As a first-time loan borrower or for the first-time loan application, maintaining a steady balance in your savings account and staying away from cheque bounces are similar to timely loan repayments.  The transactions made in your savings account will be under a scanner thus help in availing a personal loan easily. Yes, in the case of first-time loan borrowers, where no credit history can be found, these are some crucial factors lenders do consider before giving personal loan approval. 
Lenders also offer small loans to new to bank or new to credit customers who has limited credit or no credit history with Credit Bureaus (Equifax, CRIF, CIBIL, and Experian). They analyze creditworthiness using non-traditional data sources such as payment records related to utility bills, telephone bills, and rental payment in case of rental accommodation. 

What is a Personal Loan?

An unsecured loan taken by the borrowers from a bank or non-banking financial company (NBFC) to fulfil any personal need. This multi-purpose loan comes at a lower interest rate with a maximum loan tenure of up to 5 Years. Different lenders offer different loan amount ranging up to Rs.20 lakh that can be given based on key eligibility criteria such as income, credit report/CIBIL score, employment history, repayment capacity, etc.

Steps: Personal Loan Approval for First Time Borrowers

1. Compare:  You may apply online by checking and comparing various lenders parameters for personal loan, especially when you do not have prior borrowing history. it is advisable to compare lenders on different parameters such as:

  • Interest Rates
  • EMIs
  • Tenure
  • Maximum Loan Amount
  • Processing Fee & Other Charges
  • Approval Time
  • Loan Disbursal 

2. Watch Your Borrowings: Be calculative in life, especially in case of availing a personal loan. Apply what you need. Do not get over-excited just by looking at the higher loan amount. Stick to your actual needs and then decide the loan amount. Doing so will help in reducing your loan burden and is also a secret to repay your loan on time, which you can afford to pay back. 

3. Know Your Eligibility: Lenders give personal loan approval to those who fulfill the required eligibility criteria set by them. Lenders can either accept or reject an applicant’s personal loan application, failing to meet these norms. Before approving, lenders take into consideration various points such as:

  • Age 
  • Income
  • Monthly Expenses
  • Existing Loan/Liability/Default
  • Credit/Cibil Score
  • Job Stability
  • Category of the Employer-(CAT A, CAT B), Government Employee
  • Relationship with a Lender

4. Pay Attention to CIBIL/Credit Score: As you are a first-time loan borrower, you will have zero or -1 (minus one) limited or no credit history, until and unless you owned a credit card. Since you are new to this experience, it would be important for you to know that lenders prefer those borrowers who have a good credit score. After all, a good score is an indication of a borrower’s creditworthiness, hence lending would be less risky in case of unsecured personal loans.  

How first time borrowers can get a personal loans as they don’t have any prior credit history?
Short-term Personal Loan is the Solution: Yes, a short-term personal loan can be your best buddy. First, you need to build your credit history to become eligible for future borrowings. Thus, a short-term personal loan will solve your purpose here. These loans can be given for a short interval of time (up to 1 year), thus help in generating your credit repayment history from scratch.

5. Look for Co-applicant/Guarantor: If availing a short-term loan would be a problem, apply personal loan with a co-applicant or guarantor. That’s Right! With no credit history, there are chances of short-term loan rejection also. The provision of a co-applicant or guarantor can come to your rescue. In such a case, the credit score of your co-applicant/guarantor would be under the scanner and based on their good cibil score, you will be given a personal loan. However, in case of co-applicant both the applicants are responsible to repay the loan. Whereas, in the case of a guarantor, only he/she is liable to the lender.    

6. Apply with Pre-approved Loan Offers: Having savings accounts can be of a big help here. Lenders usually give pre-approved personal loan offers to their existing customers as well as first-time Loan borrowers. If you choose your existing lender for availing a personal loan, you might see a pre-approved offer in your bank account. Just check your registered e-mail or visit your account online to know more about the offer based on your eligibility such as monthly income, monthly expenses, relationship with a lender, etc. 

7. Avoid Multiple Loans Together: After getting the approval for one loan, it’s better to continue with the same rather than taking multiple loans, especially for first-time borrowers. This is because every loan application is registered with a credit bureau. And, on seeing multiple applications or hard enquiries, lenders will look up to you as credit hungry. Thus, your credit score will be reduced and this will ultimately show up in your CIBIL Report.  

8. Be Documents Ready: Keep your documents ready for a quick and hassle-free journey. Without submitting the complete KYC documents, you won’t be able to avail a personal loan. Make sure your documents are complete and information should also be correct on loan application form as well. 

9. Read the Loan Agreement Thoroughly: Before signing the dotted line and finalizing the personal loan deal read the agreement carefully. Pay attention and go through each and every clause and in case of confusion or query get in touch with your respective lender. Once you are satisfied, go ahead with the same. 

10. Balance Transfer at Your Disposal: After repaying your personal loan for 9 months or 1 year, a first-time borrower can also opt for a balance transfer facility. Wherein, the outstanding loan amount will be transferred to a new lender at a lower interest rate. After choosing a personal loan balance transfer, you would continue repaying your loan to your new lender as you are now liable to the same.  

11. Enjoy Tax Benefits: Though, personal loans don’t offer tax benefits, if you apply for home renovation/down payment, you will get the tax exemption under Section24 of the Income Tax Act. Yes, a borrower/homeowner can claim a deduction of up to 2 lakh(Rs.1.50 lakh for showing ITR of last Financial Year) on the Interest Portion only.    

Quick Tip:  As you are a first-time loan borrower and to generate your credit/cibil score from scratch, timely payments is one thumb rule that you should follow. Pay your loan EMI on time and never skip/delay a payment. Doing so will enhance your credit profile, makes you look reliable and less risky as far as lending is concerned.  

Opt for Auto-debit Payment to never miss an EMI payment. With the help of this facility, the required EMI amount will automatically be debited from your account.