Before you apply for a personal loan, the primary step is to know your eligibility prehand in order to minimise the chances of rejection of your loan application. There are a plethora of reasons why your application could get rejected. Banks and NBFCs determine the eligibility of personal loans primarily on the basis of an applicant’s income, credit score, job profile, employer’s profile and EMI affordability. While a loan applicant can do very little on the income, job and employer fronts, he can certainly take some steps on the credit score and EMI affordability fronts to improve his loan eligibility.
Here are some ways to increase one’s personal loan eligibility -
1. Carry out and review credit score on a timely basis
Those with credit scores of 700 and above usually have a higher chance of a loan approval. Therefore, one must review his or her credit score before making a loan application will help the applicant in taking corrective measures to improve his credit score followed by his loan eligibility. Some of these steps include maintaining credit utilization ratio of 30% and below, maintaining a balanced credit mix, monitoring co-signed/guaranteed loans and timely repayment of EMIs and credit cards bills.
2. Review your budget and EMI affordability
Most lenders prefer total EMIs, including the new EMI for a personal loan, to be under 50% of one’s net monthly income. Those exceeding this level have lower chances of loan approval. Hence, personal loan applicants should carefully choose their loan tenure on the basis of their ability to repay EMIs. A shorter tenure would have bigger EMIs and lower interest cost, whereas a longer tenure would have smaller EMI and higher interest cost.
3. Avoid multiple loan enquiries within a short span
Whenever an individual makes a loan application, the lender fetches his credit report from the credit bureaus to assess his creditworthiness. Such lender-initiated credit report requests are considered as hard inquiries, each of which gets listed in the credit report and reduces the credit score by a few points. Making multiple loan enquiries with multiple lenders within a short span can significantly reduce one’s credit score.
Instead, loan applicants can visit online financial marketplaces to choose the most suitable lender after comparing various prospective lenders based on their loan amount and eligibility criteria like credit score, monthly income, job profile, etc. While these financial marketplaces would also fetch credit reports while providing the various loan offers, their credit report requests are treated as soft enquiries and do not impact applicants’ credit scores.
4. Apply for a loan with a co-applicant
Those failing to avail a personal loan can consider adding a co-applicant or co-applicants to improve loan eligibility. Adding a co-applicant reduces the credit risk for the lender as the co-applicant too becomes equally liable for timely repayment of the loan.
Applying for a personal loan gets much easier if you have carried out the necessary steps. Personal loan Eligibility is one such primary step to pay attention to before proceeding into making any applications with any lender. While dealing with debts you must remember that every move of yours is scrutinised and recorded. You could be accountable for improving your chances of personal loan approval or even otherwise.
