A personal loan can be a reliable option when it comes to fulfilling your financial aspirations or dealing with unexpected expenses. However, securing a personal loan can be a walk in the park.
Lenders evaluate several factors before approving your loan application, and one of the most significant factors is your personal loan eligibility. To enhance your chances of approval and secure favourable terms, it’s essential to take proactive steps.
Strategies to enhance your personal loan eligibility
Manage debt-to-income ratio
Your debt-to-income (DTI) ratio is crucial in determining your eligibility for a personal loan. Lenders assess this ratio to ensure you have enough disposable income to meet your loan obligations. Aim to keep your DTI ratio below 40%.
To determine your ratio, divide your monthly debt payments by your monthly income and multiply the result by 100. It is advisable to settle any outstanding debts before requesting a new loan if your ratio is too high.
Maintain a good credit score
A higher credit score indicates your creditworthiness and enhances your chances of loan approval. Regularly check your credit report for errors and ensure timely repayment of your existing loans and credit card bills. A score above 750 is favourable for securing a personal loan at competitive interest rates.
Assess your EMI affordability
Before applying for a personal loan, assess how much Equated Monthly Installment (EMI) you can comfortably afford. Lenders typically approve loans where the EMI is at most 40-50% of your monthly income. Using a personal loan EMI calculator, you can determine the ideal loan amount and tenure that align with your budget.
Check the lender’s eligibility criteria
Different lenders have varying eligibility criteria for personal loans. Research and understand these criteria before applying. Some lenders might have specific age requirements, income thresholds, or employment criteria. You increase the likelihood of approval by tailoring your application to match the lender’s prerequisites.
Avoid applying for multiple loans
While it might be tempting to apply for multiple loans simultaneously to improve your chances, it can negatively impact on the credit score and loan eligibility. Each loan application results in a hard inquiry on your credit report, which can signal desperation to lenders. Instead, focus on improving your eligibility factors before submitting loan applications.
Maintain your job stability
Lenders prefer applicants with stable employment histories, reflecting a consistent income source. Avoid switching jobs frequently before applying for a personal loan. If you plan a job change, secure the new position before applying for the loan. A stable job history can reassure lenders about your repayment capacity.
To wrap up
Enhancing your personal loan eligibility is a strategic process that involves managing your financial profile to align with lender requirements. Remember to maintain a healthy credit score, manage your debt responsibly, and assess your financial capacity before applying. By taking these steps, you will be better positioned to fulfil your financial goals and confidently navigate life’s uncertainties.
