Personal loans are a go-to option for individuals at the time of financial crisis or for meeting short-term funding requirements. These are unsecured loans and lenders don’t put any end-usage restriction on the loan amount, which makes it attractive for borrowers.
However, personal loan eligibility depends on multiple factors like credit score, income, age, employment status, etc. Although different lenders have different eligibility criteria for personal loans, the factors to analyse the creditworthiness of borrowers remain the same.
The following are the five tips to improve personal loan eligibility:
5 Tips to Improve Personal Loan Eligibility
- Keep your CIBIL score above 750
- Should have lower Debt-to-income ratio
- Choose a reasonable personal loan amount
- Refrain from applying multiple personal loan applications at once
- Fulfil all the personal loan eligibility criteria
Let’s discuss the points in detail.
Keep Your CIBIL Score Above 750
Banks/lenders prefer borrowers with a good credit score of above 750 for unsecured loans as the risk of default from such borrowers are less.
Therefore, before applying for a personal loan, check your credit score on the CIBIL website. If you have a low credit score, you must avoid applying for a personal loan as your loan application will be rejected.
Read Here: How to Improve Your Credit Score
Having a good credit score helps you to negotiate better terms and interest rates on a personal loan.
Should Have a Lower Debt-to-income ratio
Banks/lenders prefer a Debt-to-income ratio of borrowers below 30%, as for borrowers, it becomes easy to repay the loan with a lower debt-to-income ratio.
For instance, if more than 30% of income is locked in servicing EMI, it puts a question on the repayment capability of the borrower. It adversely impacts your personal loan eligibility even after fulfilling other personal loan eligibility criteria.
Therefore, ensure your debt-to-income ratio doesn’t cross the 30% threshold even after factoring in the EMI for the personal loan you are applying for. It increases the chance of your personal loan eligibility.
Choose a Reasonable Personal Loan Amount
Going for a higher personal loan amount vis-a-vis your income can result in the rejection of the personal loan application. Lenders always assess the repayment capability of the borrower by comparing the loan amount and income of the applicant.
Also, before applying, use the personal loan EMI calculator to calculate EMI for the personal loan. As the repayment tenure of a personal loan is up to 60 months, using the EMI calculator, you can calculate the EMI amount of different tenures easily. It helps you to select the right repayment based on affordability.
Refrain from Applying Multiple Personal Loan Applications at Once
You should avoid filing multiple personal loan applications with different lenders at once thinking one application will go through.
This is considered a wrong strategy as multiple hard enquiries are generated on your credit report at once. It pulls down your credit score and lenders think that you are facing any financial difficulty, hence looking for a loan.
The ideal gap between two personal loan applications should be at least 6 months.
Fulfil All the Personal Loan Eligibility Criteria
And, at last, fulfil all the eligibility criteria asked by your lender to process the personal loan application. Fulfilling all the eligibility criteria helps you to negotiate better terms and lower interest rates on the personal loan.
To get maximum benefits of a personal loan, always compare different personal loan offers and take a loan from a reputed lender.