How To Increase Your Probability Of Getting A Personal Loan
Want to increase your chances of getting approved for a personal loan? Check out our expert tips and advice on how to improve your credit score, choose the right lender, and more!
A personal loan is one of the simplest and quickest ways to obtain ready money if someone is short on funds and needs to make certain payments right away. These are short-term loans that require no collateral. Therefore, banks and non-banking finance companies (NBFCs) follow a thorough verification process for approving a personal loan.
The process begins with the lenders initiating the document collection process. Most banks require a duly filled loan application form along with passport-size photographs and documents related to identity proof, income proof, etc. to process a personal loan.
Lenders consider a number of factors before approving a personal loan and setting the interest rate. Age, occupation, income, and any current or former relationships the borrower may have with the lender are some of these considerations. Before approving a loan, lenders also take into account the potential borrower's credit history and score.
As it is an unsecured loan, without any collateral, lenders have more stringent parameters for approving the loan. Also, such loans carry a higher rate of interest compared with the secured forms of credit.
So, to increase the probability of getting a personal loan, one can follow the listed steps:
Improve CIBIL Score
A CIBIL score is seen as the most important factor in determining whether a personal loan will be approved by the lender or not, aside from other general eligibility requirements like age, income, and employment status.
A strong credit score implies good financial health because it reflects one’s ability to repay loans on time.
While a majority of reputable lenders view a CIBIL score of 750 or more as optimal, a borrower with a credit lower score can still acquire a loan, though at a higher interest rate.
However, the CIBIL score is dynamic and not a static number. This means that by adopting good practices one can raise their credit score.
This can be done in a number of ways, such as prepaying some existing loans, especially unsecured loans like a personal loan, limiting the use of credit cards, making sure the minimum payments are made on credit cards each month, and ensuring equated monthly installments (EMIs) on existing loans are paid on time.
Ensure Documents Are In Order
The borrowers must carefully check, application form and additional supporting documents crucial for securing a loan. All essential documents, including bank statements and proofs of income or employment, must be submitted with the application by prospective borrowers. Their accurate name, address, and other personal information must also be provided.
Lenders may reject a loan application if the supporting documentation is incomplete or inaccurate.
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Reduce Monthly Debt Repayments
If one’s monthly debt payments are greater than 50% of their salary, there is a considerable likelihood that the personal loan application will be denied, as the lender will be wary of the borrower’s ability to repay the loan. One can reduce the monthly debt by paying off any outstanding loans as well as credit card balances.
Along with lower monthly expenses, if there is a good history of loan repayments, then it will help in getting a good credit score which will increase the probability of getting a personal loan.
Confirm The Eligibility Criteria Is Met
As a first step, the borrower must check their eligibility for the personal loan. The basic criteria for a personal loan broadly include that the applicant must be a citizen of India and should be between 21 and 60 years of age. The employment history, minimum income, and a good credit score are also important factors that lenders consider as important eligibility factors. The criteria, however, may vary from lender to lender.
By confirming that the eligibility criteria are met, one can figure out if they should apply for this form of credit and the amount that can be borrowed as a personal loan.
Apply For The Right Loan Amount and Tenure
One must pre-assess the amount of loan required before applying for a loan so as not to seek more than is required as it is an expensive form of credit. Applying for the right loan amount improves the probability of the application being approved. One may use a personal loan eligibility calculator that is available on various websites to calculate the amount that one may be eligible for based on the income status, existing debts and other factors.
The borrower must also choose the repayment term of a personal loan carefully because it decides the EMI that must be paid and the total interest payable on the loan. One must ensure that EMI can be easily payable to avoid any default.
To increase the probability of getting a personal loan, a decent job profile, a high credit score, and a strong credit history will come in handy.
While banks may provide cheaper interest rates, their approval processes are often longer and their eligibility requirements are more severe. Personal loans with minimal documentation are made easier by NBFCs such as IIFL Finance.
In fact, IIFL Finance processes a personal loan application within minutes and credits the money into the borrower’s account within 24 hours. Moreover, it also offers competitive interest rates than other NBFCs.
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