Active Stocks
Tue May 28 2024 15:59:27
  1. Tata Steel share price
  2. 174.85 -0.37%
  1. HDFC Bank share price
  2. 1,530.50 0.17%
  1. ITC share price
  2. 428.90 -0.60%
  1. State Bank Of India share price
  2. 830.90 -0.38%
  1. Infosys share price
  2. 1,466.20 -0.37%
Business News/ Money / How to increase your eligibility for a personal loan? Here are 7 ways
BackBack

How to increase your eligibility for a personal loan? Here are 7 ways

You can take incremental yet impactful measures to enhance your eligibility for a personal loan and potentially access better interest rates or increased loan amounts.

How to ensure your eligibility for a personal loan?Premium
How to ensure your eligibility for a personal loan?

Securing a personal loan is based on various factors that lenders evaluate to determine your capacity to repay the loan. There are various steps you can take to enhance your eligibility for a personal loan and potentially secure more favourable loan terms, such as lower interest rates or increased loan amounts. Here are some essential strategies:

  • Establish and sustain a strong credit score: This is paramount for lenders. A high credit score (preferably above 670) demonstrates responsible credit management, making you a more appealing borrower. Strive to pay all your bills punctually, maintain a low credit utilisation ratio (the amount of credit used divided by the total credit limit), and refrain from applying for excessive credit within a short timeframe.
  • Lower your debt-to-income ratio (DTI): A reduced DTI ratio (calculated by dividing monthly debt payments by gross monthly income) indicates to lenders that you have sufficient income to handle additional debt. Pay off existing debts, such as credit cards or other loans, to decrease your DTI and enhance your loan eligibility.
  • Boost your income: While it may sound straightforward, a higher income signifies a greater ability to repay the loan. If feasible, consider ways to enhance your income, such as securing a raise, taking on a side job, or monetising a hobby.
  • Sustain consistent employment: A consistent employment record showcases financial reliability to lenders. Employment gaps or frequent job shifts may raise concerns.
  • Think about a co-signer with a solid credit score: If your credit score is not ideal, having a co-signer with a strong credit history and steady income can greatly enhance your approval odds and potentially result in more favourable loan terms.
  • Explore and compare lenders: Various lenders have different eligibility requirements and interest rates. Conduct research and compare lenders to identify one that provides favorable terms based on your credit profile and income.
  • Limit loan application submissions: Numerous loan applications in a brief timeframe can adversely affect your credit score. Pre-qualify with lenders to determine if you meet their initial criteria before submitting a formal application.

By adhering to these steps and showcasing your financial responsibility, you can enhance your eligibility for a personal loan and potentially obtain a loan with more favourable terms tailored to your needs.

Frequently Asked Questions (FAQs)

Q. Why is it advisable not to submit multiple personal loan applications?

Submitting multiple loan applications in a brief timeframe can adversely affect your credit score. It’s advisable to pre-qualify with lenders to determine if you meet their initial criteria before submitting a formal application. 

This is because each official loan application results in a hard inquiry on your credit report. These inquiries can remain on your credit report for up to two years and may reduce your credit score, particularly if there are several inquiries within a brief period. A diminished credit score can make you a less appealing borrower and might result in loan denials or elevated interest rates. Additionally, lenders perceive multiple loan applications as an indication of financial desperation. This can raise concerns and decrease the likelihood of approval for any of your applications.

Furthermore, applying to multiple lenders can be overwhelming and make it challenging to keep track of loan terms and compare offers accurately. You might ultimately accept a loan with unfavourable terms due to fatigue from the application process.

Q. What makes personal loans a good choice?

Personal loans provide numerous benefits that make them suitable for various financial circumstances. Here's an overview of the primary advantages:

  • Flexibility: Unlike certain loans designated for particular purposes (such as home equity loans for home renovations), personal loans provide greater flexibility in how you can utilise the funds. Common uses include debt consolidation, medical bills, unforeseen expenses, significant purchases, or even home improvements (depending on the lender).
  • Quick approval and disbursement: Personal loans are usually unsecured, meaning they don't require collateral like your home. This simplified process enables faster approval times (sometimes even within the same day) and quicker access to funds compared to loans that require appraisals or more extensive paperwork.
  • Reduced risk: With a personal loan, if you default on the loan, you won't be at risk of losing your home through foreclosure. This is a notable advantage, particularly if you're hesitant to put your homeownership on the line.
  • Moderate loan amounts: Personal loans are ideal for borrowing smaller to moderate sums. They can be a suitable choice if you don't require a large amount of money, unlike home equity loans, which typically come with higher minimum loan amounts.
  • Consistent payments: Personal loans feature fixed interest rates and set repayment terms (usually ranging from 12 to 60 months). This offers predictability for budgeting and makes managing your loan payments straightforward.

Q. How do you choose which bank or financial institution to borrow the loan from?

It's advisable to compare the offers from different banks before selecting a specific lender. Utilise online tools such as the loan eligibility calculator and personal loan EMI calculator to identify the loan option that best fits your needs. Some essential factors to consider when choosing a loan provider include interest rates, loan tenure, processing fees, and other associated costs.

Q. How can I compare the interest rates of personal loans?

Visit a financial aggregator's website and use the personal loan eligibility tool to receive a comprehensive list of available personal loan options, including important details like interest rates, processing fees, and additional charges such as pre-payment fees. With this information, you can easily compare the different personal loan options offered by various banks and NBFCs.

Q. Are personal loan interest rates fixed or variable?

For a fixed-rate personal loan, your EMI amount remains constant, meaning you will pay the same EMI each month throughout the loan tenure. Conversely, with a floating-rate personal loan, the EMI amount will decrease over time as it follows the reducing balance method for interest calculation. With a floating rate, the bank may adjust the applicable interest rate periodically according to the new MCLR rules. Floating interest rates may be revised either semi-annually or annually.

 

You are on Mint! India's #1 news destination (Source: Press Gazette). To learn more about our business coverage and market insights Click Here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 13 Apr 2024, 07:32 PM IST
Next Story footLogo
Recommended For You