15 tips for getting your personal loan approved
There does not exist any single formula to get your loan accepted. Different companies have a different set of eligibility criteria and requirements for loan approval. While some rely entirely on the credit score, some also consider your economic status and education.
However, most of these institutions have a common thing. They want you to repay the loan in decided tenure. To ensure that, they prefer to lend money to those borrowers who will pay them back. This sometimes makes the approval of loans difficult for some customers. In this article, we mention some steps which you should take care before sending out that application form.
Improve Your Credit Rating
With technological advancement, data that can speak of your financial advancement is readily available. Credit agencies can refer to this information’s before taking a decision. So, please check that you have a good credit rating before applying for a loan.
Check if all the personal details are accurate and updated. All the financial accounts possessed by you should be recognized and proper paperwork should be present. These simple steps can make a huge difference to the status of your credit report.
Manage Your Finances
Proper management of finances is necessary to improve credit score. This includes managing your monthly income, savings accounts or any other existing credits that you possess.
To start, you can check your credit file. Check the number of times you have applied for loan in the last 12 months, payment history, credit card repayments and financial history. Below are some rules to follow:
- Apply for the credits that you need and which you can repay without much burden on your finances.
- Make sure to do all repayments on time.
- Don’t use your credit card up to max limit. Try to keep the credit card expenses at around 20-25 percent of the maximum limit, and repay on time.
- Maintain some balance on your savings account on a regular basis. This shows that you are responsible for your finances and will be a good borrower.
Check the Eligibility Criteria
Please look at the eligibility criteria of the bank you are applying loan for. Different banks have different guidelines regarding loan eligibility like age, nationality, type of employment, employment status, minimum monthly net income.
Sending an application where you do not meet the eligibility requirements will lead to rejection of the application and lower the credit score.
Here are some of the common eligibility criteria for a personal loan:
- Minimum age limit for the applicant to get the loan is 21 years. The maximum age limit is 60 years for salaried employees and 65 for self-employed.
- A minimum monthly income of Rs. 25000 should be present.
- The maximum EMI that you need to pay should not be more than 65 percent of your income.
- Your current employment should be a tenured one and you need to be working for 3 years minimum.
Improve Credit score
Credit score has an important role in deciding whether your loan application will be accepted or rejected. This is calculated as the ratio of your debt/loan to credit. This also depends on your record of paying the loan within the scheduled time frame. If you are more punctual in repaying previously taken loans, higher will be your credit score. Average credit score ranges between 350 and 900, a score above 700 is considered as a good credit score to get your loan approved. So, it is necessary to improve your credit score before applying for a loan.
The term which you are deciding to repay the loan is also important. If you are taking up a loan for a short period, the lenders assume that your financial condition is less likely to change over a short period of time. This increases the chance of loan approval. So, try to take up a loan which you can afford to repay quickly. This will obviously lead to higher EMI’s, but you will no longer be in debt.
Paperwork and Co-signer
Do proper research before sending out your loan application. Check the documents required for the particular loan you are searching for. You can do this online and also call the customer care executive to cross-check. It is easier and faster to get a loan approved if the necessary documents are present.
If you have a credit score that is moderate, you can consider signing with a co-signer who has a better credit score. However, this also depends on whether the credit agency you are applying to is ready to accept a co-signer. The co-signer has equal responsibility in paying out the loan and hence it is important to consider someone who is ready to take up that risk.
It might be the case that you are a genuine borrower who wants to repay the loan in time; however accidents like job loss, disability cannot be predicted which may affect your income and you might not be in a position to repay back the loan.
Avoid simultaneous loans
It is good if you can maintain a difference of 6 months between subsequent loans. Also, if you have any other pending loan in your name, it is not advisable to apply for a personal loan. Banks or any other financial institutions monitor this closely and may perceive it as an added financial burden on you. This helps them to ensure that the loan will be repaid in time.
Try to improve your income to debt ratio. This sends out the information that you can balance well the current debt and so the financial institutions might be ready to provide you more. You can consider starting a part-time source of income or try for a raise in your permanent job. You can also consider selling liquid assets like stocks.
Also, ensure that not more than 30 percent of your income goes towards EMI’s. The lenders often want to assess how much amount you are paying towards other loans. For example, if you have a monthly income of Rs. 60,000 the non-home EMI loans should not exceed 20000. This assures the lenders that you will have sufficient balance to pay the new loan on time.
Be cautious while deciding the loan amount
Credit agencies check your ability to repay the loan before approving your loan amount. They refer to your income statement to ensure low risks on their part. If you choose a loan amount that is very high, there is a chance that your application may get rejected. So, before applying for a loan, please ensure that you can repay it comfortably in time.
Financial institutions also like to know how you will repay the new debt. So, if you can demonstrate your repayment ability, that can increase your chance of getting the loan accepted. Higher your income compared to your expenditure, the higher is your chance of getting approval. We know that it is not possible to increase your income overnight, but you can consider decreasing your expenses. If there are certain subscriptions or membership that you do not use often, it is better to discontinue.
Avoid applying for a loan at multiple places at a time
Most financial institutions are part of a centralized system. These institutions share and process all the data. Something as small as your bill payment records is verified when you apply for a personal loan to get to know your financial status. If you apply for loans to many institutions at a time, this shows that you are desperate for a loan. This speaks badly for your financial standing and there is a chance that your application will get rejected. Also, if a financial institution rejects your application, this affects your credit score. This further reduces your chance of getting your loan accepted.
Stable income source and residence
One of the important factors which drive the acceptance of your loan is how stable you are in your current employment and residence. The lenders want to lower risks and so they check how long you are working at your present job and for how many years you are living at your present residence. Applicants working in the same job for the last 3 years and living in the same residence for more than 2 years have a higher probability of loan acceptance. Also, the type of job you have i.e. temporary/permanent or government/private also matters. This is only to perceive how stable or reliable you are in a financial aspect. So, if you have a good credit score and credit history, but just have a new job or moved to a new city, it might be good if you can wait for a year or so before applying for a loan.
Find the correct institution
Different financial institutions have different eligibility and charges. So, before sending out an application to random banks, it is advised to research and know which bank is suitable for you. In addition to the loan amount, you should also consider charges like prepayment charges, processing fee and some other charges by the bank. So, choose the option according to your affordability and which suits you best.
It is good to consider 3-4 different credit agencies before buying a loan. All lenders have different processing charge, interest rates, and other fees. So, it is advisable to consult a few companies and then arrive at a conclusion.
A good savings record helps
A good savings record shows that you are financially secure and responsible. If you can demonstrate the bank or credit agency that you are saving some amount every month, this also shows that you can manage to repay loan regularly. This gives confidence to the lender and can increase your chance of getting the loan accepted. Also, avoid overdrawing from an account as this causes you to pay fines and reflects the poor financial management on your part.
Besides money, you can also demonstrate some assets like property which you can sell if you are unable to pay.
Only Apply for the amount you need
If you are thinking from a lenders side, then you can guess why the banks are hesitant to provide a very high loan amount. So, consider carefully how much amount you really need as it will also affect yourself in the long run, in term of repayments. Also, if you do not have a great credit score and apply for a small amount, chances are your application will be accepted. However, if you apply for a high amount, this might not work as expected.
Secured and Unsecured loan
One of the factors that can affect your credit score is the ratio of secured and unsecured loans in your profile. For example, vehicle loan and home loan are secured loans. In these types of loans, the institution can forfeit if you are unable to repay. However, in case of a personal loan or the credit provided by the credit card providers, there is no security deposit. A good balance of the secured and unsecured loan is helpful to get a loan approved. Make sure you don’t have a huge unsecured loan in unpaid status when you apply for a new loan.
It is important to be honest in your applications. Please avoid any kind of canvassing and discrepancies which can lead to rejection of your application. The lenders always cross-verify every information provided by you. They may also call you or visit you for verification. If you provide genuine information, there is a high chance that your loan will be approved.
Get Accepted for Your Personal Loan
Before applying for the loan, do some research on the type of loan you need. In unsecured loans, you do not need to keep any deposits but the interest rate is higher. For secured loans, you have to keep collateral and they will take away the property/asset if you are unable to repay the loan. In this type of loan, the interest rate is lower. Choose wisely whichever suits you and also have a detailed look at the terms and conditions of the provider.