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Important checkpoints to lenders consider when checking personal loan

A personal loan of any proceeds, i.e. 5 lakh personal loan or 10 lakh personal loan, are one of the most preferred loans for those with immediate monetary requirements. Personal loans require less paperwork, come with no collateral or security, are processed faster, and have no restriction on proceed end usage. However, owing to the unsecured nature of the personal loan, lenders ensure certain caution when processing the application for a personal loan. Apart from meeting the contingency linked costs, you can also refinance your higher interest credit or consider consolidating your multiple loans with a lower personal loan interest rate. You can also fill a simple form available online on the lender’s website to avail any instant cash accessibility according to your need. Different lenders have different terms & conditions, which can affect your repayment amount. Thus, before applying for a personal loan, you should conduct research on various options that are available online for knowing the best deal.

Below are 4 important parameters factored in by lenders while evaluating your eligibility for a personal loan:

Credit score

It is one of the crucial filters that lenders consider when assessing your application for a personal loan. Those with a credit score equaling 750 and above are creditworthy, holding higher chances of getting their personal loan approved. Some lenders also provide personal loans at a preferential interest rate to those with a higher credit score. As those with a bad credit history or credit score of less than 750 are usually those with no credit discipline. Owing to their irresponsible behavior towards credit, lenders may turn down their applications or even charge a higher personal loan interest rate to compensate for the higher credit default risk.

As the requirement for a personal loan is usually uncertain in nature and can hit anytime, conducting a regular credit score check-up just before personal loan application submission may not be useful. Instead, you should inculcate the habit of reviewing your credit report timely. Doing so would endow you with the needed time to take up corrective steps to improve your credit score. Adopting healthy credit practices like keeping the Credit Utilization Ratio (CUR) within 30 percent, repaying credit card bills and EMIs by the due date, monitoring the co-signed as well as guaranteed loans etc., would help you improve as well as maintain your credit score.

Reviewing your credit score periodically would also help you to timely identify any clerical mistake or issue in data, which you can timely report to the concerned lender and credit bureau for correction. Having a rectified credit report automatically can enhance your credit score, which indirectly would improve your personal loan eligibility.

Repayment capacity of EMI

Like any other loan, lenders too factor in your repayment capacity when evaluating your application for a personal loan. Generally, lenders require their applicants’ monthly repayment obligation, including their new EMIs and existing EMIs, to be within 50 to 60 percent of their monthly income. Those exceeding this limit usually have fewer chances of getting their application for a personal loan approved. As longer loan tenures lead to reduced EMIs, those exceeding the 50 to 60 percent limit should select longer tenures to enhance their capacity to repay, which also lowers their monthly EMIs.

Employment profile

Lenders factor in personal loan applicants’ employment profiles at the time of approving their application for a personal loan. Also, some of the lenders also consider setting the personal loan rates based upon the applicant’s employment profile. Among the salaried, those working with reputed companies or those working in public sectors are highly preferred. In the category of non-salaried, experts like doctors and chartered accountants have higher chances of getting their applications for personal loans approved.

Existing relationship with banks and NBFCs

There are many lenders who provide an offer for pre-approved personal loans at preferential interest rates to their existing customers. These relationships can be in the form of recurring, fixed, current or savings accounts. Thus, those considering availing of personal loans should begin their search by directly approaching the bank or NBFC with whom they share an existing relationship. Personal loan rates of interest provided by such lenders can act as a benchmark for you to check and compare the personal loan interest rates offered by other lenders.

Listed below are a few important tips to improve your eligibility for a personal loan

While there are different factors that play a crucial role in deciding your personal loan eligibility, you can still increase your eligibility by adopting some of the measures listed below:

∙       Make your credit card and loan EMI repayments by the due date and in full. Being financially disciplined with all your obligations improves your credit score and improves your chances of getting instant loan approvals.

∙        Reduce your existing bill repayment to pull down your outstanding credit burden: You can simply save a higher proportion of your monthly income, which you can use for servicing your new debts. When the lenders are aware that you have adequate surplus income in hand after fulfilling your mandatory monthly expenses, they may approve your loan without giving it much thought.

∙       Maintain a CUR of within 30 percent: Maintaining a CUR of under 30 percent can improve your credit score, which helps boost your eligibility for a personal loan. Your credit score represents your creditworthiness, which allows the lenders to know about your financial behaviour towards credit.

Bottom line

To avail 5 lakh personal loan or 10 lakh personal loan, you as an applicant should be aware of the parameters factored in by lenders for approving your loan. Lenders’ risk appetite, as well as their credit risk assessment process, can hugely vary, which may determine not just your eligibility for a personal loan but also your rate of interest. Thus, you should make sure to enquire regularly with various lenders regarding your personal loan eligibility. One of the best ways to do this is to visit online financial markets to know about all the personal loan offers available to you based upon your credit score, income, employer’s profile etc.

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