Why Do Lenders Need Bank Statements: Everything you need to know

Why do lenders need bank statements, you wonder? Well, these documents record your income and expenditure. So, lenders use them to check the stability of your earnings while ensuring that you have enough funds in your account to successfully repay the loan. 

This evaluation affects your chances of approval as well as the amount you may get. Read on to learn what lenders are looking for when they ask for your bank statements.

Information Lenders Check in Your Bank Statements

When you submit these documents, financial institutions check the following:

Monthly Income

When you apply for a loan, lenders ask you to state your monthly income. With the help of the bank statements, they verify the following:

  • The income that you get from your employer
  • The frequency at which you receive the payments

Expenses and Payments

Before approving your application, financial companies check your spending patterns and your recurring expenses. This is important as they decide on approval after checking if you can add another EMI to your budget or not. 

These recurring expenses may include:

  • Your loan EMIs
  • Your credit card bills
  • Your electricity and gas bills
  • Your internet and phone bills
  • Your monthly subscriptions
  • School/tuition fees of your children

Withdrawals

In addition to your income and expenses, financial institutes also check the average cash withdrawals you make through your account. Here’s what they check:

  • If the withdrawals are regular and of smaller amounts, they are considered acceptable 
  • If the withdrawals are irregular and of huge amounts, lenders may view them as red flags

Cash Reserves

To pay your loan successfully and on time, you need to maintain an optimal balance in your bank account. By asking for your bank statements, lenders check the cash reserves you have. Here’s what they conclude:

  • If you have an optimal balance in your bank account, they will approve your application quickly
  • If the balance is on the lower side, they may view you as a high-risk borrower

New Credit Accounts

Loan companies also see if you have any new credit accounts. This is because when you have multiple payment obligations, managing your finances may be difficult, and you may default on your loan. They look for credit accounts like:

  • Home loans
  • Personal loans
  • Auto loans
  • Business loans
  • Travel loans
  • Credit cards

Overdrafts or Bounced Cheques

With this document, lenders can also get information about your overall financial health. This includes:

  • Overdrafts on loans or credit cards
  • Bounced cheques

When you apply for an overdraft or when your cheques bounce, it implies:

  • You have a shortage of funds
  • Your expenses are more than your income
  • You have a high dependence on credit

Also Read: What is an Overdraft Facility?

Points to Keep in Mind While Submitting Your Bank Statements

While providing your documents, consider these points to safeguard your finances:

Check the Authenticity of the Financial Institution

Before submitting your private documents, do the following:

  • Check if the financial institute is legitimate
  • Look for past customers and check their reviews
  • Check if the lender’s website runs on the HTTPS protocol
  • Ensure that the website or the portal of the financial institution is end-to-end encrypted

Pay Attention to Where Lenders Intend to Use the Information

Prior to sending your documents, pay attention to why the lender needs your financial information. You should only send your financial documents for the following:

  • While applying for loans and credit cards
  • While using a rental service
  • While filing or appearing in a legal case

Clear Your Doubts and Queries Thoroughly

Since these documents hold your private data, its natural to be worried about submitting them. To relieve your worries, clear your doubts in these ways:

  • Contact the customer care representative of the financial institution
  • Go through the terms and conditions of the loan or credit card
  • Check the FAQs section on the lender’s website or portal

Monitor Your Bank Account for any Suspicious Activities After Submission

Just submitting the required documents is not enough. To ensure the safety of your finances, monitor your bank account consistently for a few days or months. In case you find any suspicious activities in your account, report it to the following:

  • The financial institution that holds your bank account
  • Cybercrime branch of your city/country

Now that you have an answer to, ‘Why do lenders check bank statements’, you can plan your application smartly. If you want to get funds with minimal formalities, consider getting an Instant Cash Loan of up to ₹5 lakhs from Fibe.

These funds are available at competitive interest rates and flexible repayment plans. Download our Personal Loan App or apply directly through our website. 

FAQs on Why Lenders Check Bank Account History

Do lenders look at bank transactions?

Yes, lenders ask for bank statements to assess your financial standing via:

  • Your monthly income
  • Your spending patterns
  • Payments towards loans and credit cards
  • Payments towards recurring expenses

Which financial statement is important to lenders?

Lenders generally ask for these if you’re applying for a personal loan:

  • Income statement 
  • Salary slips

If you’re getting a business loan, they ask for these documents:

  • Profit and loss statement or income statement
  • Balance sheet
  • Cash flow statement

4 Smart Tips to Manage Multiple Loan Accounts Effectively

Knowing how to manage multiple loan accounts is not rocket science. Instead, it is about being disciplined and organised, both skills that financially independent adults need to inculcate. 

With easier and quicker access to credit, having multiple loans and credit cards is very common. But if you are unable to keep up with repayment, you may hurt your creditworthiness and your overall financial well-being. 

Effective management of all your loan accounts will help you:

  • Pay on time
  • Avoid late payment penalties
  • Save more without straining your monthly budget

Effective Strategies to Manage Multiple Loan Accounts

Here are some ways you can be more responsible when paying off more than one debt. 

Consider Debt Consolidation

With a personal loan to consolidate debt, you can get sufficient funds to close all your loans early. This way, instead of paying multiple loan EMIs, you can merge all your debts into one. 

Not only does this reduce the net interest you need to pay but it also helps you pay only one EMI and worry about one deadline. This also helps reduce the risk of defaulting. Of course, you will need to qualify for such a loan, so ensure your income and employment match the required parameters. 

Choose a Balance Transfer

Another way to manage multiple loan accounts is by reducing the payable interest. Opting for a balance transfer can thus be a good solution. When you transfer your outstanding balance to a new lender charging a lower interest rate, you can bring down your EMIs. The surplus you save can go towards paying off your loans early. 

You can also choose a lengthier tenure to reduce your instalments even more. So, if you are finding it challenging to pay off multiple loans at the same time, go for a balance transfer. 

Pre-close Loans to Save Interest 

Pre-closing allows you to reduce your debts quickly and saves you from paying more as interest. Since you are charged interest on your outstanding principal amount, when you fully pay this amount, you don’t have to pay the interest. 

Making a lump sum payment instead of paying in EMIs across the tenure is what this strategy is all about. Pre-closing the loan may be a smart idea if you have surplus funds available. However, most lenders charge a pre-closure penalty, so check on it before you plan pre-closure. 

Use the Avalanche Method

Want to save money on interest? Instead of foreclosing, make a list of all your debts and their interest rates. Based on this, pay off the loans with the highest interest rates first. Instead of paying all of it in a lump sum, pay a little more than the EMI amount. The additional money reduces the principal amount, which results in lower interest. 

This way, you reduce your EMI every month and use the extra money towards principal repayment. You must continue the cycle until your loan with the highest interest is paid off before moving to the next high-interest loan.

In addition, here are some other smart tips that can help you manage your loans better 

  • Don’t miss your EMI due date, as late payment charges may add to your financial burden
  • Limit the use of credit cards until you’ve paid the loans to reduce the risk of defaults
  • Prioritise paying your EMIs before credit card dues, as defaults and late payments on personal loans have a greater impact on your credit score
  • Avoid borrowing a small loan to manage monthly repayments, as it can negatively affect your credit score
  • Try to keep your credit utilisation ratio under 40% to improve your credit score
  • Opt for auto-deduction or ask your lender to send a reminder for due dates
  • Convert all your credit card bills into EMIs to simplify your repayments 
  • Get additional sources of income or ask for a raise

If you’re looking to consolidate your debts, consider opting for the Fibe Instant Cash Loan. You can easily get up to ₹5 lakhs to manage your loans and other bills, cover medical emergencies and more. 

Affordable interest rates, flexible tenure options, and an app that makes repayment hassle-free are some of its advantages. Moreover, you can repay your loan without any pre-closure charges. Download our Personal Loan App or visit our website for an easy application process. 

FAQs on Managing Multiple Loans

How do you manage multiple loans?

Here is a quick review of some of the methods to manage your loans. 

  • Pay off loans with the highest interest first
  • Create and follow a budget 
  • Consolidate your debts 
  • Don’t overspend on unnecessary things  
  • If you get a raise, divert the funds towards repayment 
  • Follow the repayment schedule and don’t miss the due date

Does prepaying loans help when managing many loans simultaneously? 

Yes, prepayment of loans helps you reduce the principal and thus decrease your EMI or loan tenure. It helps you save on interest.

Activating a Loan vs Checking Active Loan Status: Key Differences

Have you ever checked your loan app and seen terms like ‘activation pending’ or ‘active loan’ and wondered what they really mean? This is one of the most common doubts borrowers have once their loan gets approved. Is your loan already running, or is it still waiting for some final step before disbursal? 

The answer is simple yet important: 

  • Activating a loan is about completing final steps like eSign and setting up your eNACH mandate (UMRN) so the bank can release funds. 
  • An active loan means your money has already been disbursed, and your repayment schedule is live. 

Understanding this difference saves you from confusion, helps you track EMIs better, and keeps your credit score healthy. 

What Does ‘Activating a Loan’ Mean? 

When a lender approves your loan, you aren’t done yet. You must finish a few digital formalities before the money hits your account: 

  1. eSign your loan agreement and Key Fact Statement (KFS) using Aadhaar OTP. 
  1. Set up your eNACH auto-debit mandate — this generates a UMRN confirming EMI auto-debits. 
  1. Once verified, your loan moves to disbursal stage. 

Tip: Always save the mandate confirmation SMS or UMRN number—it’s proof that your auto-debit is active. 

What Does It Mean if Your Loan is Active? 

An active loan means: 

  1. Funds are already credited to your account. 
  1. EMIs are scheduled and repayment has begun. 
  1. Your lender app/statement shows loan ID, due dates, and outstanding balance. 
  1. Within a few days, it also appears in your credit report (CIBIL, Experian, CRIF, Equifax). 

Active status = full responsibility to pay on time, because this directly impacts your credit history. 

How to Check If Your Loan is Active? 

You can verify your loan status in multiple ways: 

  1. Lender App: Dashboard → Loan details → Status (Active, Closed, Overdue). 
  1. Netbanking/Mobile Banking: Check loan/credit account sections. 
  1. Credit Report by PAN: Download your CIBIL or Experian report to confirm all active loans. 
  1. Google Pay Loan Tile: Some lenders integrate with GPay, where loan status and repayment dates are visible. 

Common Issues You May Face 

  • Activation stuck/on hold: Can happen due to failed eNACH registration, Aadhaar mismatch, or bank downtime. Retry the process or contact your lender. 
  • Loan shows ‘active’ even after closure: Systems may lag. Request your No Objection Certificate (NOC) and updated Statement of Account (SoA) from your lender, then raise a correction with the credit bureau. 

How Active Loans Affect Your Credit Score? 

Your CIBIL score is directly linked to your loan status: 

  • Missed/delayed EMIs: Lower your score and may attract penalties. 
  • Closed loans with NOC: Strengthen your profile and show repayment discipline. 

Knowing whether your loan is still in activation or already active saves you from confusion, missed EMIs and credit score issues. Always complete your eSign and eNACH steps quickly and check your loan status across your lender’s app and credit bureau reports. 

If you need cash instantly, then Fibe is here for you! Get up to ₹5 lakhs in just a few minutes directly in your bank account. Got surplus amount? Repay the loan early with 0 foreclosure charges.  

FAQs on Differences Between Activating Loan vs. Active Loan  

1. What does it mean if your loan is active?  

An active loan means your approved loan has been disbursed and is currently running. You’re now responsible for repaying the EMIs as per the schedule.  

2. Does active loan affect CIBIL score?  

Yes, an active loan impacts your CIBIL score. Timely EMI payments can improve your score, while missed or delayed payments can negatively affect it. 

6 Ways to Know When to Take Out a Personal Loan

Knowing when to take out a personal loan isn’t easy, but there are instances where these loans can help. For one, these loans are a great option for dealing with emergencies, as you get funds quickly.  

You can also use the loan amount to streamline existing debt repayments, build your credit score, or save on high-interest rates. So, technically, a good time or right time to take a loan is whenever you need the funds.

For insights on when applying for a personal loan can be a wise option, things to consider and more, read on.

The right moment to avail of a loan completely depends on your need and personal finances. However, the right loan from a reputed lender also makes this decision a lot easier. One option to consider is the Fibe Instant Cash Loan, as you can get up to ₹5 lakhs with ease and on affordable terms. 

Here, you can choose from flexible tenure of up to 36 months for easy repayment all through. Fibe Personal Loan has no end-use restriction, straightforward eligibility criteria, a convenient application process and zero hidden fees. So, download our Personal Loan App or go to our website to apply now. 

FAQs on When to Avail a Personal Loan

What is the right time to take a personal loan?

Knowing when to take out a personal loan can be tricky because it completely depends on your financial needs.  As it is a flexible option, you can use it for almost any expense. Ideally, you can consider availing a personal loan for: 

  • Debt consolidation 
  • Overseas travel
  • Higher education tuition costs
  • Wedding expenses
  • Down payments
  • Big-ticket purchases

All You Need to Know About Experian Credit Score

Before you search for loan companies who use Experian, make sure you understand what this score is and why it matters. Financial institutions rely on the Experian credit score to check if you are eligible for credit based on your past credit behaviour. 

Thus this score can impact the approval of your loan as well as its terms, like the amount and rate of interest you get. Experian is slightly different from other credit rating companies that score individuals, such as CIBIL or CRIF and this is why there are lenders who use Experian only. 

Guide to Credit Score

There are four credit bureaus in India: 

TransUnion CIBIL
Experian
Equifax
CRIF High Mark

They compile a report based on your credit history that features:

  • Details of the number of accounts 
  • Total Debt
  • Repayment history

This information serves them in assigning you a numeric value between 300 and 900, which speaks to your creditworthiness. A high credit score means you a reliable borrower who is likely to enjoy approval on your loan/credit card application. It also helps you get lower rates. 

Guide to Experian Credit Score

Experian is one of the credit agencies in the country and its credit report includes the following:

  • A synopsis of your credit account 
  • Detailed repayment history
  • Personal information related to credit accounts
  • Details about applications made for loans or any other form of credit 

Imporatnce of a High Score For Your Personal Finances

Being seen as creditworthy can help you in two ways when you apply for a personal loan or any other type of credit facility:

Higher Odds of Loan Approval

Every lender has its own criteria when it comes to the minimum credit score it requires to approve your application. With a good score, you can get loans hassle-free. 

Savings on Interest Rate

Over the time that you repay a loan, even a marginally reduced interest rate can translate into big savings. With a high score, lenders are more likely to offer you competitive rates. 

Credit Score Improvement Tips

Credit-building strategies that you can employ to improve your credit score over time include the following: 

Keep an Eye on Your Credit Reports

  • It helps you to know what works in your favour when you start taking loans and repaying them. 
  • Moreover, credit reports can sometimes have inaccuracies, which may be pulling your score down. Raise a dispute if you find any errors in your credit report.

Keep Credit Utilisation Low

  • A higher credit utilisation ratio represents a higher dependency on debt and a lower likelihood of timely repayment. 
  • Experts suggest that your credit utilisation ratio must be below 35% of the total limit.

Repay Bills and EMIs on Time

  • Repayment history has the biggest impact on your credit score, so pay your monthly instalments or bills as per the due date or even earlier.
  • If you default on loan repayments, it remains on your credit report for a long time. 
  • What’s more, your credit score will take some time to recover after default payments, making it difficult to get a loan in the future.

Avoid Making Multiple Requests for New Credit 

  • When you apply for credit, lenders make two types of credit inquiries: hard checks and soft checks.
  • While the former knocks off a few points from your credit score, the latter has no impact on it.
  • If you apply for loans with multiple lenders within a short timeframe, your credit score may get damaged.

Also Read: Easy Tips to Improve Credit Score

Loan Companies Using Experian

There are over 5,000 banking and financial institutions across the country who use Experian for credit checks.

As your credit score is an important factor that lenders consider when deciding on your loan request, you must check it regularly. Checking it ahead of a loan application allows you to get errors rectified or improve your score over time. 

As Fibe uses an alternate credit scoring system, you can get a cash Loan even if you have a low credit score. Download the Fibe Personal Loan App or visit our website to enjoy quick and hassle-free funding of up to ₹5 lakhs with competitive rates and flexible repayment. 

FAQs on Experian Credit Score

Can we get a loan on Experian credit score?

Yes, many lenders in India offer a loan based on your Experian credit score, provided that you have a higher score than the minimum requirement.

Which score is better: Experian or CIBIL?

Both Experian and CIBIL scores have their own benefits. Over 90% of Indian banks use CIBIL scores to check their customer’s creditworthiness.

How Do Personal Loans Affect Mortgage Application?

Do personal loans affect mortgage applications? This is a smart question and the simple answer is yes. Even though one is unsecured and the other is secured, any existing loan affects your second loan.

Your existing personal loan can have a significant impact on everything from eligibility to interest rates. Read on to get an answer to the question, will getting a personal loan affect getting a mortgage?

Positive Effect of Personal Loans on Home Loan Applications 

Here’s how it affects your application positively:

  • Helps Build a Positive Credit History

If you’ve repaid your personal loan successfully, it creates a good payment record. Responsible repayment behaviour includes:

  1. Timely repayment of your personal loan EMIs
  2. No defaults or loan settlements

When you apply for a mortgage, lenders check how well you handle credit. A positive repayment track sends the right message and you can look forward to quick approval.

  • Reflects Solid Financial Standing

When you repay your personal loan on time, it speaks volumes about your income and employment. Both these aspects are considered when lenders are assessing your second loan application. 

  • Helps You Negotiate for Better Loan Terms

If your existing personal loan repayment record is positive, you are a creditworthy borrower. Thus, you have the power to negotiate for better loan terms.

This way, you can contact the home loan lender and communicate your case for better terms. You can negotiate for the following:

  1. Lower interest rate for the home loan
  2. An extended tenure for the home loan

Negative Effect of Personal Loans on Home Loan Applications

In some cases, this can be harmful:

  • Non-Repayments Lower Your Credit Score

Your credit score summarises your repayment history. Lenders rely on this number to check your credibility and eligibility. Your credit score decreases when you fail to repay your personal loan EMIs as per the pre-decided schedule.

Home loan lenders may hesitate to approve your application when they see that you don’t have an adequate score.

  • Affects Your Debt-to-Income Ratio

This ratio determines the amount that goes towards repaying your existing debt from your total monthly income. This may be due to a:

  1. Personal loan
  2. Auto loan
  3. Credit card 

A higher DTI ratio reflects a high dependence on credit. This may lead to lenders assuming that you don’t have room for a second loan and they may not approve your home loan application.

  • Results in Hard Inquiries by the Lender

Your credit report is generated by credit bureaus like:

  • TransUnion CIBIL
  • Experian
  • CRIF High Mark
  • Equifax

Your credit report is based on:

  • Each minimum payment you make towards your credit card bill
  • The monthly EMI amount on any vehicle loans
  • Any judgments or liens against you
  • Each EMI amount towards your personal loan
  • Additional financial obligations

When you apply for a home loan, the lender will initiate a hard inquiry of your score, which gets recorded in your credit report. Multiple inquiries can hurt your overall financial profile and lead to lenders rejecting your loan application.

  • Incurs Higher Interest Rates

A solid financial profile includes:

  • Stable income and employment
  • High credit score
  • Consistent repayment of your credit
  • Low debt-to-income ratio

If you don’t have these, you may not appear to be a creditworthy applicant. This increases the default risk and lenders compensate with a higher interest. 

Now that you understand how a personal loan can impact your mortgage, you can plan your application wisely. To ensure you have the freedom to prepay and have minimum hoops to jump through, consider getting an Instant cash Loan of up to ₹5 lakhs from Fibe.

You can get the funding at competitive interest rates and repay easily by choosing from flexible plans. What’s more, you can get the funding online with minimal formalities. Download our Personal Loan App or apply directly via our website. 

FAQs on How Personal Loans Affect Getting A Mortgage

Can I get a home loan if I already have a personal loan?

Yes, there is no restriction on the same, even if you have a personal loan.

Will a personal loan affect my mortgage application?

Yes, here’s how it affects your second loan positively:

  • It helps build a positive credit history
  • It assists in debt consolidation
  • It reflects a solid financial standing
  • It helps you negotiate for better loan terms

It affects your home loan negatively in some cases when:

  • It results in hard inquiries by the lender
  • It can lead to higher interest rates
  • Non-repayment of your personal loan lowers your credit score
  • It affects your debt-to-income ratio

Do personal loans affect home loan eligibility in India?

Yes, it can influence your eligibility in these ways:

  • Positively, when you pay your personal loan successfully on time
  • Negatively, when you fail to repay your loan as per the schedule

 Are Personal Loan Rates Going Up? Know everything about its impact

Before you plan on getting credit, you must ask the question, ‘Are personal loan rates going up or down?’. This is because interest rates significantly affect your overall borrowing cost. With an increase in the rates, your repayment amount will also go up and vice versa. 

These interest rates depend on several factors, from your financial profile and the policies of the lending institution to the market rates. Read on to learn how high rates affect your borrowing and what causes an increase in rates.

How High Interest Rates Affect Borrowers?

  • In India, the Reserve Bank of India (RBI) levies an interest charge, known as the repo rate, on the funds that commercial banks borrow.
  • With an increase in the repo rates, interest rates levied by the lenders also rise, increasing the borrowing cost of your loan.
  • Conversely, a decrease in the repo rates can result in your loan EMI also going down.
  • If you have chosen a floating rate, any change in the repo rate will affect your rate too.
  • On the other hand, if you have chosen a fixed rate, the EMI will remain the same throughout the tenure.
  • If you choose floating interest rates, you must check if there’s a cap on the maximum increase in these rates and your EMI amount.

Also Read: Why Personal Loan Interest Rate is High?

Factors that Lead to an Increase in Personal Loan Interest Rates

Here are some of the factors that could increase the interest rates offered to you:

Monthly Income

  • Lenders check whether you have a stable monthly income or not before approving your application 
  • With this information, they assess if you’ll be able to repay the loan comfortably
  • In addition to deciding whether to approve your application, they consider your income to decide the interest rate as well
  • If they believe that repaying the loan with your income may be difficult, they may charge a higher interest rate to compensate for their risk 
  • On the other hand, if your income is on the higher end and can support timely repayment, they may offer lower rates due to the reduced risk

Nature of Employment 

  • In addition to your monthly income, lenders also consider your employment status
  • For this, they evaluate:
  1. Whether you are a salaried employee or a self-employed individual
  2. Your work experience (employment history) in your current organisation
  3. The reputation of the organisation you’re currently working in
  4. The age of the business you’re currently operating
  5. Whether your business has stable or seasonal income
  • With this information, lenders decide if your employment is stable enough to support your loan repayment 
  • If it is, they may offer you loans at lower rates since the risk of default is low and vice versa.

Credit Score

  • When you apply, the lending institution checks this score to assess your repayment capacity
  • A lower credit score indicates that you are either inexperienced or have had a poor track record when it comes to credit
  • Lenders may charge a higher rate if you apply with a lower score to compensate for their risk
  • If it is on the higher side, it shows that you have a stable financial profile and are a responsible borrower
  • This leads to a reduction in the risk for the lender and they may offer loans at lower rates

Age 

  • Lenders take this factor into account to gauge your repayment ability 
  • For younger individuals who have just entered the job market, lenders may assume that you don’t have enough employment history and don’t have experience with credit 
  • In addition to that, if you’re close to retirement, your income flow may be disrupted 
  • In these cases, the risk of default can be higher, leading to lenders offering a higher rate. 

Relationship with the Bank

  • Lenders may charge a lower interest rate if you’re an existing or a past customer with an account in good standing
  • In case you are, they may view you as a trustworthy borrower, who is less likely to default
  • Based on this positive relationship, they may offer you a lower rate and vice-versa 

Availability of Collateral

  • If you opt for unsecured loans, the lender may charge a higher rate for the increased risk
  • If you’re pledging collateral, lenders may offer you a comparatively lower rate
  • The asset you pledge as security strengthens your application and lowers the lender’s risk
  • If you fail to pay your loan on time, the lender can legally recover the amount through your collateral
  • Some assets you can offer as collateral include:
  1. Gold 
  2. Real estate
  3. Investments
  4. Vehicles
  5. Inventory
  6. Accounts receivable

Existing Liabilities

  • Your existing financial liabilities also influence the interest rates. These liabilities include:
    • Loans
    • Credit cards
    • Monthly payments
  • If you have a lot of expenses, lenders may assume that repayment may be challenging and you may default in the future
  • To compensate for this risk, they apply a higher interest rate on your loan

Choosing a personal loan lender that offers competitive rates is a great way to keep your borrowing cost low. Fibe offers  Instant cash Loans of up to ₹5 lakhs at rates starting at 2% per month with tenure options of up to 36 months. You also don’t have to worry about hidden costs or pay any foreclosure charges that can drive up your borrowing cost. Download our Personal Loan App or apply directly through our website with minimal requirements.

FAQs on What Rising Personal Loan Rates Mean For Borrowers

Are interest rates for loans going up?

The answer to the question, ‘Will personal loan interest rates rise?’ depends on various factors, such as:

  • Changes in the repo rates
  • Your financial profile
  • Rules and policies of the lending institution

What happens to borrowers when interest rates rise?

In such a scenario, the interest you pay on the loan will also increase. This can result in increased overall borrowing costs. However, the change in rates will affect your borrowing if you have floating rates and not if you have fixed rates.

Personal Loan Vs Line of Credit: Key differences to know

Understanding the benefits, features and function of a personal loan vs a line of credit is crucial. Although these borrowing options sound quite similar to each other, they have some major differences. By knowing what they offer and how they differ, you can choose the best option to meet your needs.

Read on to learn what these options mean and how they differ.

Understanding Personal Loans

This is a type of credit where you receive the amount approved by the financial institution in a lump sum. These loans come with no restriction on end use, meaning you can cover a number of expenses, such as:

  • Down payments 
  • Payment of your children’s school fees
  • Medical bills
  • Renovation of your home
  • Your child’s wedding

Lenders approve your application for these loans based on your:

  • Income and employment
  • Age and residence
  • Credit history and score
  • Credit utilisation ratio
  • Debt-to-income ratio

Here are some benefits of a personal loan:

  • No restriction on end-use
  • No collateral requirements
  • Funds are disbursed in a lump sum
  • Interest rates and EMIs remain fixed throughout the tenure

With its myriad of benefits, personal loan also have some limitations, such as:

  • Interest rates and other charges can be higher than other forms of credit 
  • Interest owed is calculated on the total loan amount, even if you don’t use all of it

Understanding a Line of Credit

This option works similarly to credit cards, where you receive a fixed limit that you can withdraw funds from and use for specific purposes only. The lender will charge interest on the amount you use and the repayment can be in fixed instalments, interest-only, or any other option as agreed. 

Some line of credit options you can apply for include: 

  • Personal line of credit
  • Business line of credit
  • Home equity line of credit (HELOC)

Here are some pros of a line of credit:

  • You can withdraw the funds whenever needed
  • Interest is applicable only on the amount that you use
  • You can make repayments in various ways

Some limitations of a line of credit include:

  • You need a high credit score to apply
  • The interest rates are not fixed, which makes planning the repayment difficult
  • This credit option can lead to overspending

Difference Between a Line of Credit and a Loan

Refer to this table to know how both these credit options differ:

Personal Loan Vs Line of Credit
Personal LoanLine of Credit 
Disbursal of fundsThe full sanction is disbursed to an account of your choosingYou can withdraw funds up to the approved limit as and when required
Purpose Funding comes with no restriction on end use, which means you can use the amount for your various needsYou can only use the funds only for the specific purpose that you apply for, like a student line of credit or a business line of credit
ChargesFees and charges include:Interest rateApplication feesLate payment chargesPrepayment chargesFees and charges include:Interest rateAnnual feesLate payment chargesOverdraft fees
Interest calculationInterest accrues on the total loan amount from the day you receive itInterest accrues only on the amount that you utilise, not the entire limit
Repayment tenureGenerally, goes up to 60 months but can be higher depending on the lenderDepends on your usage and other factors, including the financial institution you choose
Type of interest rateA loan can have fixed as well as variable interest ratesA line of credit can have only variable interest rates

Armed with this information, choosing the right option is a lot easier. If you decide that a personal loan is more suitable, consider getting an Instant cash Loan from Fibe. You can get up to ₹5 lakhs at competitive rates and flexible tenure. 

The process is also simple as you need only submit basic documents online and can get access to funds in a matter of minutes. Download our Instant Loan App or apply directly through our website. 

FAQs on Personal Loan vs Line of Credit

Is a credit line the same as a personal loan?

No, here’s how these credit options differ:

  • Through a personal loan, you receive the amount in a lump sum and you can address numerous expenses 
  • In a line of credit, you get a limit from which you can withdraw whenever needed only for the purpose you apply for, like a student or business line of credit 

What is the difference between a loan and a line of credit?

Here’s how a personal loan and a credit line differ:

  • You receive a loan in a lump sum, whereas a credit line comes with ongoing access
  • You can use a personal loan for various expenses, while you can only use a credit line for specific purposes
  • Personal loans can have fixed or variable rates, while credit lines come with variable rates
  • The interest is calculated on the full amount for a loan, while interest for a line of credit is based only on the amount that you withdraw.

Does Buy Now Pay Later (BNPL) Affect Your Credit Score?

Are you wondering if using BNPL impact your credit score? It’s pretty important to know, especially with all these point-of-sale (POS) instalment loans getting popular in India. BNPL or Buy Now Pay Later, is when you buy something with credit and then pay it off in chunks later, without any extra interest.

In this sense, it acts as a short-term loan and therefore, can affect your creditworthiness. To know more about how this new method of financing affects your credit score, read on.  

What is a BNPL Service?

As mentioned earlier, it provides a short-term loan for your big purchases. The retailer or service provider may provide this facility at the time of checkout. Here’s how BPNL service works:

  • Down Payment: When you opt for this loan, you need to make an initial down payment on the purchase.
  • Easy EMIs: You can spread the payment of the remaining amount into smaller monthly instalments spanning three or more months.
  • Flexible Limit: These can have flexible spending limits, which the service provider sets instead of the merchants. 
  • Interest-Free: These generally don’t attract interest, but it depends on the service provider. 

Do BNPL Services Require a Credit Check?

Considering that it is offered at the time of checkout, how does buy now pay later affect your credit score? The answer depends on whether the service provider checks your credit report. Financial institutions carry out this check to determine whether to approve your credit request. 

Whenever financial institutions check your creditworthiness, it can temporarily dip your score. However, this applies only if it is a hard inquiry, as soft inquiries do not impact your score. 

While some BNPL providers conduct a hard check inquiry to access your credit score and report, others only carry out a soft inquiry. Like other forms are credit, here is the information related to BNPL transactions included in the credit report:

  • When the transactions occurred or the date of account opening
  • Monthly repayments
  • Current balance
  • It also highlights how you’re managing your existing credit

Also check: Fibe EMIS – Buy Now Pay Later

Credit Reporting by BNPL Plans

While credit checks done by service providers affect your score, the impact is only temporary. However, if these lenders report your account to the credit bureaus that calculate your score, there’s a more lasting impact. 

Credit bureaus have allowed BNPL service providers to report payments to be included in the credit report. However, most of these companies still don’t report these payments. This is because although BNPL facility is a type of loan, it is different from traditional loans. 

The difference is the BNPL accounts are closed relatively quicker, generally paid within 3 to 6 months. Given this, consumers can experience a significant decline in their credit score despite making payments on time. This impact can remain for more than a year on their credit reports, potentially causing long-term damage. 

However, credit bureaus and financial institutions are working towards a solution to remedy this. Experts suggest that these products can be treated as revolving lines of credit. However, that would mean users would max out their credit limit while using a BNPL loan. 

A higher credit utilisation will also translate into a fall in credit scores. Additionally, BNPL companies may not want to comply with credit card regulations. All in all, these limitations are mainly because traditional credit scoring systems cannot treat BNPL as a separate credit product.

Also Read: Importance of Credit Rating

How BNPL Can Help Build Credit Score

Considering that payments do get reported, it is natural to wonder, ‘Can BNPL improve credit score?’. It is possible and the facility can even help you improve it and build robust credit histories if you are new to credit. 

These service providers determine your creditworthiness using alternate data if you are availing of credit for the first time. Post that, you can build and improve your creditworthiness by: 

  • Paying all the dues on time
  • Lowering credit utilisation 
  • Opting for a longer tenure

However, these can help improve your credit score only if the service provider reports your payments to the credit bureaus.

The answer to the question, ‘Can BNPL improve credit score?’ is still being debated, but with proper reporting it should be able to. In any case, choosing the right service provider is key to accessible short-term financing at a low cost. With Fibe, you can access the Buy Now Pay Later facility of up to ₹10 lakhs for various services, such as healthcare, online courses and more. 

You can also opt for an Instant Personal Loan of up to ₹5 lakhs. This funding comes with flexible tenure options and competitive rates, making your repayment comfortable. We also employ an alternate credit scoring system, which means you can get funding even if you don’t have an adequate score. Download our Personal Loan App or register on the website to apply. 

FAQs on the Impact of Buy Now Pay Later on Credit Score 

What is the negative impact of BNPL?

As credit scores rise or dip based on your repayment history, it may take a hit if you don’t repay your BNPL dues on time. 

Does BNPL get reported to credit bureaus?

Credit bureaus allow BNPL service providers to report user payments. However, many of them still don’t do so because their products don’t fit into the current credit scoring designed for traditional financing solutions.

Do You Need to Buy Personal Loan Insurance? Find Out!

While financial planning and discipline can help you stay on track to repay your debt, unwarranted expenses can derail any plan. Here, personal loan insurance serves as a safeguard from the risks arising due to such circumstances.  

A loan insurance policy covers the monthly repayment and protects you from default. You can make the right decision after assessing the cost of these policies. For answers to questions such as, ‘What is personal loan insurance?’, ‘Do I need personal loan insurance?’ and others, read on.

What is Personal Loan Insurance? 

  • A personal loan protection or insurance policy assists you in repayment up to a certain period in the case of unforeseen circumstances.
  • This financial product covers the burden of loan repayment in the event of job loss, critical illness, disability or death. 
  • The insurance companies decide the amount of premiums based on the coverage, loan amount, employment status and health status.
  • Since additional protection on your loan is not mandatory, the decision to buy insurance is entirely yours.

How Does Personal Loan Insurance Work?

Here is a quick snapshot of how it works:

  • Depending on the insurance company and the type of policy, you can get short-term protection ranging from 12 to 24 months. 
  • Generally, an insurance company pays off your debt obligations after 30 to 90 days of continuous unemployment or inability to repay.

What are the Different Types of Personal Loan Protections?

Personal loan insurance policies can be classified into two categories based on their features. See the table for the details:

Standard Loan ProtectionAge-Related Loan Protection
Most lenders in India offer this facility. You can get this type of insurance policy with only a few companies in India.
Premiums don’t depend on your age or occupation.The premium amount depends on your age and the desired coverage. 
Policyholders can choose from a flexible maturity period. The maximum coverage offered by these policies extends up to 12 months only.
It includes an initial exclusion period of 60 days.It doesn’t have an exclusion period.

Also Read: Impact of GST on Personal Loans

Should You Get Personal Loan Insurance?

Before opting for this financial product, consider the following reasons:

Security and Financial Assistance

  • If unwarranted expenses arise and you find yourself unable to repay your obligations, personal loan insurance policies cover this cost to avoid default.
  • In the case of the death of the policyholder, these products relieve the family from the burden of paying EMIs.

Money-back Facility

  • Certain loan insurance policies provide returns at regular intervals or a lump sum amount at the end of the plan.
  • These returns can be guaranteed or depend on the investment performance or a combination of both.

Things to Consider When Opting for Personal Loan Insurance

Before choosing this financial product, take these aspects into account: 

  • Review the total cost rather than the monthly premium when buying an insurance policy against a personal loan.
  • Read the terms and agreement of the policy carefully to understand the coverage clearly.
  • Check if the insurance company allows you to claim coverage online.
  • Review the company’s claim settlement ratio to evaluate its reliability. 
  • Verify if the insurance company requires you to make an upfront payment or charges you monthly for premiums.

Personal loan insurance helps secure your and your family’s future when you avail of a loan. However, you should prioritise proper financial management, so that you can pay your EMIs in full and on time. A smart strategy would be to opt for a personal loan at affordable interest rates.

At Fibe, you can get an Instant Cash Loan of up to ₹5 lakhs at competitive interest rates and flexible repayment tenure options. Its online application process ensures that you can get funds online with minimal paperwork. Download the Fibe Personal Loan App or log in to our website to apply for loans and get approval within minutes!

FAQs on Personal Loan Insurance 

Is taking insurance on a personal loan good?

While this isn’t mandatory, here are a few benefits that you need to be aware of:

  • It secures you from loan default by covering the cost of monthly repayment in case of unforeseen circumstances.
  • You may also get a money-back facility where the insurance company provides a certain amount at the plan’s maturity.

What is the meaning of insurance on a personal loan?

It is a financial product that covers monthly repayment of a personal loan when you aren’t able to manage EMIs in the following situations:

  • Job loss
  • Disability
  • Death

Is personal loan insurance refundable?

Some policies come with a money-back option, where you get a certain amount at the end of the plan. However, getting the entire sum wouldn’t be possible.