If you meet the personal loan eligibility criteria, the instant loan can be disbursed in minutes. Hence, these loans can be very helpful in case of unforeseen events or unforeseen expenses.
Nevertheless, it is essential to remember five factors of the eligibility criteria so that your loan application is not refused. Meeting these criteria could also ensure that you benefit from the online personal loan on relatively favorable terms.
1. Check your debt ratio
Be sure to pay off all your existing debts, including credit card bills, before applying for an instant personal loan. In other words, you need to lower the debt-to-income ratio because lenders may be reluctant to lend if there are multiple financial obligations that affect your ability to repay. This ratio can be calculated by dividing the total debt by your income.
It is imperative to ensure that this value remains below 50%, as a higher percentage denotes a higher risk of default.
Generally, the total EMI you are currently paying should not exceed 30 or 40 percent of monthly income.
If not, prepay some of your debt before applying for a personal loan.
2. Improve and maintain a healthy credit rating
A good credit rating is crucial, as personal loans are unsecured, so lenders will use it to assess your repayment capacity or creditworthiness.
Generally, a credit score of 725 and above indicates that you are a responsible borrower, while 800 and above is excellent, indicating that a person is a safe borrower. A score below 725 would indicate that you don’t have a clear repayment history. As a result, you will be classified as a high-risk borrower and your loan application could be quickly rejected. Although some lenders can still advance you a personal loan online, note that you will be charged a much higher interest rate to partially offset the risk of default. Most lenders rely on CIBIL scores which vary between 300 and 900 points. Make sure you have a good credit score before opting for a personal loan. You can do this by making sure to periodically check credit scores.
3. Include all sources of income
Lenders check your monthly income to understand repayment capacity. Given this, it is important to mention all sources of monthly income, not just salary income. This can be part-time income, rental income or any other source. Unlike home, auto, or gold loans, which are backed or guaranteed by certain collateral, personal loans are unsecured. Therefore, lenders need to be reassured about your ability to make timely repayments.
4. Avoid applying for multiple loans simultaneously
Applying for multiple loans during the same period will set off red flags among lenders about your financial situation.
Whenever you apply for a loan, including personal loans, the lender will use extensive inquiries with the credit bureaus to estimate the risk of default. Multiple loan applications will result in many difficult inquiries from lenders about your credit report. Hence, it will lower your credit score since you will be considered a credit-hungry customer. The lenders will then reject the loan application. Regularly checking your credit score will help you avoid such pitfalls.
5. Choose a lender with suitable eligibility criteria
Don’t randomly apply to multiple lenders hoping that one of them will approve your loan. Remember that different personal lenders require you to meet different types of eligibility criteria. It is best to check your personal loan eligibility criteria with each lender beforehand and identify the one that suits you best.
Essentially, understanding the requirements before applying for a loan maximizes your chances of approval. Plus, you might get a more favorable interest rate and easier terms if you meet the eligibility requirements.