Financial emergencies are inevitable and you must be prepared at all times for tackling them. There are banks and financial institutions that can help you overcome these situations with certain financial tools, like a personal loan.
A personal loan is credit that lenders offer borrowers, depending on various factors. They consider your income, occupation, repayment capabilities and credit history. With a personal loan, you can meet an array of financial requirements. However, please note there is bound to be an eligibility criteria for approving your personal loan application.
This article helps you get a detailed understanding of what factors you should consider to increase your chances of approval for personal loans.
5 Important Factors to Increase Your Chances of Getting the personal loan Approved
Here are the five important factors that should be considered for getting immediate personal loans. These factors will help you increase the chances of getting quick approval. They include:
1. Good Credit Score
A credit score is a unified measure of determining your ability to repay the loans you take. The higher your credit score is, the better your chances of getting approval. If you have taken loans in the past, and have repaid the EMIs on time every month, then you ought to have a great credit score.
It is expected that you have a credit score of 750 or more for easy approval. If it is lower than that, you may have missed out on a few things in the past, which is showing up in this measure.
If you have a lower score, it is better to wait a while and improve it before taking the loan. It is because if you go with a low credit score, you might be charged a hefty interest rate on your personal loan application. And, in most cases, your application may be turned down. You can always improve your credit score by paying off all current debts, paying credit card bills on time, and not maxing them out.
2. Avoid Multiple Loan Applications
Do not try and apply for immediate personal loans at various lenders, with the hope of getting a great offer from a couple of them. Every time you apply, the lender will run a credit check, which will be reflected in the report.
Your credit score will further decrease if you do not get approved for these loans. Thus, it will be even more difficult for you to get other loans in the future.
It is always advised to have a gap of at least six months between two loan applications. If you don’t do the same, the lender will doubt your repayment abilities. If there is a non-urgent reason for availing the personal loan, you should wait a few months before you can apply again. Meanwhile, you can rectify the reasons you were rejected and improve your chances of getting the approval.
3. Calculate Your Debt-to-Income Ratio
It is advisable that you should not spend more than 40% of your income in EMIs. For instance, if you are earning Rs. 30,000 every month, then you shouldn’t be spending more than Rs. 12,000 on EMIs.
To calculate your debt-to-income ratio, you must divide your monthly debt by the gross income per month. Your debt-to-income ratio should be as low as possible. Hence, it means you shouldn’t borrow money unless it is necessary. Lenders may also run a check on this ratio and approve the loan only if it is viable.
4. Age is a Crucial Factor
Age is yet another key factor that will determine your chances of getting a personal loan approved. It gives an insight into your earning potential and financial stability. Most of these loans are available to individuals aged between 21 and 65 years of age. Some institutions will not approve loans to borrowers who will be aged above 65 upon the maturity of their loan.
5. Choice of Repayment Tenure
If you choose a shorter repayment tenure, it shows that you are financially stable and can repay the loan within the specified time. There’s a better chance of getting approved for a personal loan at a low-interest rate when you choose smaller repayment tenure. Conversely, a longer repayment period will reduce the EMIs but accrue more in terms of interest over time. Use a personal loan calculator to ensure the monthly EMIs don’t affect your finances and standards of living.
These are the five important factors that can increase your chances of getting personal loan approval. All you have to do is take optimal care of your credit history by making timely repayments of all credit card bills and loans. Following that, you should gain optimal experience in your work field and have a stable income to be eligible for a personal loan.