Personal loan is a loan which can be availed for any personal purpose such as home renovation, wedding, medical emergencies, travelling, debt repayment etc. without any security or collateral. The terms quick disbursal, minimum documentation, zero restriction on end-use of loan proceeds and minimum collateral requirement make personal loan an easy and ideal way of borrowing option to fulfill urgent monetary need. Hence it is obvious that it is not as easy as you consider due to its unsecured nature. However, if you are interested to avail personal loan in near future or later. Here we are giving 5 checkpoints, and clearing them can increase your chances to get a personal loan.
Review your credit profile – Credit Score is one of the first things assessed by lenders or banks when you approach them for a personal loan to check an applicant’s creditworthiness. Generally, applicants with a 750 credit score or above have chances of getting loan approval. Hence one must incline towards maintaining and building a strong credit score. One should consider practicing good financial habits like timely repayment of EMIs and credit card bills, keeping credit utilization ratio within 30%, and maintaining a healthy credit mix etc.
Also, keep in mind that your credit score is computed based on the information provided by the lenders and card issuers, any error on the part of the lenders or credit card issuers or any fraudulent credit transaction or application made in your name can bring your credit score down and also affect your loan eligibility. Hence, it is advisable to review your credit reporter at periodical intervals to identify and report wrong information, if any, to the credit bureaus and lenders for rectification. Once rectification is noted, you will see your credit report with a higher credit score or improved credit score.
Choose tenure according to your repayment capacity – Lenders assess your repayment capacity by factoring in your loan repayment obligations. Generally, they prefer lending to applicants whose loan repayment obligations do not exceed 50% (including proposed personal loan EMI). Applicants with a higher proportion of debt obligations are usually considered to be a high risk profile for lenders, and may be to have higher chances of loan default. Hence, ensure to choose tenure whose EMI repayment obligations are within your limit.
Compare amongst various loan offers – Personal loan interest rates can range anywhere between 9% – 24% Per Annum. Hence, it is utmost important to compare the loan offers from as many lenders as possible, before finalizing on any particular lender. Firstly start your search for the personal loan by contacting the banks and NBFCs with whom you have an existing consumer relationship. Today due to advanced technology and online fintech, it is quite easy to compare the personal loan offers from different lenders without going even to banks. However, do not restrict only to comparing interest rates amongst different lenders but also compare other loan features as well like processing fees, loan amount, repayment tenure, prepayment charges, etc. before finalizing any particular lender.
Avoid submitting loan applications to multiple lenders – Remember that, whenever you apply for a loan or credit card, the lender will fetch the credit report from the credit bureaus to evaluate your creditworthiness. Such a lender generates credit reports from credit bureaus considered as a “hard inquiry”, each of which gets included in your credit report, thereby bringing down the credit score by a few points. Moreover, making multiple credit inquiries within a short time span can consider you as a credit hungry borrower, which may result in some lenders rejecting your personal loan application.
You can avoid this by visiting online financial marketplaces to choose the best suited loan offer from multiple loan options.
Avoid frequent job switches – As the frequent job change may be considered as a sign of career instability by the lenders thus, leading to rejecting the loan offer by lenders as considering high chance of default in loan repayment. Hence, it is advisable to try to avoid frequent job changes and have a stable career, especially if you are planning to apply for a personal loan in the near future.
We are hoping that these all checkpoints will help you while applying for personal loan and by following all you may have a high chance of acceptance of personal loan by lenders.