Apersonal loan is one of the most sought-after options during a financial emergency. Personal loans prove helpful for various planned and unplanned expenses. Since personal loans are collateral-free, lenders set strict eligibility criteria to qualify borrowers for the loan and minimise the lending risk.
So, to ensure quick loan approval without any hiccups, check 10 tips to increase your chances of getting a personal loan.
1. Know the lender`s eligibility criteria
Go through the set eligibility criteria carefully. This includes age, income level, employment, and more. Use an online eligibility calculator to ensure you can easily qualify for the loan and avoid rejection.
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2. Apply for an amount you can afford
Applying for a higher loan amount than you can afford to repay can lower your chances of personal loan approval. Consider all your income sources and financial obligations to arrive at an affordable loan amount that you can easily repay. This will make loan repayment much more convenient and help avoid the risk of defaults.
3. Maintain a good credit score
Your credit score is a measure of your creditworthiness and one of the key factors impacting personal loan approval. A credit score of 750 and above can increase your chances of getting approved for the loan.
That said, if you have a low credit score, it is best to wait and improve your score by paying your EMI and credit card bills on time and maintaining a low credit utilization ratio.
4. Check your fixed obligation to income ratio
FOIR is an individual`s debt-to-income ratio that indicates how much disposable income they have with respect to their monthly income. Since lenders want to ensure borrowers repay the loan on time, FOIR holds much importance while determining their loan eligibility.
Ideally, you should maintain a FOIR between the range of 40 per cent to 55 per cent. A lower FOIR means you have a higher disposable income to pay off the loan.
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5. Avoid multiple loan applications
During a financial emergency, you might consider approaching several lenders simultaneously in the hopes of securing a loan. However, you must avoid this. Lenders might not only view this as a credit-dependent behaviour, but too many applications can also harm your credit score. This is because every loan application leads to a hard enquiry on the credit report, which can reduce your credit score over time.
6. Add a co-borrower
Most lenders will allow you to apply for a personal loan with your parent or spouse as the co-applicant. This is especially helpful if you are not able to meet the lender`s income criteria or your credit score is not up to the mark. If they have a high credit score and monthly income, adding them as co-applicants will improve your chances of getting a personal loan at attractive interest rates.
7. Mention all your income sources
When you apply for a loan, lenders want to know if you can repay the loan on time. So do remember to mention any additional income sources you may have, such as rent, dividends, interest, and more. This will not only improve your chances of loan approval, but you might also become eligible for a higher loan amount.
8. Opt for a longer loan tenure
A longer loan tenure will divide your EMIs over time and allow you to make timely repayments without the risk of default. This way, you can reduce your financial burden and boost your chances of loan approval.
9. Ensure a few months` gap between loan applications
Since multiple loan applications affect your credit score, it is best to have a minimum interval of 6 months between loan applications. If you don`t have any urgent needs, wait some time to improve your credit score, and you will have a better chance of getting approved.
10. Provide the correct information
While filling in your personal loan application, make sure to enter accurate information for a smooth and hassle-free process. Double check for any inaccuracies or spelling mistakes, as wrong information can affect your loan approval. Moreover, keep the required documents ready before applying.
