A personal loan can help you overcome situations when you require funds at short notice. Many individuals use personal loans to cover the costs of vacation, medical costs, home or auto repairs expenses, wedding outlay, debt consolidation, higher education, or other expenses.
Since a personal loan does not require any asset as collateral security, the most important aspect of getting a personal loan is meeting the eligibility criteria. Lending institutions offer you the required funds without pledging your assets. Always calculate your personal loan eligibility before opting for the loan. They need to ensure that the borrower can pay back the loan timely.
Personal Loan Eligibility
– Age Limit: Applicant’s age should be between 21 and 65 years.
– Nationality: Indian
– Credit score: 750+ with good credit history
– Income: Minimum monthly income should be Rs. 20,000 (based on the resident city)
Important Tips to Boost Your Loan Eligibility
- Choose a Long Term Tenure
Personal loans with longer tenure facilitate easy repayment. It spreads your instalments in smaller amounts and reduces the EMI burden, and you can make timely repayment of the loan. It minimises the risk for the lender. Also, it reduces the impact on your FOIR, which adds to your loan eligibility. Personal loan tenure can go up to 60 months with renowned lending institutions. Using a personal loan calculator, you can calculate your monthly instalments beforehand and manage your finances wisely to repay the loan and accrued interest within the stipulated tenure.
- Maintain a Positive Credit History and Good Credit Score
A good credit score depicts your creditworthiness based on your repayment history. It is one of the primary eligibility conditions to be eligible for a personal loan. Credit bureaus record your credit behaviour – the history of all your loans and credit cards, repayments, and outstanding balances and assign credit scores based on this information. You can maintain a high credit score with a few tactics. Therefore, if you are planning to get the best personal loan, make sure you have a positive repayment history.
A good credit score will not only boost your eligibility but also help you avail of a higher loan amount at a competitive interest rate. You can boost your credit score by paying timely EMIs. A single missed EMI can hurt your credit score.
- Keep your credit utilisation ratio low
- Consider accepting new credit cards with a high limit
- Manage your credit card payments timely
- Limit your fixed-obligation-to-income ratio (FOIR)
Lenders need to evaluate your repayment capacity before approving your loan application. Therefore, they calculate your Fixed Obligation to Income Ratio (FOIR) to know the existing income you have to repay your debt. A low percentage of your income used to repay your debts increases your creditworthiness. Lenders prefer to approve a loan application with a FOIR up to 40-50%, which includes the EMI of this new loan also. Therefore, you should pay your dues and credit card bills before making a new loan application. It will keep your FOIR within the range preferred by the lending institution.
- Show Alternate Sources of Income
An alternate source of income can help to improve your personal loan eligibility. You can show your rental income from your leased property. If your spouse is working, you can increase your eligibility by applying for the loan jointly.
- Avoid Multiple Applications Altogether
Lending institutions inquire with a credit bureau to know the loan applicant’s default risk, called hard inquiries. These are recorded in the applicant’s credit report. Many hard inquiries make an individual a high-risk applicant, and lenders may reject your loan application. Therefore, multiple loan applications simultaneously can hurt your credit score.
A credit-hungry attitude is one of the reasons for loan rejection. Therefore, you should compare various loan offers before applying for a personal loan and avoid any activity that can reduce your loan eligibility. You can use a personal loan calculator to check your loan eligibility online. You can choose a lender offering a personal loan with minimum personal loan eligibility criteria to increase your chances of loan application approval. Before looking for a personal loan with another lender, you should try your existing lender.
Thus, in this digital world, getting a personal loan is a convenient financing option to meet all your planned or unplanned requirements. You need to ensure that you meet the loan eligibility criteria before making the application for a loan.