A personal loan is an unsecured loan offered by financial institutions based on the applicant’s credit history and repayment history. It can be used to finance any of your requirements and help you deal with the uncertainties of life. You can opt for a personal loan to finance expenses like higher education, medical expenses, wedding expenses, etc. Personal loan interest rates vary from one lender to the other. Several factors have led to an increase in the demand for personal loans.
According to data provided by the Reserve Bank of India, personal loans that include education, home and vehicle loans accounted for approximately 96% of non-food credit.
Follow these tips to get a personal loan approved quickly.
1. Meet the Basic Eligibility Criteria
It is wise to apply for a loan with a lender only if you meet their basic personal loan eligibility criteria. A common mistake made by applicants is applying to multiple lenders without checking this crucial point. This often results in the lender rejecting the application at the outset without processing it. It is a good idea to check the eligibility criteria of each institution separately before applying for a loan. Some of the common eligibility criteria to be able to apply for a personal loan are as follows:
- The applicant should be employed by a public or a private company or should be self employed with a minimum turnover as per the lending company’s policies.
- He/she must be between 21 to 60 years of age.
- Salaried applicants must earn a minimum salary every month. Most reputable lenders don’t accept cash salary applicants.
- The applicant should have work experience of minimum 1 year and should have worked for a minimum of 6 months in the current organization.
- Having a CIBIL score of 750 and above increases the chances of your loan application being approved.
An online personal loan eligibility calculator can help you calculate the approximate amount you can avail of as a loan.
2. Avoid applying to Multiple Lenders Simultaneously
A common mistake made by applicants is applying for a personal loan simultaneously to many lenders. Applying to multiple lenders hurts your CIBIL score and consequently leads to your application being rejected. This action might be perceived by lenders as being hungry for credit. Make sure to do your research well and apply to institutions where the chance of your application being approved is higher.
3. Rectify Errors in your Credit Report
Errors in your credit report can stand in the way of your loan being approved. Request for a copy of your credit report months before you plan to apply for a personal loan. A study by the Federal Trade Commission in 2012 found that approximately 20 per cent of customers had an error in their credit report. A repeat study conducted in 2015 found out that customers who reported an unsolved error still believed that there was an error in the report. Review your credit report for errors or inconsistencies and make sure they are rectified.
How can I check/rectify my CIBIL Report?
Make sure to check the website often for errors. Visit the official website to check your report and make sure to report any inconsistencies.
4. Choose the Loan Amount Carefully
Choose the loan amount after carefully evaluating your requirements. Decide on the amount you wish to borrow after making sure that you can pay the instalments comfortably even after meeting all your financial commitments. Your debt to income ratio plays an important role in the approval of your loan. Debt to income ratio can be defined as the sum of your monthly debt divided by your gross income. Ensure that not more than 30-40% of your income outflow goes towards paying EMIs. Having debts that amount to more than 30-40% of your income is considered to be risky and can result in your application being rejected.
5. Maintain a Good Credit Score
Having a good credit score plays an important role in the approval of your loan application. Credit scores are calculated by taking into consideration your debt to credit ratio and your repayment history. The more punctual you have been in repaying previous loans, the greater the chance of your loan being approved. A credit score is a number that ranges between 300-900. A score of 700 and above is considered to be good by most lenders and can increase the chances of your application being approved. It is a good idea to improve your credit score before applying for a loan.
How Can I Improve my Credit Scores?
Here are a few simple tips to improve your credit score:
- Repay outstanding debt before applying for another loan. Making payments to foreclose the loan goes a long way in improving your credit score.
- Paying the entire credit card bill rather than just the minimum payment required can prevent attracting high rates of interest.
- Borrow a mix of secured and unsecured loans and make sure to repay it on time.
The above personal loan tips can not only increase the possibility of your application being accepted, but also help you in availing the lowest possible rate of interest.