A personal loan can be a boon for many. It can be availed without much hassle. It has a simple application process, and it is approved within hours. Naturally, it tends to be a preferred option for people who need urgent funds as they can arrange money without maxing out their credit cards. After all, personal loans can be used for any purpose, be it medical, wedding, travel, higher education, etc. However, before applying for a personal loan, you must know that everyone does not get approval of a personal loan. There are eligibility criteria that you must fulfil to get approval.
Worry not, if you are planning to get a personal loan soon, here are a few tips to improve its approval chances.
- Pay attention to your credit score
Your credit score speaks about your ability to repay the loan on time. Having a high credit score is of utmost importance to get personal loan approval. You must have a credit score of 750 and above. If you have a lower credit score, you could get approval, but with a high credit score and low loan amount. Lenders heavily rely on credit score as a personal loan is unsecured. You must pay your credit card bills on time and check your credit report periodically to identify and rectify discrepancies.
- Opt for a joint personal loan
If you are unable to meet the personal loan eligibility criteria or are unsure about the loan approval, opt for a joint personal loan. Adding a co-borrower helps enhance the eligibility as lenders consider clubbed income and credit score to determine your loan approval.
- Disclose all your income
Low-income levels can be a reason for personal loan rejection. Experts opine that you must disclose all your income in the application form. It could be rental income, returns on investments, side business profits or freelancing.
- Pick a suitable tenure
If you want to increase the chances of personal loan approval, opt for a longer tenure. Longer tenure means your EMI would be smaller, and you would have enough time to repay the amount. It reduces the risk of default and can help you get approval faster. However, longer tenure can increase your interest. To avoid additional expenses, you can prepay the loan.
- Keep a low debt to income ratio
Lenders also closely review your debt to income ratio while processing your application. It is the ratio between your income and current debts. If you have a high debt-to-income ratio, you could face issues in repaying the loan. You must have a ratio lower or equal to 40%. If it is higher than 40%, it is best to clear off your existing debts before applying.
While applying for a personal loan, meet all the eligibility criteria. You can use an eligibility calculator to ensure that you meet them. Moreover, avoid applying for a personal loan with multiple lenders simultaneously at the same time as it can adversely hamper your credit score and thus approval chances.