The unsecured nature of personal loans lead lenders to follow strict eligibility criteria when assessing a personal loan application. Hence, those planning to apply for personal loans can improve their chances of loan approval by following these easy tips discussed as below:
1. Keep your credit score at 750 or above
Personal loan lenders usually prefer sanctioning loans to applicants having credit scores of at 750 and above. This is because applicants having high credit scores tend to have greater credit discipline, which decreases the lending risk for banks and NBFCs. Applicants having lower credit scores will either have their loan applications rejected or approved at higher interest rates.
Personal loans can be needed anytime. As an applicant’s credit score is one of the first things that lenders look into when assessing his personal loan application, it is important for consumers to keep their scores in check and as high as possible at all times. For this, they must check their credit scores from all credit bureaus regularly. This will give them enough time to improve their credit scores, if they are low. Reviewing credit reports is yet another important step that will help them identify and timely report clerical errors and other incorrect details if present in their credit reports. The report for correction must be made to both the concerned credit bureau as well as the bank/NBFC. Once the credit report is rectified, it may improve their credit scores and also their prospects of getting personal loans.
2. Loan EMIs should be within 50-55% of the net monthly income
Lenders also assess their applicants’ loan repayment capacity before approving their personal loan application. They usually approve personal loan applications of those whose total existing loan EMIs, including the EMIs of the proposed personal loan, are within 50-55% of their net monthly income. Applicants exceeding the aforementioned limit tend to have lower chances of getting personal loans. However, their chances of loan approval can increase if they choose for longer tenure on their new personal loan. Doing so will reduce their EMIs and may bring them within the aforementioned limit, thereby, increasing their chances of loan approval.
3. Avoid applying with multiple lenders in a short span
On receiving a personal loan application, lenders fetch the applicant’s credit report from the credit bureaus as part of their loan assessment process. When lenders initiate such credit report requests, it is known as hard enquiry. Each hard enquiry leads credit bureaus to decrease your credit score by a few points. Multiple hard enquiries within a short span can result in sudden drop in the applicant’s credit score, thereby reducing his prospects of availing personal loans. To avoid this, prospective borrowers should visit online financial marketplaces. This is because such marketplaces allow prospective borrowers to compare offers from multiple lenders and then, accordingly apply for personal loan online. Credit report requests initiated by these marketplaces are known as soft enquiries and they do not affect the applicant’s credit score.
4. Avoid frequent job changes
Lenders avoid approving personal loan applications of individuals who change their jobs frequently because such actions demonstrate income instability, thereby increasing lending risk for banks and NBFCs. Some lenders also set a prerequisite for their salaried applicants to have at least six months to one year of work experience 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.