To purchase your dream house, car or anything you have ever wished for, financial discipline is a must. Due to the current economic and financial fragility, it is better to know everything about personal loans. This is because these loans can be beneficial to arrange the finances for business and personal endeavors. So, it is essential to have the necessary information about personal loans. The following aspects will help you to evaluate whether you are eligible for personal loans or not and the way you can improve eligibility.
1) Credit Score
The credit utilization score is significant which can help to contribute 30% to the credit score. To improve this score, you need to pay off the credit card debt and increase the credit limit. This will help to reduce credit utilization which will make your credit score high. It is important because lenders are confident to lend to those borrowers who have a better credit score. Find out your credit score with your credit card service provider.
2) Choose a lender with the highest personal loan amount
There are different caps placed by the lenders on the highest amount which they can lend under personal loan product. If you need 20 lakhs, it is advisable to approach a lender who can lend a higher amount than this. It is pointless to contact someone who has 15 lakhs as their highest amount.
Another aspect which should be considered in this regard is the selection of the right financial institution or a bank. It is advisable to avail the service of the financial institution or bank with which you have an existing relationship.
3) Keep professional life spotless
The most important aspect which lenders look for in their borrowers is the creditworthiness. They want to feel secure about the fact that repayments will come on time from the borrowers. The evaluation criteria are that whether the borrower is a salaried person or a business individual or professional. Those with better performance in their jobs or business stand a high chance of being eligible for a personal loan.
Apart from this, it is also essential to maintain stability in your current job and ensure that you do not lose it. Otherwise, you might end up losing your chance to avail the personal loan. Also, it is noted that larger private banks are stricter in their loan eligibility approach.
4) Ensure that take-home pay is more than 50 percent of Gross pay
Another critical factor which lenders want to know is about the take-home pay. They want to know the take-home pay particulars after deduction of loans, income tax and living expenditures. There are higher chances of getting a higher personal loan amount if the take-home pay is higher. Allowances and perquisites are a part of salary usually, but they are not considered for the calculation of personal loan eligibility.
5) Ensure you pay your credit cards dues on time
This could be the biggest turn off point for a personal loan application. If you default on credit card dues or loan equated monthly installment, this will reflect in the credit card score and will also end up in reducing your creditworthiness.
6) Include your spouse’s income to enhance loan eligibility
It will be better if you include the income of your spouse while applying for a personal loan. The lenders will also evaluate your spouse’s credit score and creditworthiness.
7) Be honest about the purpose of the loan
Lenders tend to consider the borrower as highly eligible if they are aware of the purpose you are applying for the loan. For example, if you are obtaining the loan for wedding purposes or medical treatment, the lender will consider this as a genuine purpose and increase loan amount. There are great chances of rejection if you are borrowing for a personal trip or any expensive item. Also, ensure that you are borrowing for yourself rather than on someone else’s behalf. This will also increase the chances of rejection.
8) Close down other smaller personal loans before applying for a higher loan amount
This is another way of improving eligibility. By paying off your previous small loans, you will be able to increase the take-home amount thus leading you towards higher eligibility for the loan. This is because personal loans are unsecured loans, they do not require any asset as a pledge against the loan amount. So, make sure that you do not have any other unsecured loans before applying for a personal loan since this will affect your eligibility.
9) Do not apply to different lenders at the same time
You might end up compromising your eligibility if you apply to more than one lender. It is better to choose the lender after evaluating all offers from different lenders and applying to that lender. This is because multiple applications can put your loan eligibility in danger. Since all the lenders will be running a credit report on you, credit scores can get affected by 5 to 10 points during this procedure.
10) Make sure you need a loan
Personal loans have short tenures and carry a high-interest rate, so one needs to be sure whether they need the loan, or the purpose of loan can be fulfilled through small loans which have lower interest rates usually.
The fundamental aspect of borrowing is proper planning. The reason is that the loan is being availed to deal a fiscal deficit. Keep a specific amount in mind. Otherwise, you can be shocked if there is any deviation between the sanctioned amount and the amount applied for. Also, you must keep Plan B ready in case anything goes wrong.