A personal loan is one of the most common types of credit that you can use to address your financial needs and requirements. This loan can be used to finance expenses like planning a trip, paying off debts, covering unexpected medical costs, etc. Two forms of personal loans offered by institutions are secured and unsecured personal loans. You may obtain unsecured credit without providing any security. On the other hand, to receive a secured loan, you must provide collateral.
Choosing the right lender to obtain a personal loan will increase your benefits and reduce your hassles. You can procure a personal loan by comparing what several lenders have to offer you. You can also use the personal loan eligibility calculator available on several websites online to check your eligibility for personal loans.
Here are the four important tips that you must follow to increase your eligibility for personal loans.
1. Maintain a Good Credit Score
A credit score is a three-digit number between 300 and 900. It is one of the most crucial factors considered by lenders when establishing your eligibility. Your credit score is a reflection of your creditworthiness. Keeping a good credit score will make it easier for you to get a personal loan. To be eligible for this loan, you must have a credit score of 750 or above.
If you have a good credit score, you might be able to get a low-interest loan. Although while lenders will approve personal loans for those with bad credit scores as well, they will charge higher interest rates in order to make up for the significant credit risk involved. Hence, it's essential to keep a good credit score.
Checking your credit score at regular intervals will assist you in keeping track and taking the required steps to improve it (if necessary). Every financial quarter, you may get a free credit report from each of the four credit agencies (TransUnion CIBIL, Equifax, Experian, CRIF Highmark) since customers are entitled to a free credit report from each of the credit bureaus once a year.
Additionally, paying your credit card payments and EMIs on time, keeping an eye on loans you co-sign, and maintaining a credit usage ratio under 30% will help you raise your credit score.
2. Determine Your EMI Feasibility
Financial organisations prefer to grant personal loans to you if your combined monthly debt payments, including the EMI for the new loan, does not exceed 60% of your gross pay. If you exceed this threshold, you have fewer chances of securing a loan. Therefore, you should consider your ability to pay your EMIs before deciding on the loan term and payments. Financial institutions offer online EMI calculators on their web pages to provide their customers with a more user-friendly experience. You can easily use this tool to calculate personal loan EMI. Knowing the precise amount will assist you in planning your expenditures wisely.
While assessing your EMI affordability, you should also take into account your recurring monthly obligations, such as rent, insurance payments, and investment contributions (if any).
3. Avoid Sending Out Inquiries to Several Lenders Hastily
To assess your creditworthiness whenever you ask for a loan, the lender will check your credit report. Such lender-initiated credit report queries are viewed as hard inquiries by credit bureaus, which lower your credit score by a few points each time. Thus, submitting several loan applications in a short period of time will significantly lower your credit score, which will have a negative effect on your eligibility for personal loans.
Rather than making inquiries directly with various lenders, you may visit financial markets online to examine the multiple personal loan alternatives accessible from many lenders. You can get options depending on your monthly income, employment type, employer's profile, credit score, etc. These financial marketplaces will pull your credit report while providing you with a variety of loan possibilities. However, as these queries are classified as soft inquiries, they will not affect your credit scores.
4. Add a Co-applicant
Since co-applicants are jointly responsible for loan repayment, adding them to your personal loan application lowers the lender's credit risk. If you have fewer chances of receiving a personal loan owing to insufficient income, a bad credit score, an unfavourable job history, or insufficient repayment ability, you can include a co-applicant with a stronger credit history. Doing so would increase your eligibility.
The income of the co-applicant is taken into account when evaluating loan repayment capabilities. Hence, enrolling a co-applicant may help you to obtain a personal loan with a significant amount as well as get the same at reduced interest expenses. However, any failure or delay in the payback of your personal loan will harm the co-credit borrower's score too.
Concluding Comments
Given the risks involved, acquiring a loan is one of the most significant choices a person ever makes. As a result, it is advised that a person carry out a thorough research before choosing a lender. While applying for a personal loan, there are a few crucial factors you should take into account such as interest rates, and the company’s market reputation, among other things. These factors will enable you to get the loan from the right lender and that too at the lowest interest rate possible.
FAQs
1. What are the eligibility criteria to get a Personal Loan?
In order to obtain a personal loan, you must be a salaried or self-employed individual. In addition to this, your credit score must be 750 or above. You may also use the personal loan eligibility calculator available on the financial institution's website to get a better understanding of your eligibility.
2. How can I calculate my Personal Loan EMIs?
Several lenders offer online EMI calculators on their websites. You can easily calculate personal loan EMI by using that tool to know the exact monthly repayment amount.
3. Will my credit score affect the interest rate of Personal Loan?
Yes. Your credit score is the most important factor which is considered by lenders when approving or rejecting your loan application. 750 or above is deemed as a good score. Having a good credit score will aid you in securing a personal loan at a low-interest rate.
Moneycontrol journalists were not involved in the creation of the article.