Personal loan is unsecured in nature, causing lenders to lay out and follow strict eligibility criteria when evaluating an applicant’s loan application. Thus, individuals planning to apply for a personal loan can propel their chances of getting approval by following the following tips:
Build or Maintain a High Credit Score
Banks and NBFCs usually prefer approving loan applications of those having credit scores of at least 750. This is because loan applicants having such high credit scores tend to exhibit greater credit discipline, thereby, minimizing the lending risk for banks and NBFCs. Moreover, applicants having higher credit scores also have higher chances of getting pre-approved offers and lower interest rates. Those having lower credit scores, on the other hand, are at a higher risk of having their loan applications rejected. Even if the bank or NBFC approves their loan request, it will more likely be at a higher interest rate.
Personal loans can be needed anytime. As your credit score is probably the first thing that your personal loan lender will factor in when assessing your loan application, it is advised to keep it as high as possible always. Those wanting to know of the ways to improve their credit score can check personal finance blogging websites like Investopedia (for English readers) and Finshastra (for Hindi readers). Such websites provide clarity on various personal finance topics including credit score for their readers so as to help them make more informed financial decisions in future. Follow the tips given on such websites and try to improve your credit score. Once, it is improved, individuals should make a habit of regularly checking their credit scores from all credit bureaus. Doing so will give them enough time to recover their credit scores, whenever they are low.
Keep Loan EMIs Within 50-55% of Your Monthly Income
Before approving a personal loan application, banks and NBFCs want to ensure the applicant is will be able to pay his/her loan EMIs by its due date. For this they look into the applicant’s loan repayment capacity. Applicants having existing loan EMIs (including EMI of the proposed personal loan) within 50-55% of their net monthly income have higher chances of getting personal loans. Those exceeding this limit will have lower chances of getting the loan. Such applicants, however, can boost their chances by choosing longer tenure on their proposed personal loans. increasing tenure will decrease their loan EMIs, which might reduce their total EMIs within the aforementioned limit and increase their chances of loan approval.
Avoid Applying with Multiple Lenders Frequently
As part of the loan process, lenders pull credit report of their loan applicants from various credit bureaus when assessing their loan application. Such credit report request is called hard enquiry. Such enquiries get reflected in an individuals’ credit report. While one of two such hard credit enquiries won’t have a significant impact on an individual’s credit score. However, multiple hard enquiries within a short period can reduce their credit scores and reduce their prospects of availing personal loans. Individuals can avoid this by comparing offers and applying for personal loan from online financial marketplaces. Credit report requests initiated by these financial marketplaces are called soft enquiries, which do not impact an applicant’s credit score.
Avoid changing jobs frequently
Banks and NBFCs avoid sanctioning personal loans to applicants who change their jobs frequently as such behaviour exhibit income stability, thus, increasing lending risk for banks and NBFCs. Some personal loan lenders also require their salaried applicants to have a minimum work experience of six months to one year at their current place of employment. Thus, individuals planning to apply for personal loans in the near future should avoid changing their jobs. Doing so will increase their chances of availing personal loans.