The coronavirus pandemic has shown that it is prudent to make advance preparations for future needs — be it re-establishing your business, taking care of your child's higher education or bailing you out of a financial emergency. A personal loan, which does not require an applicant to pledge a collateral, could be of great help in getting you ready for those goals but it's not easy to get, primarily because of its unsecured nature. It is one of the most preferred loan options for those in need of quick funds.
An application for a personal loan is evaluated on several crucial parameters and it is wise to take action today so you can increase your chances of getting a personal loan tomorrow. Here's how you can boost your chances of getting approved for a personal loan.
Improve your credit score
A credit score is a three-digit number that points to an applicant's credit history. Lenders use it as a way to determine the default risk and understand how disciplined the applicant is with finances. A score of 750 or higher is ideal. First, find out your credit score and, if necessary, repair it by paying current EMIs and credit card bills on time and by limiting your credit utilisation ratio. An ideal credit score increases the chances of personal loan approval and, possibly, the best interest rates available.
Maintain a steady employment profile
Lenders want an assurance that you're earning enough to pay back the debt and look for a steady income history to determine whether the applicant will be able to maintain a financially sound future. They prefer an applicant who is steady in his/her job and avoids frequent job changes.
Add a co-applicant or guarantor
If you have insufficient income or a low credit score or even if you fail to meet any other eligibility criteria set by the lender, you can opt for a joint loan with a co-applicant who has a good credit profile, including a stable income. This will help in minimising the credit risk as the co-applicant would be equally liable to pay the loan. A co-applicant also increases the possibility of loan approval for a higher amount.
Avoid multiple applications
Filling out applications to multiple lenders sends out the message that the applicant is desperate and creates a bad image of the applicant's financial situation. Also, credit score declines with every loan application rejection, further reducing the possibility of getting a loan approved in future.
Maintain a cooling-off period
If a loan application is rejected, try to maintain a gap of at least six months before applying again. Rushing into loan applications will again show that you are desperate, and backing off for some time and then applying again will demonstrate that your finances are strong enough that you sustained without a loan for all this while.
Opt for longer repayment tenure
While evaluating your loan application, lenders calculate your current monthly repayment obligations. If the obligations are with 50 percent of net monthly income, including the EMI for the applied loan, this increases your chances for approval. In case the monthly repayment obligations are higher, go for longer tenure to reduce the EMI outflow.