Personal loan is a popular credit option due to its no end usage restriction, minimal documentation, faster processing and quicker disbursals. However, its unsecured nature leaves lenders with no underlying asset to cover losses in case of loan default. To mitigate this this loss, lenders follow strict eligibility criteria when assessing their applicant’s personal loan eligibility. Hence, those planning to avail personal loan should follow the tips below to boost their chances of availing the loan:
Ensure your credit score is at least at the 750 mark
Lenders look at their applicants’ credit scores to assess their creditworthiness. They prefer sanctioning personal loans to those having higher credit scores, i.e., 750 or above, because such applicants tend to have greater credit discipline than those having lower scores on their credit reports. Some lenders also set lower rates for such loan applicants. As financial emergencies can arise anytime, consumers should always be credit ready to get the loan as and when required. While there are numerous strategies available on personal finance blogging websites like Finshastra and other fintech websites and mobile apps on how to be financially ready during emergencies, consumers can always start with one simple habit of keeping their credit scores as high as possible. Tracking their credit scores across all credit bureaus (CIBIL, CRIF Highmark, Experian and Equifax) will give them enough time to increase their scores, in case its low. Consumers should also review their credit report regularly to identify and report any errors or fraudulent activity reflected in their credit reports. If any such issue is found in the document, it should be reported to their credit bureau and the credit card provider or lender for rectification. A rectified credit report may improve their credit scores and also their probability of availing personal loans in future.
Keep your EMIs within 50 to 55% of your monthly salary
Lenders prefer sanctioning personal loans to those having their current EMI obligations, including EMI of the proposed personal loan, within 50%- 55% of their net monthly income. Those exceeding this limit can reduce it by choosing longer loan tenure for their proposed personal loan. While most personal loan lenders offer tenures of up to 5 years, some lenders offer longer repayment period of 7 and 8 years.
Avoid changing your job frequently
Lenders avoid approving personal loan applications of those changing their jobs frequently. This is because such applicants project lower employment stability, thereby, increasing their chances of loan defaults. Therefore, most personal loan lenders require their loan applicants to have a minimum work experience of 6 months in their current organisation with some lenders requiring longer work experience of 1 to 2 years with their current organisation. Thus, if you are planning to apply for personal loan in the near future, avoid changing your job to improve your chances of getting loan approval.
Don’t make multiple credit and/or loan applications within a short period
Banks and NBFCs request credit reports of their loan applicants as part of their loan evaluation process. Such lender-initiated credit report requests are called hard enquiries. Each hard enquiry reduces an applicant’s credit score by a few points. Thus, having multiple hard enquiries within a short span can result in sudden drop in their credit score, thereby, thwarting their odds of securing personal loans. Hence, consumers instead of applying directly with the bank or NBFC should visit online financial marketplaces to compare various personal loan options. Credit report requests initiated by such marketplaces are known as soft enquiries and do not cause harm to their credit scores.