Quick disbursal, minimum documentation, zero restriction on end-use of loan proceeds and minimum collateral requirement make personal loans an ideal borrowing option to fulfill urgent monetary needs. However, the unsecured nature of personal loans makes lenders follow a cautious approach during the loan approval process.
Explained here are five crucial checkpoints clearing which your chances of personal loan approval can increase:
Review your credit profile: Credit score is one of the first filters used by the lenders to assess the applicant’s creditworthiness for availing a personal loan. Generally, applicants with credit score of 750 and above have higher chances of getting loan approval. Hence, one must strive towards building and maintaining a strong credit score. Consider adopting healthy financial habits like timely repayment of EMIs and credit card bills, containing credit utilization ratio within 30%, maintaining a healthy credit mix, and also monitoring co-signed loan accounts, etc.
Also, given that your credit score is computed based on the information provided by the lenders and card issuers, any clerical error on the part of the lender or card issuer or any fraudulent credit transaction or application made in your name can pull down your credit score and loan eligibility. Hence, review your credit report at periodical intervals to identify and report wrong information, if any, to the credit bureaus and lenders for rectification. A rectified credit report will automatically report a higher credit score.
Choose tenure according to your repayment capacity: Lenders assess your repayment capacity by factoring in your loan repayment obligations. They usually prefer lending to applicants whose loan repayment obligations (including proposed personal loan’s EMI) do not exceed 50%. Applicants with a higher proportion of debt obligations are usually considered to have higher chances of loan default. Hence, ensure to choose a tenure whose corresponding EMI keeps your overall repayment obligations within limit.
Compare amongst various loan offers: Personal loan interest rates can widely range anywhere between 9%-24% p.a. Hence, it is crucial to compare loan offers from as many lenders as possible, before zeroing in on any particular lender. Begin your loan search by contacting the banks and NBFCs with whom you have existing consumer relationship. Follow it up by visiting online financial marketplaces to compare personal loan options available from other lenders.
However, while comparing personal loan offers from various lenders, do not restrict your research to just the loan’s interest rates. You must also compare other loan features as well like processing fee, loan amount, repayment tenure, prepayment charges, etc before finalizing any particular lender.
Avoid submitting loan applications to multiple lenders: Whenever you apply for a loan or credit card, the lender will fetch your credit report from the credit bureaus to evaluate your creditworthiness. Such lender-initiated credit report requests are termed as hard enquiries by the credit bureaus, each of which gets included in your credit report, thereby pulling down your credit score by a few points. Moreover, making multiple credit enquiries within a short span of time can depict 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 optimum personal loan offer from multiple loan options.
Avoid frequent job switches: As the practice of frequent job hopping may be considered as a sign of career instability by the lenders, they may hesitate in lending to those who frequently switch their jobs. Hence, try to avoid frequent job hopping, especially if you are planning to apply for a personal loan in the near future.
(By Gaurav Aggarwal, Director-Unsecured Loans, Paisabazaar.com)