Personal loans are unsecured loans that can be repaid in monthly payment options (EMIs). An individual opts for a personal loan for several purposes such as a wedding, medical emergency, travel, education.
Personal loans offered by banks or any other companies will have different interest rates and different eligibility requirements. Personal loans are offered based on factors such as repayment ability, income source, profession, credit/CIBIL score, and employment history. A personal loan can fulfill urgent requirements. Some banks offer personal loans through an online process. Borrowers can calculate theirs by using free personal loan eligibility calculators. These calculators are offered by lenders on their websites for free of cost.
Tips To Improve Personal Loan Eligibility
Personal loans usually have higher interest rates but they get sanctioned instantly if the individual is eligible. A personal loan may be delayed or even denied in the absence of the lender’s eligibility criteria. Here are some points to take into consideration to increase your chances of qualifying for the loan.
1. Maintaining a Credit/CIBIL score
One of the most important qualifying criteria for lenders to accept your personal loan is your credit score. If a person’s credit score is 750 or above, it indicates that, he or she is a responsible borrower. When the borrower repays the loans in time then the credit score will be good.
If an individual has a good credit score, the chances of loan approval are higher. A credit score of less than 750 indicates that the person has a poor payback history; the applicant may be perceived as a high-risk applicant, and interest rates can be on the higher side or it can lead to rejection of the application.
2. Clearing the Credit Card Bills & Existing Loans
Before applying for a personal loan, make sure you have paid off your previous debts, as this will boost your debt-to-income ratio. It will be difficult to approve another loan if you currently have multiple loans and credit card bills that are overdue. This may create an impact on the lender that you don’t have enough money and are likely to miss or skip payments.
3. Avoid Applying for Multiple Loans
People may assume that applying to multiple lenders increases the probability of the loan getting approved, but sadly, that is not going to happen. Instead, that may decrease your credit score, which eventually leads to your application getting rejected.
4. Choosing a Lender with Simple Eligibility Criteria
Before applying for a personal loan, it is necessary to consider different lenders. Some lenders have cheaper interest rates, but they include many hidden fees that are meant to keep you in debt forever. Hence, choose your lender wisely.
5. Debt-To-Income Ratio
Ideally, EMI payments should not consume more than 40% of your earnings. If you earn Rs. 50,000 per month, your monthly EMI payments should not be more than Rs. 20,000. Divide your monthly debt by your gross monthly income to get your debt-to-income ratio. You should keep it as low as possible, which means you should only borrow money when necessary.
Keep these aspects in mind before you apply for personal loan.