Follow these 4 Tips on Getting a Personal Loan

Unlike secured loan options, personal loans do not require collateral or security. This leads to merits like faster processing and minimal documentation. However, the absence of an underlying asset also leaves lenders with nothing to cover losses in case of loan default. To mitigate this risk, banks and NBFCs follow strict eligibility criteria while evaluating applicants’ personal loans eligibility. Thus, those planning to make personal loan application can improve their chances of loan approval by following these easy tips:

1. Keep your credit score at 750 mark or above

Before applying for a personal loan, you should first check your credit score. This is because your credit score is probably the first thing that your lender will look into when assessing your loan eligibility. Having credit scores of 750 and above increases your chances of getting loan approval. This is because lenders perceive applicants with higher credit scores to have greater credit discipline than those having lower credit scores. Some personal loans lenders also set lower interest rates for such loan applicants. 

As fund shortages can arise anytime, one must always be credit ready by starting with keeping his credit score as high as possible. Keeping a regular tab on your scores will give you sufficient time to increase your credit score, if low. You should also review your credit report regularly to identify and report any errors or fraudulent activity reflected in your credit report for rectification. A rectified credit report may improve your credit scores and your probability of getting a personal loan in future. 

2. Limit your EMIs within 50 to 55% of your net monthly income

Banks and NBFCs prefer to approve personal loan applications of those having their existing EMI obligations, including the proposed personal loan EMI, within 50% to 55% of their net monthly income. Those exceeding this limit can bring it down by choosing longer tenure for the proposed personal loan. While most banks and NBFCs offer personal loan tenures of up to 5 years, some lenders offer longer tenures of 7 and 8 years. Choosing longer tenure can reduce your total EMI payments within the aforementioned limit and thereby, improve your chances of personal loan approval.

3. Don’t change your job frequently

Applicants having higher employment stability have lower chances of EMI defaults. Those who change their jobs frequently are considered to carry higher credit risk for lenders. Thus, most personal loan lenders require their applicants to have worked at least 6 months with their current employer. Some lenders require longer work experience of 1 or 2 years with their current organisation. Hence, if you plan to get a personal loan in the near future, avoid changing your job to boost your prospects of availing the loan.

4. Avoid making multiple credit and loan applications within a short time

Lenders fetch credit reports of every loan applicant as part of their loan evaluation process. Such lender-initiated credit report requests are known as hard enquiries. Each hard enquiry leads your credit score to decline by a few points. Having multiple hard enquiries within a short period can lead to a sudden decline in your credit score, thus, reducing your chances of availing personal loans. Instead, visit online financial marketplaces to compare multiple loan options without adversely affecting your credit score. Then apply for personal loan online with the lender offering best interest rates and other loan terms and conditions. The credit report requests initiated by such marketplaces are called soft enquiries and these do not affect your credit score.

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