior to the explosion of the UK consumer credit market and the arrival of big international financial organisations, the building societies were mutuals – owned by their savers and borrowers. Credit unions are similar and are owned entirely by and for the benefit of their members. They serve local communities up and down Britain and are in the business of offering loans to members by using the capital held on deposit on behalf of those who save with them.

Interest rates on loans offered by credit unions are usually a bit lower than bad credit loans although some of them will insist that people wanting to borrow money from them save a small amount first. Although this is still a growing area of the UK’s financial services market, credit unions are offering larger and larger personal loans with some advertising up to £4,000 with repayment periods of seven years.

Article provided by Mike James, an independent content writer in the financial sector – working with a selection of finance companies, including Solution Loans – who were consulted over the information contained in this piece.

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Keeping a personal budget is not difficult in theory, but it becomes much more difficult to stick with it throughout the month. As a result, it is a good idea to write up a list of tips, as they can keep you focused on the goal at hand. If you can remember these rules, staying within your personal budget becomes much easier.

Avoid Debt

This is the main goal of developing a personal finance plan and it is also the most important thing to remember. You should never spend more money than you earn, as this puts you behind on your quest toward financial freedom.

Once you get yourself out of debt, you can start spending money again. Taking the first step is important, however, and it will take a great deal of discipline.

Pay Yourself First

This might sound like it prolongs your period in debt, but what it truly does is make the situation more livable. Paying yourself does not mean that you go out and blow all of your money right away, but it does mean that you should put money in your savings and retirement funds before you pay your creditors.

By paying yourself first, you ensure that you will always have money around, which can help you to prevent more debt in the future. If you run into an emergency, but have not put enough money into savings, you will end up right back in debt if you do not follow this plan.

Track Expenses

Another difficult aspect of personal finances is tracking your own expenses, but it is very important because it allows you to develop a plan. Save your receipts for everything for a few months, so that you can see exactly what you are spending.

This makes it easier to see where you can cut spending, which allows you to pay off your debt at a faster pace. You would not drive in a strange city without directions or a map, so you should not try to navigate your financial situation without a clear idea of where your money is going.

Stay Within Your Budget

Making a budget is easy, but it is much more difficult to stay within it. If you are committed to saving money, however, a budget can become your best friend.

By giving yourself a monthly allowance, you can be certain that you will never spend more than you make. Of course, that might mean that you have to pass on the Mustang apparel that just went on sale at your favorite store, but it is important as you attempt to reach your financial goals.

Try to Avoid Paying Interest

When you purchase something on credit, you end up paying much more than the sticker price. Therefore, it is always a good idea to save up and pay cash for something, especially if you are making a major purchase.

Of course, it is probably not possible to pay for a new home out of pocket, but you can probably afford to pay for many of your day-to-day expenses without going further into debt.

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