The personal loan’s popularity comes from its unsecured nature where you do not have to pledge any form of collateral or security papers. People can apply for a personal loan online to cover all sorts of financial needs right from the children’s education, debt repayment, bill payment, medical emergency, to a travel or marriage expense.
To make sure that the lender approves your loan application, you can check your personal loan eligibility and apply for the amount that is suitable according to your requirements. Further, before applying, make sure that the loan amount does not hamper your monthly finances. You can get an estimate of your monthly EMI using a personal loan calculator to better plan your monthly expenses.
How is the Eligibility for a Personal Loan Decided?
Your lender decides the terms that determine whether you are eligible for the loan. Every borrower needs to meet the terms stated by the lender on their website, and it is usually dependent on many factors including the applicant’s age, employment, monthly income, place of residence, financial condition, credit score, and current debt.
Most of the factors included in it directly or indirectly influence your loan repayment ability. It helps the lenders ensure that the applicant is trustworthy, and can return the amount without defaulting the loan. These criteria might differ largely among lenders according to their internal policies. So, to make sure you do not face any issue with your application, make sure to go through these five simple steps that will improve your eligibility.
- Maintain a Good Credit Score:
The best way to improve your eligibility for the loan is to have a good credit score before applying for a loan. Whenever an applicant applies for a loan, their CIBIL score is considered as a report of their loan repayment habits. To successfully avail a personal loan, most lenders will require you to maintain a minimum score of 750. So, to improve your chances, you can improve your credit score by clearing your existing EMIs on time. Every time you default payment, your credit score will reduce significantly.
- Include Every Source of Income in your Loan Application:
While submitting the documents with your application, ensure to submit all forms of income. You can include the earnings from your business, real estate, investments, fixed deposits, or any assets you own. Having a regular cash flow will make you a low-risk borrower, easing your path for approval for the personal loan application. This is especially crucial if you are not a salaried employee and cannot present salary slips as proof of income.
- Apply when you have a Low Debt-to-income Ratio
No matter how much you earn, if you have a high debt-to-income ratio, it will become less likely for you to get approval. Lenders prefer applicants with a debt-to-income ratio below 40%. Having low or no debt can make your lender more comfortable in accepting your application. Moreover, many lenders charge high-interest rates to applicants having a high debt-to-income ratio. You can use a personal loan calculator online to check your monthly liabilities. It will help you calculate the ratio before applying.
- Avoid Applying for Credit Multiple Times too Fast:
Whenever you apply for credit of any form, your lending partner makes a hard query on your credit report. These queries reflect in your credit reports and reduce your credit score slightly. While one or two such queries won’t have a severe impact on your CIBIL score, having three or more queries in quick succession can make you look credit hungry. For lenders, a credit hungry applicant is a high-risk applicant, and it reduces your chances for approval of the loan.
- Check if you Fit in your Lender’s Eligibility Criteria beforehand:
Every lender follows some internal guidelines while approving a loan application. While some lenders will be willing to accept your loan, many might not. So, to make sure that your application gets approval, it is better to apply in the right place. You can check your lender’s website for understanding their eligibility criteria. Once you are sure that the lender will approve your application, you can apply for the personal loan online.
Conclusion:
Personal loans are attractive to applicants due to its unsecured nature and no restrictions on terms of use. However, getting approval on your application can get confusing at times. So, by adhering to the five tips listed in this article, you can significantly improve your chances of getting approved for your personal loan. Further, before applying for a personal loan online, do make sure to use a personal loan calculator to check if you will be able to make the repayments on time.
