September 25, 2022

An Easy Guide For Managing Your Loan Cycle

We may not always have down cash to purchase certain things. In that case, you can borrow money from lending institutions, such as banks, NBFCs, and other private lenders. A loan is a fixed amount borrowed for a certain period of time. The lender lends the money based on the trust that you will give back the money within the fixed period of time along with added benefits, such as interest. Loans can be broadly classified into secured and unsecured loans based on the security provided and into education loans, personal loans, vehicle loans, and home loans based on the purpose. They can also be categorized as gold loans and loans against assets based on the pledged assets.

Nowadays, with an increase in digital systems and fin-techs, there is now greater access to credit for a wider demographic. New trends in credit have cropped up, such as Buy Now Pay Later, which enables you to have easy and convenient credit access. So, the reluctance to take loans has reduced. Although the reluctance to take loans has decreased since lending has been made much more accessible, you will still need guidance for managing your loan cycle.

What Is A Loan Cycle?

A loan cycle is defined as the span of time between when you apply for a loan and when you pay it back with interest to the lender. To manage your loan cycle, you will need to understand the various stages in it.

The Stages Of A Loan Cycle

Prerequisite Loan Calculations:  Before you get a loan, there are some necessary calculations that should be made. Firstly, you should decide which type of loan you are going to take to zero in on the loan amount. The next step is to determine how much you can pay towards your EMIs based on the monthly income and expenditure. The lender will assess your repaying capacity based on these calculations. Multiple online tools, such as EMI calculators are available to help in making these calculations.

Research: The objective is to find a loan that is best suited to your financial situation and requirements. There are plenty of online options available now with the proliferation of the digital lending landscape. So, all you have to do is to do thorough research and compare the offers made by different lenders before choosing the best one. Also, do not get carried away and choose lenders just because they offer attractive interest rates. Read online reviews about the lender and enquire about him with your acquaintances. Research thoroughly before you get the best loan proposition.

Completing Your Loan Application: Once you have chosen the lender based on research, you go to the third stage of the loan cycle. This is the loan application stage. In this stage, you will complete filling in your application. The loan application can be a hard-copy even, but nowadays, most lenders are shifting to the electronic or paperless version. w. The garnered information can be used to customize your loan finding process by tailoring the data to specific loan products.

Although the process seems to be simple, if you fill in the wrong information, your loan application is likely to be rejected. Have your documents in place before you apply for a loan since banks and other lenders will judge your creditworthiness based on these documents.

Verification of Documents: In this stage, lenders verify your documents, such as Pan Card, Aadhaar Card, or passport using online portals. They also send their representative to visit your workplace or your residence. If you are into business, then their representative may visit your company. The number of days taken to complete the verification process will vary across financial institutions, and it can be anything between one week to 15 days. Some online lenders may take just minutes to do this.

Loan Approval and Disbursal: Once the lender has verified you based on their credit history and documentation, he/she disburses the loan amount to your bank account. Sometimes, lenders send it through NEFT within 24 hours. Alternatively, it can be sent through a demand draft or cheque to the verified address.

Loan Repayment and Loan Closure:  You should pay your EMIs on time so that it does not have a negative impact on your credit score. The most common mode of repayment is auto-debit, and it can be done using the NACH (National Automated Clearing House) or the Electronic Clearing System (ECS). Once the loan is repaid, you should make sure that you get a confirmation letter from the lender stating that the loan is closed according to their records.

Things to Keep in Mind While Taking a Loan

  • Keep the duration of the loan as short as possible. This will cut down on your total interest cost although you will have to pay higher EMIs.
  • Take a loan only if necessary and not for spending extravagantly.
  • Compare lenders to get the best interest rates and loan features
  • Do not exceed your repaying capacity. It will lead to a debt trap.
  •  Do not default on your loan payments

Conclusion

Digital lending has transformed the landscape of lending in India. It enables lenders to give a smooth and convenient experience to the borrowers. Loan management becomes faster and easier online for both the borrowers and the lenders. Also, post the pandemic, the number of online users has increased, and the need for digital lending has increased manifold.

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