Personal loans are a great way to arrange funds when you need them most, and they are also one of the most common financial options in India today. It helps you manage both unexpected and budgeted spending. However, if you don’t have a solid profile or are dubious of your credibility, you may be rejected. In such instances, the best you can do is devise strategies and put them into action to obtain a loan with favourable terms.
1. Clean Your Credit History
A credit score is a key factor when it comes to your personal loan application. In general, the higher your score, the more likely you are to get approved. As such, the first thing you should do is clean up your credit history. Check for any erroneous reports on your credit report. You must thoroughly check for any inaccurate credit limits, wrong accounts, or any closed loan account that still shows as open. Several experts advise checking the credit report at least twice a year.
2. Stay on Top of Your Existing EMIs
Before you submit your personal loan application, assess the repayment history of your existing loans. If you have skipped several EMIs in the past, make an attempt to improve that first. You can improve your creditworthiness by opting for part prepayments at regular intervals. You may also choose to close your several high-interest debts if your budget allows. Keep in mind that before approving your loan application, the lender will analyse your debt-to-income ratio. If your debt-to-income ratio is greater than 50%, you are more likely to be turned down or approved for a high personal loan rate of interest.
3. Choose Your Lender Wisely
Your eligibility is also determined by the lender with whom you are seeking a loan. Different financial institutions utilise different parameters, with the majority of the factors in common to establish your eligibility. Furthermore, the qualifying standards listed on the websites of personal loan lenders vary from one another. Here are the details of one of India’s most renowned financial institutions’ basic eligibility conditions to give you an idea.
- Age: If you want to apply for this loan, make sure your age is not less than 21 years and not more than 58 years.
- Citizenship: You can apply for this loan only if you hold Indian citizenship.
- Occupation Status: Business owners and salaried individuals both can apply for this loan.
- Work Experience: If you are in a job, the lender will want you to have at least six months of work experience. Whereas; business owners can apply for this loan only if they have served two years in their existing business.
You should also double-check that you have all of the required documentation before submitting your application. Some of the common documents required for personal loans are proof of identity, passport size photographs, proof of address, and proof of income.
4. Choose a Longer Repayment Tenure
If you are barely fulfilling the lender’s minimum eligibility conditions, particularly in terms of income, it is better to choose a longer repayment period to increase your eligibility. Longer tenure comes with a lower EMI. It indicates to a lender that you will be able to handle your debt without difficulty. Let’s look at an example to illustrate this point.
Assume you require a loan of Rs 5 lakhs, and your monthly income is Rs. 25,000. The personal loan rate of interest based on your profile is 12%.
Now, if you choose a repayment term of two years, your EMI will be Rs. 25,337, which is more than 90% of your monthly salary. As a result, the rejection chances are very high. But if you choose a five-year repayment term, the EMI will be Rs. 11,122, and the lender will easily approve your application because the EMI is a little higher than 40% of your salary. It is also possible that you will be able to receive a low-interest rate in this situation.
5. Maintain a Gap Between Your Loan Application
Make sure there is at least a six-month gap between loan applications. For example, if you have previously applied for any type of loan and are now seeking a personal loan, there is a good probability the lender will reject your application. It is because your ability to repay is being called into doubt, and you will be labelled a high-risk borrower.
Similarly, if your application is denied for whatever reason. Request that the lender states the reason for the denial. And once you have discovered that, try to improve it before submitting a new application after six months of receiving the denial.
6. Additional Income:
When applying for a personal loan, make sure to mention any additional sources of income. Additional income can be in the form of rental income, side business, freelance, and more. Such incomes boost your repayment capacity and qualify you for a low-interest personal loan.
To Conclude:
Following these small steps mentioned above can help boost your personal loan eligibility. It also aids in securing a low personal loan rate of interest.