Are you planning a home repair or thinking of travelling to your dream destination but lack funds? A Personal Loan can provide instant funds without hassle. It is also an excellent funding option for medical emergencies, urgent home repairs, higher education, etc. It comes with no collateral requirement, flexible repayment terms, and competitive interest rates that are much lower than credit cards and other credit options.
Although reputed loan companies like Hero FinCorp have simple eligibility and documentation requirements, these five steps will help you qualify for a Personal Loan more easily and quickly. Let’s take a look.
1. Evaluating the Loan Requirement
Deciding upon the loan requirement is essential before applying. Look at your monthly budget and determine how much you can conveniently afford to repay each month for EMIs. Remember, an additional interest will also apply apart from the principal amount you borrow. Research various loan offers to check their interest rates and consider applying for one with the lowest number. You can use a Personal Loan Calculator online to make the calculations easier, faster, and error-free.
Determine the loan requirement based on the purpose of borrowing, evaluate their costs, and apply for an adequate loan amount. Avoid over-borrowing as it increases the loan burden and makes EMIs harder to manage.
Other potential costs to remember are the additional charges for loan applications. These include the processing fee, a one-time upfront fee, lenders charge for processing loan applications. Besides these, be ready to pay other charges, including EMI bounce charges, prepayment charges, documentation charges, etc. Keep all these costs in mind when deciding upon the loan amount.
2. Checking the Eligibility and Documentation Requirements
Eligibility and documentation are the most crucial parts of a loan application. Since different lenders have unique requirements for accepting loan applications, you must check them carefully to ensure you can fulfil them without any chances of rejection. Otherwise, the lender will reject your application, leading to a reduced credit score and lower chances of loan approvals from other loan companies.
The most basic eligibility requirements relate to the applicant’s age, income, employment, work experience, etc. While some loan providers offer loans to salaried applicants only, more reputable ones are open to both salaried and self-employed individuals. However, the applicant must provide documents to support the claims. The common documentation requirements include identity, address, and income proofs. Check the lender’s requirements carefully and fulfil them for assured and fast approval.
3. Checking Your Credit Score
When planning to apply for a Personal Loan, check your credit score if you have not checked it in a while. Knowing the exact figure will give a clear idea of loan eligibility. Accordingly, you can target the loan offers with higher chances of approval. Knowing your credit score also gives you a direction to work seriously towards credit management.
A decent credit rating above 700-750 improves your eligibility for a loan at better interest rates and favourable terms and conditions. On the contrary, a lower credit score indicates irresponsible credit behaviour, giving lenders a good reason to reject your loan application. Therefore, before applying for a loan, check your credit score online and take steps to improve it if it is low. These include the following:
- Clear outstanding balances to reduce your DTI ratio.
- Reduce your credit utilisation ratio by minimally using credit cards.
- Retain old accounts to prove your reliability in handling credit.
- Diversify your credit portfolio with different types of secured and unsecured credit products.
- Make it a habit to pay all loan EMIs and credit card bills on time.
4. Giving Attention to Your Income and DTI Ratio
Most lending institutions have a minimum income requirement of Rs 15,000 monthly to ensure borrowers can repay the loan on time. Although these requirements vary for each lender, checking them is crucial to ensure eligibility. Moreover, a decent income gives you the means to repay the EMIs consistently and manage the loan better. To prove sufficient income, you must provide various income proofs, including salary slips, salary account statements, tax returns, etc. Additionally, mention income from all sources in the loan application to make the lender more confident about your repayment capacity.
Apart from a sufficient income, lenders also want to check your debt-to-income (DTI) ratio. You might default on the EMIs even with a good income if you have heavy financial obligations to handle each month. DTI ratio is the percentage of your income you regularly spend on other financial commitments. Ideally, your DTI ratio should be at most 40-50% for easy EMI management.
5. Ensure Timely Repayment
Create a solid repayment plan even before applying for a Personal Loan. You must borrow a loan only if you can afford its EMIs without fail. Even a single missed EMI leads to reduced credit scores and penal charges. Assess your loan requirement to determine the loan amount, and use a Personal Loan EMI Calculator to calculate monthly instalments. It uses three parameters to calculate your EMIs – loan amount, interest rate, and repayment tenure. Keep experimenting with various repayment terms until you find a loan plan with budget-friendly EMIs.
Steps to Apply for a Personal Loan
Now that you know how to qualify for a Personal Loan, follow these steps to apply:
- Click ‘Apply Now’ on the Personal Loan section of the lender’s website or app.
- Enter your mobile number and verify with an OTP.
- Enter the loan amount according to your requirements.
- Verify KYC details to confirm your loan eligibility.
- Click ‘Submit’ to complete the application process.
After evaluating your eligibility and repayment capacity, the lender will send a loan offer. It features the approved loan amount, interest rate, and repayment tenure. You must review and accept the loan offer to initiate the disbursal process.
Applying for a Personal Loan is a simple and quick process. However, the approval and disbursal speed largely depend on the lender. Still, take time to research the loan options and choose one that fits your needs and credit profile. It helps you pick an offer suitable for your budget and saves money in the long run. Follow this 5-step guide to get assured approval with better terms and conditions.
