Tips to improve your personal loan eligibility

Before applying for a personal loan, be sure to pay off your existing debt and credit card bills to reduce your fixed debt obligation to income ratio.

You may need money for various planned and unplanned expenses, whether it’s a wedding, home renovation, higher education, vacation, medical emergency, or debt consolidation. If you’re not financially prepared for it, the expense can eat away at your savings or, worse, seriously affect your financial health.

This is where personal loans come in handy. Not only do they offer you a large amount at your disposal, but these days they are instantly approved and paid out within minutes.

Since they can be an excellent source of finance in times of need, they have become a popular finance option in India today. However, you must meet the lender’s eligibility requirements to qualify for a personal loan.

Reduce your debt to income ratio

Before applying for a personal loan, be sure to pay off your existing debt and credit card bills to reduce your fixed debt obligation to income ratio. Your current debt and credit card amounts can portray you as a credit-hungry borrower and make it difficult to get another loan.

Ideally, the total amount of EMIs you currently pay should be no more than 30-40% of your monthly income. If it’s more, pay it off before applying for a new loan.

Improve and maintain your credit score

Because personal loans are unsecured, lenders rely on your credit history to determine your creditworthiness. A credit score of 700 and above from CIBIL can project you as a responsible borrower who stays consistent with payments. Additionally, the loan repayment history of home loans/personal loans with a good track record over the past 12 months can also add significant weight. Your chances of approval and a higher loan amount increase significantly.

A credit score of less than 700 implies you don’t have a clean repayment record, and the lender can quickly deny your loan application or charge a higher personal lending rate with less eligibility for the loan amount.

Settle your utility bill and credit card payments on time

How timely you pay your credit card bills has a significant impact on your credit score. If you default on any of your credit card bills, it could lower your bureau score slightly and ultimately hurt your chances of being eligible for a sizeable personal loan.

Currently, lenders lend an app and can read many alternative data points via SMS, type of apps used etc. and weight due to delays in paying cellphone bills/school fees.

Therefore, make sure you pay all your dues on time in addition to EMI loans and credit card fees as well.

Include all your sources of income and variable compensation

Lenders also look at your income to gauge your ability to repay. Therefore, when filling out the online loan application form, you must provide not only your regular salary, but also all your additional sources of income, including variable compensation in the form of bonuses, incentives, rental income, side income, or something else.

This proves to the lender that you are earning enough to make timely repayments.

Apply for joint loans with spouse

In case you have a working spouse, you can even apply for a joint personal loan to increase your creditworthiness as it increases the overall household income and is much more convenient for the lender.

Correct specification of the contact details when applying for a loan

When filling out the loan application, correctly enter all your current and permanent address details, current cell phone numbers and email ids. Also please make sure the same details are duly verified and also updated on all social media sites, bureau, aadhar link contact details etc.

Today’s lenders verify the authenticity and vintage of all addresses, contact numbers, etc. through multiple alternative data sources using APIs and triangulate the same through multiple data sources. If there is a discrepancy in this information as you provided it in the loan application, there is a high probability that the loan will be rejected or reduced.

Choose a long term term

When applying for a personal loan, you can choose between a short or long-term personal loan term. A short-term term is between 1-3 years, while a long-term personal loan can last 3-5 years.

A major benefit of a long-term term over a short-term personal loan term is that it significantly reduces the EMI amount and also improves your creditworthiness. Because as the term increases, the outstanding loan balance is divided over a longer period of time.

Do not apply for multiple loans at the same time

When you apply for a loan, lenders make a tough inquiry with a credit bureau to assess your risk of default. If you apply for multiple loans at once, all lenders will harshly poll your credit report multiple times, ultimately lowering your credit score. Since they perceive you as a credit-hungry borrower, they may also reject your loan application.

It is therefore better to compare lenders beforehand and apply for one that best suits your requirements and personal creditworthiness.

Find a lender with the eligibility criteria you can meet

Instead of applying to multiple lenders only to know you don’t qualify for their loan, check the eligibility requirements of different lenders and find the one with the eligibility criteria that you can meet.

The main eligibility norms to check in advance are age, income, monthly income and office score, work experience, maximum loan amount and terms offered, etc.

by Kaushik Khanna, Chief Credit Officer, Clix Capital

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