How to Enhance Your Personal Loan Eligibility

Banks and NBFCs determine personal loan eligibility primarily on the basis of their applicants’ income, credit score, occupation profile, employer’s profile and EMI affordability. While those seeking to avail personal loans applicant can do very little about their income, job or employer profiles, there are fronts where they can work on to improve their personal loan eligibility.

Maintain credit score of 700 & above

Individuals having credit scores of 700 and above are usually considered as more financially disciplined and thus, carry lower credit risk for the lenders. This increases their chances of personal loan approval. To attract such loan applicants, many lenders have also started offering personal loans at lower interest rates. While several lenders approve personal loans to applicants having lower credit scores, lenders usually charge higher interest rates to make up for their higher credit risk. Thus, having a high credit score has become crucial for availing personal loans.

Building or improving credit scores can take time while the requirement for a personal loan can arise any time. Thus, the right approach is to fetch your credit report at regular intervals, make your EMI or credit card repayments by their due dates and ensure timely repayment of loans guaranteed or co-signed by you.

Fetching your credit report at periodic intervals would allow you to take corrective steps for improving your credit score. It would also allow you to identify inaccurate information or clerical errors, if any, in your credit report, wrongly pulling your credit score down. You can either fetch your credit report from the credit bureaus directly or access free credit reports with their monthly updates from online financial marketplaces.

Keep your EMIs within 55% of your monthly income

Banks and NBFCs usually prefer lending to personal loan applicants whose total loan monthly repayment obligations, including the EMI of the proposed personal loan, are within 50-55% of their monthly income. Those exceeding this threshold have lower chances of personal loan approval. Thus, prospective applicants should use online personal EMI calculators to see if their total repayment obligations fall within the aforementioned limit and then, select their loan amount and loan tenure. Additionally, they should also factor in their insurance premiums, mandatory monthly expenses and monthly contributions to their unavoidable financial goals while selecting their loan tenure and optimal EMI.

Avoid loan/credit card applications with multiple lenders within a short span

Whenever a lender receives a loan or credit card application from an individual, the lender would fetch his credit reports to assess their creditworthiness. Credit bureaus consider the credit report requests made by the lenders as hard inquiries and reduce the credit scores of their loan/credit card applicants by a few points. Hence, making direct personal loans applications or enquiries with multiple lenders within a short span can significantly reduce your credit score and thereby, reduce your chances of personal loan approval.

Instead of making direct personal loan applications or enquiries with multiple lenders, visit online financial marketplaces to compare the personal loan interest rates and other features offered by various lenders based on your credit profile. While these online financial marketplaces would also fetch your credit report while offering these options, credit report requests made by these bureaus are regarded as soft inquiries and thereby, do not impact credit scores.

Avoid frequent job changes

Many lenders consider frequent job changes as a sign of career instability. Thus, applicants having frequent job changes in their near past are considered to carry higher credit risk for the lenders and thus, have lower chances of personal loan approval.
Additionally, many lenders have set a personal loan eligibility criterion of spending at least six months to a year with one’s current employer. Thus, individuals planning to apply for a personal loan in the near future should avoid job switches to boost their chances of personal loans approval.

The author is Chief Business Officer (Unsecured Loans), Paisabazaar. Views are personal.