Emergencies can come in many ways, and if you aren’t prepared, they can bring huge financial repercussions. From medical crises to accidents or unexpected repairs, there are many unexpected expenses to cater for.
A personal loan can be your savior in such a financial crisis. With its fast approval and disbursement, these loans are the go-to choice when you need an emergency loan. Whether it’s tackling expenses or consolidating debt, if the timing is key, then a personal loan could be your best bet!
However, you should ensure you meet the eligibility criteria set by the lender. If not, the loan approval may be delayed or, in worst cases, denied.
If your lender offers you a lower loan amount than you need, these 6 tips can help improve your eligibility and increase your chances of getting the loan.
1. Build a good credit score
Some lenders look at your credit score when approving a loan, which makes your score a key aspect. A credit score indicates how responsible you have been regarding bill repayment. A score of 750 or higher shows the lenders you can be trusted to repay your debts on time and minimizes risks associated with lending, leading to better loan terms. However, those with poor scores suggest they have substandard repayment records. They are categorized as high-risk borrowers. This could lead to high-interest rates or approval being rejected entirely due to their perceived high-risk nature.
2. Reduce your outstanding bills
Reducing your current debt before taking out a personal loan is important since having high outstanding debt can raise your debt-to-income ratio. Managing another loan may be difficult if you already have many existing loans and credit cards.
If you have a high DTI ratio, then it means your income isn’t enough to pay all your debts. Your DTI ratio should be 15% before you apply for the loan. Note that your total monthly payments should not be more than 50% of your income.
3. Don’t apply for many loans at the same time
Applying for a personal loan triggers a credit inquiry from the lender to evaluate your risk of default. Such inquiries are always recorded in your credit report, known as hard inquiries. If you are a person that sends out many loan applications, it means you largely depend on the loans. Thus, a lender might view you as a high-risk applicant, which can make your loan application to be rejected.
4. Reduce the DTI ratio
DTI ratio is how much of your income you use goes to pay the debts. Therefore, it is an important factor that can improve your loan eligibility. It can determine how much you can borrow and could increase the likelihood of getting a higher amount. Reducing this percentage before applying for a personal loan is very crucial.
To find your DTI ratio, divide your total debts by the monthly income you earn. For example, if you’re paying a monthly car loan EMI of Rs. 13,000 out of your monthly income of Rs. 25,000, your debt-to-income ratio is (13,000)/25,000 = 0.52 = 52%. This means your debts are more than your income.
Try to increase your income or repay your debts. Normally, a good DTI ratio ranges from 20%-35%.
5. Show all your sources of income
NBFCs like lendingplate require a clear repayment plan to increase the likelihood of being approved for a loan. Having a higher income is also beneficial. You can include sources of income, like performance incentives or passive income from investments. Having multiple streams of income can be the perfect signal that you are able to make timely loan payments and honor your financial obligations. Showing this variety in earning potential is an excellent way to increase your creditworthiness.
6. Add a co-applicant
Another thing to try when you truly want to improve your eligibility for a personal loan is to add a co-applicant to your loan application. Having another person added to your application will reduce the risk to the lender. This is because when the borrower fails to repay the amount, the co-applicant will pay it. This is helpful for those who have low income, low credit scores or don’t have repayment capacity.
With a co-applicant, you are more likely to get a loan at a higher amount or with a short tenure since the income of the co-applicant is factored in when assessing the repayment capacity for the loan, potentially reducing interest costs. But remember that any delay or repayment default on the co-applied loan could hurt the credit score of the co-borrowers.
7. Get a lender with simpler eligibility criteria
Try looking for a lender with lenient eligibility criteria. Mostly, lenders will require you to meet the following:
– You should be an Indian citizen.
– You should be 21 years of age.
– You should receive a regular monthly income of at least Rs 20,000.
– Have a bank account.
Once you meet these criteria, you can complete the application process by submitting your basic documents.
Follow these helpful tips and tricks to enhance your chances of approval. From building a good credit score, to lowering your DTI ratio, there are many strategies that can help you improve eligibility for a personal loan. However, choosing the right lender is the key to having a stress-free and seamless experience, lending institutions have ability to provide instant cash loan within hours which can help you to get instant money in emergency situations.