According to a recent financial report, the number of personal loan accounts stood at 23.59 million as of December 2019, clocking a YoY growth rate of 48.1%. These growth figures typically balanced the deceleration witnessed in the rest of the credit market.
Small-ticket and low interest personal loans further epitomise how financial institutions have been playing a critical role in transposing consumer perception from seeking conservative, savings-heavy economies to credit-leveraging ones.
Personal loans act as the most convenient device to fulfil unforeseen financial obligations. They also serve as a reliable, sizable monetary assistance for a wide spectrum of expenses, ranging from debt consolidation to house renovation and medical emergencies. Nevertheless, when planning to apply for this credit facility, individuals might want to keep in mind a few factors to improve their chances of personal loan approval.
Ways to enhance eligibility for a personal loan
Look for ways to improve credit score
An applicant’s credit score is a vital eligibility criterion for lenders. Since it represents an applicant’s credibility quantifiably, a high credit score eases assessing a loan applicant and the risk they carry as borrowers. The minimum ideal credit score for availing a personal loan is 750.
Individuals with a score higher than this threshold have considerable chances of availing a lower interest personal loan. Consumers with a lower score shall, on the other hand, consider ways to improve their credit score.
Maintain a gap between two loan applications
It is critical to maintain an interlude of at least a few months between two loan applications if the purpose of borrowing is not an emergency. It is because each application results in an enquiry on one’s credit report. Multiple such hard enquiries can hurt the credit score, which does not make it ideal to make simultaneous loan applications.
As a matter of fact, financial experts suggest at least a 6 months’ gap between two loan applications to enhance chances of availing an online personal loan.
Ensure a low debt-to-income ratio
It is also essential for individuals to ensure that they possess a low debt-to-income or fixed obligation to income ratio (FOIR) when applying for a personal loan. It is a direct representation of an individual’s affordability. Thus, financial institutions put considerable weight on this factor when assessing a loan application.
A FOIR in the range of 30% – 50% is ideal to enhance personal loan eligibility. Individuals might maintain an even lower ratio to improve their negotiability for a low-interest personal loan.
Go for a longer loan tenor
One of the simplest ways in which an individual can enhance their personal loan eligibility is by opting for a longer loan tenor. It translates into lower EMI, which lenders look at favourably as low instalment amount reduces the risk of default. Thus, individuals should examine their disposable income and choose a tenor that sits right with that.
Furthermore, to plan their personal loan EMI payment better, individuals can utilise a loan calculator and check which loan tenor would provide the most befitting EMI amount. During the application assessment, a lender will consider these factors to determine an applicant’s eligibility.
Choose a low loan amount
Lastly, individuals can also opt for a low loan amount to improve their personal loan eligibility. However, they should consider the amount that they are eligible for in the first place. Subsequently, they should factor in other considerations and opt for a loan amount that can improve their chances of approval for a personal loan.
Reputed financial companies like Bajaj Finserv also provide pre-approved offers on loans to ensure expedited and hassle-free availability. These offers apply to a range of unsecured credit facilities such as personal loans, business loans and credit cards. Customers can provide their name and phone number to check their pre-approved offer.
In conclusion, individuals need to ensure that their credit history is clean and default-free. Their disposable income should also be suitable for repayment and that their credibility is reflected accurately in their credit score to avail a low-interest personal loan. It is advisable to also fulfil all eligibility criteria before applying for a hassle-free approval.