8 Sure-fire Ways to Improve Your Personal Loan Eligibility

How to Improve Your Personal Loan Eligibility?

1. Ensure Timely Repayments And Maintain a Good Credit Score:

Your credit score reflects your creditworthiness. Generally, a credit score exceeding 700 is considered good, but having a score above 750 can provide an additional advantage by expediting the approval process for a Personal Loan. Consequently, maintaining a good credit score becomes essential to get a Personal Loan, especially since it is an unsecured loan without collateral requirements. Lenders primarily rely on your income and credit repayment history to assess your eligibility for a Personal Loan. A positive credit score implies a lower risk profile, indicating a reduced likelihood of defaulting on loan repayments in the future. This not only increases the likelihood of swift loan approval but also results in better interest rates and lower processing fees.

To improve or maintain your credit score, it is crucial to ensure timely payment of your existing EMIs and avoid any defaults on loans or credit card dues. Setting up a standing instruction with your bank for automatic payment of all EMIs is an effective approach. By doing so, your EMIs will be automatically deducted from your registered bank account on the due date. It is advisable to maintain a sufficient balance in the account to avoid any bounced payments and ensure a smooth auto-pay process.

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2. Check Your Credit Score Before Applying for a Personal Loan:

Before applying for a Personal Loan, it is recommended to verify your credit score, even if you have a positive credit history with no instances of loan defaults. There is a possibility that you may have unintentionally missed a few credit card payments, paying them a day or two later. Managing multiple credit card bills can be challenging, leading to such delays, which can, in turn, affect your credit score. Furthermore, credit reports can sometimes contain errors or mistakes that might result in loan rejections. By checking your credit score beforehand, you can identify and rectify any issues, improving your chances of loan approval.

Furthermore, it is essential to check your credit score because various lenders have different credit score criteria. A loan rejection can have adverse effects on your credit score. Hence, it is wise to review your credit score and ensure that it aligns with the lender's credit score requirements before applying for a loan. Taking this precautionary step can help you avoid potential setbacks and increase your likelihood of securing the loan successfully.

3. Do Not Apply with Multiple Lenders at a Time:

In times of urgent financial need, many individuals tend to apply for Personal Loans from multiple banks and NBFCs simultaneously to improve their chances of getting quick approval. However, you should be aware that lenders can observe these multiple applications, which might lead them to assume that you are facing financial difficulties and desperately need a loan. This perception could potentially deter lenders from offering you credit facilities. Besides, submitting multiple loan applications may result in several rejections, negatively impacting your credit score. Moreover, managing numerous applications and coordinating with multiple lenders can be time-consuming and challenging.

It is crucial to note that various lenders have distinct eligibility criteria and terms for Personal Loans. For instance, HDFC Bank Personal Loan eligibility criteria could be different from that of Axis Bank Personal Loan eligibility criteria. Although they offer the same product, the Personal Loan, features, benefits, interest rates, and charges may differ significantly. Therefore, instead of directly applying for a Personal Loan with any lender, it is advisable to conduct thorough research. Evaluate each lender's eligibility criteria and product features carefully before deciding on which lender to approach for your Personal Loan needs. This approach can help you find the most suitable option and enhance your chances of a successful loan application.

4. Provide Accurate Details When Applying:

Providing precise information about your personal and income details will not only increase the likelihood of loan approval but also streamline and simplify the entire process. For instance, if you have multiple sources of income, it is advisable to provide all the relevant details together. By doing so, you can avoid the lender requesting additional income-related documents if the primary income source alone is insufficient to determine your loan repayment capacity. Likewise, if you are currently residing in a rented accommodation, you will need to submit both your rental agreement and proof of your permanent address.

5. Focus on Increasing Your Income Sources:

Lenders require assurance regarding your repayment capability. Hence, one effective strategy to enhance your Personal Loan eligibility is to concentrate on boosting your income streams. Besides your primary source of income, explore opportunities to generate additional earnings, such as freelancing, part-time work, or passive income from investments. A greater income level corresponds to an increased likelihood of loan approval. You can also enhance your income prospects by disclosing additional income sources, such as performance incentives, bonuses, variable pay, and earnings from passive investments, among others. Demonstrating these various income streams can significantly improve your eligibility for a Personal Loan, assuring the lender of your ability to repay the loan beyond just your basic monthly income.

6. Reduce Your Debt-to-income Ratio:

You can effectively increase your Personal Loan eligibility by reducing your debt-to-income ratio. This can be achieved by paying off existing debts or loans, demonstrating to lenders that you have a more favourable financial standing and can comfortably manage additional debt obligations. A lower debt-to-income ratio signals lower financial risk and can increase your chances of securing a Personal Loan with favourable terms and conditions.

7. Maintain Employment Consistency:

Lenders consider people with steady full-time jobs to be low-risk borrowers. They are more likely to repay their loans on time, which means that lenders have less risk of losing money. On the other hand, people with frequent job changes, no professional achievements, or who work as freelancers, contractors, or part-timers are considered to be riskier borrowers. They may be more likely to default on their loans, which means that lenders have to charge them higher interest rates to compensate for the increased risk. Hence, lenders generally consider the number of years you have been working in your current company to assess your repayment capacity, as it gives them an idea of how stable your employment is.

8. Choose a Longer Loan Tenure:

Opting for a longer loan tenure can improve your Personal Loan eligibility. A longer repayment period reduces the monthly instalment amount, which can result in a lower debt-to-income ratio. Lenders often consider this ratio when evaluating loan applications, and a lower ratio signifies a more manageable financial position. However, keep in mind that while a longer tenure may increase eligibility, it could also lead to higher overall interest costs. Therefore, carefully assess your repayment capacity before selecting the loan tenure that best suits your financial situation. You can use an online Personal Loan Calculator to calculate the EMI amount and total interest outgo accurately.

To conclude:

Getting a Personal Loan can be an easy task by understanding the key factors that influence Personal Loan eligibility. By following these 8 essential tips, you can significantly enhance your Personal Loan chances with favourable terms and conditions. With these valuable insights and smart strategies, you can confidently navigate the loan application process, ensuring a smoother path towards achieving your financial goals. Remember, by implementing these Personal Loan tips, you can be better prepared to meet your financial needs and seize opportunities as they arise.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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