Looking for a personal loan? 6 crucial factors that can impact the approval process

Personal loans are among the easiest ways for borrowers to access funds. These loans can be approved within hours if the aspiring loan applicant meets the basic eligibility requirements.

The rapid approval of personal loans from reputable financial institutions primarily depends on the applicant’s overall financial profile and their level of preparation before submitting the application.

Hence, if you plan to apply for a personal loan to meet essential requirements such as medical expenses, home renovation or foreign education, the following six factors can significantly improve your chances of a seamless approval.

Six factors that can boost personal loan approval chances

1. Maintaining a high credit score
   • Focus on maintaining a high credit score, ideally above 750. This will give you a clean credit profile, with the potential to easily clear your loan if you fulfil other essential requirements as well.
   • Ensure that you pay EMIs and credit card dues on time to avoid a negative influence on your credit report. For this, you can also set up an auto debit instruction so that you never miss any due dates.
2. Keeping your debt-to-income ratio low
   • Lending institutions will verify how much of your monthly income is already allocated to other existing EMIs. They will carefully check the total debt you already carry. That is why, to make borrowing easier, focus on keeping your debt-to-income ratio in check.
   • Lowering existing loans, clearing out credit card bills, and other liabilities can boost one’s eligibility and the speed of approval.
3. Ensuring stable income and employment
   • Stability of income, for example, a consistent flow of the applicant's salary with a solid job, can help in the quick and seamless approval of new loans. Lenders prefer applicants with consistent employment histories and minimal job breaks. Lenders like predictability in the borrower's income.
   • Even self-employed borrowers should have a consistent income stream, a reputable credit score, clean repayment history and an updated financial track record for seamless approval of new loans and credit cards.
4. Choosing the right loan amount and tenure
   • As a responsible borrower, to ensure the seamless approval of your loan application, it is advisable to sit down with a certified financial advisor and apply for an amount that matches your repayment capacity.
   • Unrealistic and unreasonably high personal loan amount requests can delay the approval process, result in hard inquiries and even result in rejection of one’s loan application. Borrow only as much as you can repay and manage.
5. Applying with your existing bank or lender
   
   • Banking institutions where you already hold an account have access to your transaction history. You should consolidate and build on this relationship further by managing your finances responsibly.
   • When you apply for a new personal loan through the same institution, this often results in quick processing, clearance and manageable loan terms.
6. Avoiding multiple loan applications
   
   • Sometimes the need for funds is urgent, which can result in forcing borrowers to make loan request applications with several different lending institutions. Do ensure that you avoid such practices. Submitting multiple loan applications within a short span of time denotes credit hunger, which can result in several hard inquiries.
   • Several hard checks can bring down your credit score and slow down the approval process.

Important risks to consider

Given that personal loans provide borrowers with quick liquidity, it is still essential to keep in mind that these loans come with several inherent risks, such as high interest rates, processing fees, the possibility of serious legal action in case of default, and damage to one’s credit scores. Borrowers, hence, should diligently consider these risks, carry out proper due diligence and consult certified financial advisors before going ahead with any particular loan product.

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