Planning to apply for a personal loan? Personal loans are viable funding options when it comes to taking care of urgent funding requirements and also for covering diverse requirements including home renovation, higher education, weddings, paying off other debts, medical expenditure, vacations and so on.
Here are some key tips that will help you get your personal loan approved faster-
Tip 1- Always Check Your Credit Score Prior to Applying
This rule cannot be stressed enough! In case you apply for a personal loan without knowing what your credit score is, you anyway have the risk of being rejected in case your score is low. The first thing you should do is obtain your credit report by paying the nominal fee to CIBIL so that you are not surprised by any sudden rejections or a low score.
Many people often think that just because they pay their bills in a timely manner, they are bound to have a good score but the reality is that the CIBIL score depends on several other factors including your credit utilization ratio and so on. Your score can come down for varied reasons including being a guarantor for another loan, defaulting on EMI payments or even in case of any reporting mistakes for the credit report. Getting the credit report before applying will help you get a vital update and also rectify any errors which have cropped up in the report.
Tip 2- Ensure that your credit score is 750 or above
In case you have a credit score of 750 or above, you have the best chance of getting your personal loan approved. Personal loans are unsecured loans (which do not require any collateral) and hence your credit score is highly essential for lenders to assess your creditworthiness and eligibility. In case your score is lower than 750, identify the weak zones in your credit profile and work towards improving the same.
Remember that every loan rejection will lead to your credit score dropping even further, making it more difficult for you to rebuilt your credit profile to a respectable position.
Tip 3- Stop making multiple loan applications
It may sound tempting to apply to multiple banks and NBFCs simultaneously in order to maximize your chances of getting approval for your personal loan from at least one organization. However, this is not a good step since lenders will get the perception that you are hungry for getting credit. Also, too many loan applications minus approvals will lead to your credit score coming down. Make sure you apply only to a lender where you have a good chance of being approved.
Tip 4- Apply only when you have not taken a personal loan over the last 6 months
In case lenders learn that you have taken a similar loan in the last 6 months or so, they may have doubts about your ability to repay your personal loan. There should be a gap of at least 6 months between two loan applications. In case you have taken an earlier loan for purposes like home renovation/vacations which are non-essential, you should wait for some time prior to applying for a personal loan again.
Tip 5- Possess a mix of unsecured and secured loans
A secured loan is where the customer gives collateral to the lender. For example, the property being purchased through a home loan is the collateral or the car being bought through an auto loan is the collateral for the financial institution. Personal loans are unsecured since there is no collateral. The credit score improves when you have a mix of both unsecured and secured loans which are being repaid in a timely manner and this reassures prospective lenders to a large extent.
Tip 6- Make sure that a maximum of 30% of your monthly income is allocated for EMI payments
Lenders will judge whether you will have ample money left from existing debt obligations to cover new loan repayments. Make sure that EMIs from all other loans do not cross 30% of your monthly income. This, however, does not comprise of your home loan EMI. For example, if you earn Rs.60,000 every month, the total outflow for non-home loan EMIs should be a maximum of Rs.20,000 each month.
Also, you should make sure that you have been in a steady job at the same company for at least 6 months prior to applying. Lenders wish to see a stable employment history and stable income source in order to judge whether you can make loan repayments in a timely manner. In case you have been changing your jobs frequently, your loan application may be rejected.