Personal finance is not a small or easy term today. A lot of credit, debit, investment, loan, and assets have to be managed. To manage personal loans various types of credit are involved which includes personal loans and mortgages.
Personal loans and mortgages have distinct purposes to offer but they interplay which can influence the financial standing and ability to secure favorable terms. Through this blog understand from the perspective of a Bharat Loan LLP expert point of view on how personal loans can affect mortgages.
Areas of Impact
Credit Score- CIBIL score is important to have a loan from any financial body. This will not only your personal loan ability to pay but also your mortgage. The personal loan application can go tough on you if you already have a poor CIBIL score. Moreover, if there is any delay in repaying the loans, it will directly impact your credit score. With a low credit score, you may not qualify for a mortgage loan or might have to pay higher interest rates.
Affordability- A personal loan will impact your overall financial commitments and will question your ability to pay. Moreover, lenders will evaluate if you can easily manage mortgage payments with the existing debt or not. DTI meeting is not the end of the story here, because with a mortgage your borrowing capacity will get limited.
DTI Ratio- Debt to Income ratio is the tool that every lender will use to evaluate your mortgage application. Your monthly debt payment will be compared to your monthly gross income. A personal loan will increase your monthly debt obligations and will show a direct impact on your DTI. A higher DTI will show that your income is less to cover mortgage payments.
Personal loan for No or Low CIBIL Score- If you never took a loan as an individual or have a low CIBIL score, there are companies like Bharat Loan LLP that will still offer you the support. However, with other financial bodies, you can plan your CIBIL score with a personal loan. Before taking any personal loan do careful planning:
Interest rate: If you have a low CIBIL score, the financial companies will offer you a personal loan but with higher interest rates. This rate will be higher than those offered to the score experts.
Credit utilization: If you are taking a personal loan remember that it will increase your credit utilization ratio. This ratio will compare your outstanding balance with available credit limits.
How to manage the impact on Mortgage?
To manage and reduce the impact of instant personal loan on mortgages follow these:
Plan – Personal loans can come unannounced but be prepared to plan your repayment schedules. Do not apply for a new credit before applying for a mortgage. This will maintain stability in your credit profile.
Pay on time- Manage your personal loan payments timely and reduce your balance as soon as possible to improve your credit score.
Work on DTI- Pay most of your debt before applying for any mortgage. This will lower your ratio and boost your financial stability.
Conclusion
Navigating your strength point between personal loans and mortgages will require a strategic approach. You will need professional guidance which the Bharat Loan LLP team will offer. Before taking up any loan, understand your financial health, evaluate repayment terms, and see the potential impact it has on your future mortgage plans.
