Today most of the financial institutions offer personal loans. This loan is unsecured and can be used to fund any expenses. It typically takes as less as 48 hours to disburse the amount and involved minimal formalities. Many take a personal loan for funding marriage expenses, medical treatment, vacation, home improvement, small education expenses, etc. As the banks and NBFCs do not demand any collateral, the interest rates are higher than that for secured loans.
Though this loan may seem to be the best in a deal to meet financial needs, it is important to consider the factors responsible to influence the personal loan eligibility. There are certain ways to boost your eligibility for a personal loan, which we have mentioned below.
- High Credit Score
A credit score is the most important aspect considered when approving a personal loan. Your personal credit score signifies your financial behavior and credit history. Lenders seek credit score of borrowers from CIBIL, Experian, Equifax or likes. If your credit score is 750+, then financial institutions consider you as credible to lend the amount, while those with lower credit scores stand the chance of having the loan application rejected or asked a higher rate of interest than standard rates. To improve your credit score, make repayments and payments on time. If you ever need a cashfloat on demand, you have to have a good credit score. Otherwise, you may have to pay higher rates and that may further hit your financial situation.
- Employment Tenure
If you have a poor professional track record, your loan application can be rejected. To improve your personal loan eligibility, you must have been employed with your current employer for at least six months to a year, more the better. You have to provide income proof to the financial institution upon which your creditworthiness will be decided.
- In-hand Income is 50 Percent of Gross Pay
Financial institutions will enquire about take-home pay, which is leftover income after providing for all other loans, liabilities, income tax, rents etc. If your take-home pay is high, you have a better eligibility status for the loan. Banks and NBFCs would want you to have at least 50 to 60 percent of your gross pay as take-home pay.
- Arrange the Necessary Documents
If you have all the required documents in place and can provide the same during application, your eligibility for the loan increases and makes for smoother processing. The documents you will need to apply for a personal loan are: identity proof, age proof, residence proof, income proof, bank state of past 6 months, salary slips of last three months, proof of income tax returns of last 3 years, form 16, etc.
- Financial Institutions Offering the Loan Amount You Need
It is advisable to choose a bank or NBFC that offers the highest loan amount. For instance, your requirement is of Rs. 20 lakhs, but the financial institution you approached offers a maximum of Rs. 15 lakhs only, then you will not be eligible for the amount you need. Thus, compare banks based on the amount they offer, before choosing the one you are eligible to apply with.
- Lesser Existing Liabilities
If you have too many ongoing loans, then you may have lesser chance of getting personal loan. Best way to boost eligibility for personal loan is to have as less existing financial liabilities as possible. The liabilities could be existing loans. Note that insurance premiums are asset and not liabilities.
- Consider the Bank You Have an Account in
Though it is not mandatory to apply for the loan with a bank you have an account in, it is for the best. Sometimes banks charge lower rates and have better benefits for their existing customers. The paperwork is also simpler as the bank will already have the basic KYC documents and bank statements to reflect upon your loan eligibility.
- State the Intent for Loan
You can use personal loan for any expenses, and do not have to necessarily reveal why you require the loan. However, sometimes being upfront with the lender about the purpose for the loan can actually get your loan processed faster and help you receive the needed loan amount. For instance, if you are taking the loan for a wedding or medical treatment, the lender can understand the genuineness and extend higher loan amounts.
- Include a Co-applicant
To enhance your loan eligibility, you can include your spouse’s income. The financial institution will however check the credit score of the co-applicant as well. Together, both of yours income can make you eligible for a higher loan amount and provide the power to negotiate the interest rate.
- Pay All Dues on Time
If you are using credit cards, then pay all the dues on time. Similarly, any pending EMIs should be paid off as per repayment schedule. Though utility bills are not counted to judge your personal loan eligibility, it is advisable to pay those off in time as well so that you do not endure any financial burden.
- Apply With Few Lenders Only At the Same Time
Your personal loan eligibility can take a hit if you apply with several lenders at once. It may indicate to lenders that you are too desperate for the funds and somehow prove to be less worthy financially. Choose a financial institution after evaluating its offers against different lenders and apply with only one or just a few at a time. Multiple applications can harm your loan eligibility.
If you comply with above-mentioned tips to boost your personal loan eligibility, then you can get the loan in short time and a suitable deal as needed. To calculate your eligibility for personal loan, you need to know your net monthly income, other EMIs, loan tenure, and interest rate on the loan to estimate how much disposable income you will have and the loan amount you could be eligible for.
Satchit hasabnis is a highly qualified Chartered Financial Analyst who has more than ten years of experience in the industry. He has been associated with global giants like DCB, HSBC, and Caparo Financial Solutions. He has co-founded, Loanbaba, which provides quick and easy loans like Personal loans, Business Loans, Gold Loans, etc. to people of different economic background.