Sometimes you may need extra funds for various planned and unplanned expenses, be it a medical emergency, a much-needed trip, a wedding, home renovation, car repair, or debt consolidation. Here, a personal loan can be a lifeline as it not only gives you access to funds immediately but also some much-needed financial flexibility.
With most lenders offering competitive interest rates and flexible repayment tenure and having convenient application processes and quick loan processing times, personal loans make financial planning easier by helping you meet your monetary requirements in a hassle-free way.
However, since personal loans are unsecured and need no collateral, lenders set eligibility criteria to ensure they are lending to creditworthy borrowers capable of repaying the loan. Thus, it is important to meet the personal loan eligibility criteria set by lenders, failure to meet can lead to your loan application being delayed or declined. While the criteria can vary between lenders, here are some expert suggestions that can help you improve your loan eligibility and overall chances of qualifying for a personal loan.
- Maintain a high credit score
A high credit score shows lenders that you have a track record of managing your finances responsibly. Lenders typically prefer borrowers with high credit scores, as it significantly reduces their risk of non-payment or default. Therefore, proactively monitoring and managing your credit score is crucial for improving your eligibility for personal loans. This can include practices such as paying bills on time, keeping balances low on credit cards, and staying out of debt. Besides improving your chances of being approved, a good credit score can also help you qualify for a lower personal loan interest rate.
- Increase your earnings
Maximising your income is a smart way to improve your personal loan eligibility. The higher your income, the higher is your personal loan eligibility. That’s because it presents a credible picture that you are capable of meeting the loan repayment schedule. Moreover, keep documents like income tax returns or bank statements handy as lenders may ask for these documents for income verification purposes before approving a loan.
- Maintain a low debt-to-income ratio
Maintaining a low debt-to-income ratio is key to improving your eligibility for an instant personal loan. This ratio, which you can calculate by dividing your total monthly debt obligations by your gross monthly income, informs lenders what percentage of your income you are likely allocating toward existing debts. A high ratio raises lenders’ concern about default risks and may affect their willingness to offer you favourable loan terms.
If you have a high debt-to-income ratio and want to apply for personal loan, it is advisable to increase your earnings first. Alternatively, if you have outstanding debts, such as credit card bills and car loan payments, prioritising these bills and strategically reducing them will help to improve your debt-to-income ratio.
Besides the tips mentioned above, there are other ways to improve your eligibility for a personal loan. These include avoiding applying for multiple loans at the same time, choosing a lender with simple eligibility criteria, applying with a co-applicant, and maintaining a good relationship with your financial institution.
While improving your personal loan eligibility requires careful planning and preparation, it can be worth it if you need access to extra funds quickly at a favourable interest rate and tenure.