Availing personal loans as a financial or funding help is easier compared to many other types of loans. At some point, this personal credit is used as an alternative to credit cards. The best is that it can cover big purchases while saving on interest for your finance life. But do you need it? While it has various uses, eventually you may not need it.
It is best to be critical of several aspects and considerations before taking it. After all, it is a credit that has a repayment plan and eventually needs to be paid later. To ensure your readiness to get the loans, the following questions will help you plan the process. Starting from the basics to the most important points, here is the list of questions for you.
How Much Money Do You Need?
It matters the number of your loan. In this case, you should learn about the minimum and maximum amount of money. Every bank or provider will have a different rate. In this case, you can determine the money you need and then find the right bank.
In Indonesia, personal loans range from ten million to hundreds of millions of rupiah. But of course, you can also consider smaller money depending on your needs. In this case, big numbers are mostly provided by traditional banks. You can borrow from Rp 50.000.000 to Rp 500.000.000 (depending on the bank’s availability).
If you are looking for a smaller loan, you can check online. Many online banks can offer starting from Rp 5.000.000. Again, the minimum and the maximum amount will depend on the lender. There are also potential different considerations from the lenders that affect how much you can loan from them, including your credit rate and income.
How Long Will You Have To Pay It Back?
In this part, you may need to check the details from the company or the lender. Most lenders will provide different repayment terms depending on your capabilities, income, or contracts. The duration can take between six months to seven years. However, it can differ depending on your document and amount.
The interest rate and the monthly payment will be impacted by the repayment length you choose. The longer it takes, the smaller you have to pay monthly (with interest). You should calculate and be more aware of fees, taxes, and interest included in your loans. Be aware that you may have to start paying within 30 days.
How Much Is The Interest?
So how much is the interest? As said before, it will be impacted by the length of your loans, the amount, credit score, and term. It is easier to say that the longer you pay, the more interest you get. The quicker you pay, the smaller the interest you have. However, the rate may differ from one lender to another. Just be aware, of the rate.
For good measure, in Indonesia, the bank interest for loans can go as low as 0.1% to as high as 36% per year. Most likely, you can get the lowest interest rate depending on the lender, excellent credit score, and shortest repayment term. If you are not sure about the number, you can ask the lender and get the best recommendation based on your financial situation.
Can You Afford The Monthly Payment?
At this point, you already know how much you need to pay. You can consider and make repayment plans based on your income level and cash flow (DTI or debt-to-income rate). Many professionals recommend spending no more than 35-43% on debt. You can also say to avoid getting debt that is higher than 43% of your income.
The general rules should be applied to any loans, including mortgage, personal, or car loans. For example, you have a monthly income of Rp 10.000.000, so you should keep all total credit at or below Rp 4.300.000 a month. Banks or lenders can deny loans to people who likely ask for a higher ratio than their capabilities.
In many cases, it is hard to get approved with a debt-income ratio higher than 40%. Stretching the ratio may lead to cash flow problems. It may sound easy with a longer repayment term. But most often long-term payment comes with a higher interest rate, which means you are paying more for the loan at the end.
Are There Any Fees?
In many cases, personal loans do not have any fees other than the interest. However, there are chances of some charges covering the origination fees, one-time upfront charges, processing costs, and others. It can take around 1-5% of the loan but will depend on the lender’s terms and contracts with the creditor.
For example, if you get a Rp 10.000.000 loan and the fee is around 5%. Thus, you would only receive Rp 9.500.000. The Rp 500.000 will eventually go back to the lender as a fee. Some other fees may also include, such as insurance, administration, provision, late payment, duty stamps, and so on.
Do you need collateral For the Loan?
The good thing and reason why personal credits are preferred by people is the lack of collateral. The reason is that most of these loans are unsecured. It means you don’t have to provide collateral at all. You can issue it and get the money right away. You can also consider a secured one that needs to supply an asset to be used as collateral.
How Long Does It Take To Get One?
One of the benefits of these loans is the quick process. But, the amount of time it takes will depend on the individual lender and how they process it. Typically, the process only takes less than a week. This quick and no-hassle process makes the loan one of the popular emergency funds. As long as everything is prepared, then it will be quick.
But what do you need to make it quick? Each provider or lender may have different requirements. It is best to include some of the basic documents during your bank visit. After that, you may have to attach several other documents to support your legibility in getting the loan. Some lenders might provide applications to make the process quicker.
Do You Want The Money Sent To Your Bank Account?
You can get the money from the loan as cash or send it to your bank account. What does it mean? One of the uses of this personal or individual loan is as a debt consolidation. It means the money you borrow will be sent to the creditors. Why so? Because if you are going for debt consolidation, you are fusing it alongside other debts.
Thus, the lender needs to deposit the money to the creditors or into your linked bank account. This concept helps you gain a better credit score and a chance to lower the interest alongside many other debts you have. That is why, you may have to pay attention to where you wire the borrowed loan.
What if you use it to consolidate or pay any existing debt? In this case, you can wire the money into your checking account. You can use it directly as a payment or anything. One thing that you may want to underline is the amount of money. The cash-out loan tends to have a lower amount than the loan consolidation.
What Document Do You Need To Include?
If you are still trying to apply for a personal loan, you should be prepared with the paperwork. It won’t take long if you are prepared, especially if you goes to a bank or lender. As for now, many lenders provide or have a loan application that makes everything easier and quicker. But still, you need to prepare some documents.
Each application process and the attachment needed are slightly different. You will need to prepare personal and financial information as the basic document. That information will help the lender determine whether you are a good candidate for a loan or not. You can prepare both hard files and soft files.
If you are going to the company or the lender, prepare a hard file or copies of your personal and financial information. The basic document is a proof of identity, it can be an ID card, driver’s license, or many other legal proofs of identity. Along with identity, you also need proof of address. This requirement may vary from lenders.
As proof, you can use documents such as utility bills, mortgage statements, or rental agreements. After the identity and address, you need to include the employment and other income details. This is the most important document you need. It should have details of whether you are employed and income verification.
The income details will help the lender determine how much the Debt-to-income (DTI) Ratio is. There are chances of other documents needed for the process. Some of them are tax returns or bank statements. Make sure you have copies of everything. Or if you are issued the loan through apps, be sure you have the soft file or a scanned document.
How To Get Approved?
Are the documents guaranteed your approval for loans? Unfortunately, No. Getting all the documents is one thing. Getting approved for the loan is a different thing since it highlights various considerations. Every lender will have different criteria to see whether you are eligible for the money or not. In this case, there are several points to highlight.
First, you need to have a steady income. Every bank or lender wants you to repay the loan. Thus, a steady job and income will make you appear as an attractive candidate. Second is a clean and good footprint (in debt). Lenders can see your history in credit and debt. If you have a problematic debt or financial situation, they may see you as an ineligible candidate.
That is why if you want to loan money, be sure you are clean or have a good history of paying everything properly. Another good point is to avoid late payments since it can portray your ability to manage debt responsibility. Next is working on your credit score. The score dictates your debt responsibilities.
The higher it is, the more likely you are qualified to get the loan. This credit score also measures your creditworthiness. Don’t be surprised that people with high credit can get the best loan terms. The last is your DTI rate. It is tempting to pick a higher debt-to-income rate, but it can make you lose the chance to win. Getting it under 43% should be good.
What To Do If You Are Denied?
There are still chances you are denied loans for various reasons. If it happens, you can always consider other options or be more aware of your financial situation. Some lenders may deny your issues because you still have unpaid debt or a bad credit report. If you have error credit score reports, try to dispute them and remove them.
Be sure you pay down your debt since it affects the DTI. Most of the time, the system will accumulate your overall debt. The more money you have borrowed, the lower your DTI is. So, clean it up before you sign up for a new debt. If the two points are hard to crack, you can consider getting a co-signer.
Co-signers are someone who agrees to pay the loan for you (if you cannot). In this case, get a co-signer with good credit to ensure you are qualified. If you have no co-signer, get a secured loan with collateral. You can use your car or anything to qualify for the loan. And the last resort is going to different lenders.
Are you ready to answer all those questions? Those queries are the basic considerations of issuing personal loans. This loan can be good funding for critical or personal needs. It is easy and quick to get. But it is also a credit that can weigh on your financial stability. Be more aware and thorough in considering any details of the loans including interest and fees.
