A personal loan is the best way to meet your financial needs. The best part about them is that they are available instantly through personal loan apps, they can be availed with a few simple clicks and the processing is completely digitalized. But since, personal loans are unsecured loans which mean you don’t have to put up collateral against your loan, they have higher eligibility standards. Not meeting the lender’s eligibility criteria can lead to your loan rejection. Thankfully, there are a few tricks that can help improve your personal loan eligibility.
Check out these five helpful strategies to increase your eligibility and receive the funds you need if your lender is providing you with a sanction that is less than what you need.
Tips to improve your personal loan eligibility
1. Maintain a Solid Credit Score
As personal loans are unsecured loans, lenders have to determine your capacity to repay the loan before granting you the money. The main determining element for Personal Loan approvals is your credit score. A credit score is a three-digit number from 300 to 900 which represent your creditworthiness based on your repayment history.
A high credit score says that you are a reliable borrower who has been making all your payments on-time. This makes you a low-risk borrower and the lender feels comfortable offering you a new loan. They may also offer you the loan at a reduced interest rate. In case you have a poor credit score you need to work towards improving your credit score by making regular payments and closing some of your existing loan accounts. You should also avoid making multiple loan enquiries and carrying multiple credit cards.
2. Pay off All of Your Current Debts
The next tip we have in store for you is to clear all of your existing debts. The lender might reject your loan application if you already have multiple open loans, this include pending credit card bills and other loans. The lender determines your repayment capacity based on your monthly income and your fixed monthly obligations. Ideally, your fixed monthly obligations should not be more than 40 percent of your total monthly income. Having a poor debt to income ratio will give the lender an impression that you don’t have the capacity to repay another EMI and there is a high chance of defaulting, skipping EMIs or even going for a loan settlement.
3. Include All Sources of your Income.
Though the minimum required salary to be eligible for a personal loan is Rs. 15,000. The higher your salary, the more will the loan amount that you will be eligible for. Also, the lender considers your debt to income ratio and your fixed monthly obligations against your income. Thus, by raising your income you can improve both these ratios to work in your favor. So, in addition to mentioning your salary, you can also mention your other sources of income like rental income, business income, freelancing income or any other legitimate income.
4. Select a Loan With a Long Repayment Period.
When you apply for a cash loan the lender will ask you for a repayment period. When you apply for a longer term, your payments are divided into smaller quantities. This lessens the EMI load and has less of an influence on the monthly debt-to-equity ratio.
The EMI cost is much lower with a long-term loan tenure than with a short-term loan tenure, which also improves your loan eligibility. This is due to the fact that when the duration lengthens, the remaining loan sum is spread out over a longer time frame. The repayment usually ranges from 6 to 60 months. You can choose the repayment tenure as per your convenience, depending on how much you can pay every month. But remember a longer tenure also means higher interest pay outs. So, be prudent while choosing the tenure.
5. Request a Joint Loan
Applying for a personal loan with a co-partner is an excellent way to increase your loan eligibility. When you apply for a joint loan, the combined salaries are considered to determine your repayment capability. So, your chances of getting a personal loan approved are substantially higher if you apply with your spouse or children. This will also help you obtain a larger personal loan amount at lower interest charges.
Since, in a joint loan application, the responsibility of repaying the loan is shared by both the account holders, defaulting on the EMI will impact both of you. Also, make sure to choose an applicant who has a good credit score, and a stable income. It is even better if they work for a government organization or an MNC.
6. Reduce Your Debt-To-Income Ratio
Every lending institution has a predefined debt-to-income ratio that an individual must fit in. Simply said, the ratio of your gross monthly debt to your gross monthly income is known as your debt-to-income ratio. If you are paying off a single loan at the time you apply for a personal loan, a debt-to-income ratio of 15% is excellent. If you have several loans to pay back, the total of your EMIs shouldn’t be more than 50% of your income. If you have a high debt-to-income ratio then it shows that you already have so many debts to repay that you may not be competent enough to pay off any further loans you will apply for.
7. Avoid Applying for Multiple Loans at Once
The credit bureau also looks at how many loans a person has sought recently, regardless of whether they were granted or not. These inquiries are relatively difficult and appear on your credit report. Applying for several loans at once is a bad idea since it suggests that you are credit-hungry. Therefore, it is advised to evaluate different loan offers made by several financial institutions before submitting an application for a personal loan. The best way to avoid this situation is by using a personal loan eligibility calculator, which is available on the website of the lender. After finding out that you are eligible for the loan, then only move forward with the application procedure.
8. Select a Lender With Fewer Qualifying Requirements.
Lastly, you can apply for a loan on a personal loan app with a lender who has fewer eligibility requirements. This will thus improve your chances of having your loan application approved. The requirements will be around small categories only like your age, employment status, income and citizenship. Once you have fulfilled all these criteria your lender will accept, approve and process your loan application instantly.
With all this information we believe that you are now fully equipped to apply for a cash loan. The application procedure for a personal loan is quite easy once you fulfill the eligibility criteria of your lender. So, before you start applying for a loan on a personal loan app, the first thing you should do is visit different lender’s website and check your eligibility criteria.