Most people don’t apply for a personal loan because they fear loan applications getting rejected by the lenders. They fail to learn the primary causes of rejection and generalize that it’s hard to get a personal loan. However, it is effortless to get a personal loan today, contrary to this popular opinion. Modern financial institutions have a customer-centric approach and offer the utmost convenience to customers looking for personal loans. Today, one can easily apply for a personal loan and get it approved on the same day. Traditionally, it took weeks to get loan approval. Learning about your lender’s personal loan eligibility criteria plays a crucial role in getting loan approval. Let’s dig deeper into a personal loan and its eligibility requirements.
What is a Personal Loan?
A personal loan can be explained as a financial tool used to borrow money from different financial institutions and other lenders. It is an unsecured loan that doesn’t require submitting collateral. Borrowers who don’t have an asset to pledge as collateral can also borrow money through a personal loan. One of the best advantages of a personal loan is the flexibility to use the borrowed amount. There is no hard and fast rule to direct your spending. It can be used at your personal discretion. However, one needs to meet the minimum eligibility requirements set by the lending party for personal loan approval.
What are Personal Loan Eligibility Criteria?
Personal loan eligibility criteria is a set of rules/requirements listed by different loan providers that loan applicants have to meet for getting approval on their application. It is done to deter borrowers with insufficient documents and poor credit history to apply for a loan. Lending parties quickly reduce their risk using these eligibility criteria for personal loans. In most cases, these requirements are framed based on the lender’s historical borrowers’ data. Different eligibility criteria are listed for lending money to ideal loan applicants. Most lenders have similar eligibility criteria. However, it can vary on their policies.
3 Eligibility Criteria Secrets for Personal Loans
Here are some practical tips to improve your eligibility for obtaining personal loans.
1. Improve Your Credit Score Before Applying
The borrower’s credit score is one of the most important and decisive factors in the personal loan approval process. A credit score can be explained as a quantitative estimate of the borrower’s creditworthiness in the market based on historical repayment records. It can vary in the range of 300 to 900. You must maintain a credit score of over 700 to get quick approval for personal loans. A higher credit score establishes trustworthiness in the eyes of the lender. It will fasten the loan disbursal process and help you avail of better terms for the loan. Since the risk of lending money to a high credit score individual is lower, the lender has no problem offering better terms. Before applying for a loan, make sure to conduct a soft credit enquire to learn about your exact credit score. Repaying credit card bills and other EMIs timely can positively influence your credit score.
2. Maintain a Stable Employment History
For salaried employees, most lenders check for the reputation of their current employer and tenure of employment. Therefore, it is crucial to maintain a stable employment history. If you fail to show stable employment history, the lender will be unsure about your repayment capacity. A borrower’s income is the primary determinant of their repayment capacity. If you have a higher income, your ability to repay the loan timely will increase. However, it is not the only factor taken into consideration for evaluating repayment capacity. The steadiness of your income is also factored in before approving the loan application. Therefore, keep a stable employment history for getting quick approval.
3. Clear Existing Debts Before A New Application
All reputed lenders will conduct a hard-line credit enquiry of the borrower’s credit profile. It will show all existing loans along with the repayment history and credit score. It is essential to clear existing debts before filing a new loan application as it impacts the repayment capacity. When you already have a loan, your income will be divided among existing and new EMIs. This can hamper your repayment capacity greatly as the debt-to-income ratio will be higher. Try to keep a debt-to-income ratio of less than 35%.
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