Today, personal loans are one of the most easily accessible financing options. Multiple lending institutions extend these advances to eligible candidates against simple criteria and minimal documentation. Given that the loans have a wide range of usage because of the no end-use restrictions, people avail a personal loan to fulfil their financing needs. They enable the borrowers to fulfil their requirements without creating heavy financial burden. Today, applying for a personal loan is as simple as downloading a personal loan app and applying for a loan online.
Personal loans have many attractive features. One such feature is the unsecured nature of this loan that makes them very popular among borrowers of all classes. But because personal loans are unsecured, lenders classify them as a high-risk instrument. That’s why they have strict eligibility criteria in place to ensure repayment of the loan amount along with the interest. In case, you don’t meet their eligibility criteria, your loan application may get rejected!
If you faced rejection for your personal loan application, then that might not be the dead end for you. Since there are several reasons why a loan application can get rejected and there are ways to work around these reasons.
Below are the various ways that can help improve your chances of personal loan approval.
Tips to improve your chances of personal loan approval
- Improve your Credit Score
The credit score defines your creditworthiness. It is the reflection of your borrowing history and repayment attitude. For those who have a clean borrowing history and regularly paid off their EMIs, they have a very good credit score. But missing out on your payments, having multiple open loan accounts, misinformation or fraudulent usage of your data, multiple loan enquiries and several such factors can affect your credit score.
You can improve your credit score by consolidating your loans, paying off your existing debts, being regular with your EMIs and not applying with multiple lenders at once. You should also inform the credit bureau if you see a discrepancy in your profile.
- Meet the eligibility requirements adequately
Another common reason of loan rejection is not meeting the eligibility requirements. The eligibility requirements for a personal loan are simple, but they may vary from lender to lender. The most common eligibility criteria are – high credit score, stable monthly income, low debt-to-income ratio and more. You can check the eligibility requirements on popular loan apps.
In case you don’t meet the eligibility requirements, you can consider adding a co-applicant to your application. The amount of loan applied for and the loan tenure you are opting for can also result in rejection. So, make sure to check your eligibility before applying for the loan.
- Apply with a Co-Borrower
In case your borrowing profile does not meet the eligibility criteria, you can seek to apply for the loan with a co-borrower. Make sure your co-borrower has a high credit score and stable source of income. A co-borrower is equally responsible for paying off the debt. This reduces the risk associated with your loan account for the lender.
A co-applicant can be your parents, spouse or earning children. Make sure they have a stable income and a good credit history. You can also negotiate on the interest rates with your lender.
- Keep Your Financial Ratios in Check
You can also work to rectify your personal financial ratios, which can include your credit utilisation ratio and your fixed obligation to income ratio. Your debt-to-income ratio and your income-expense ratio determine your loan eligibility and repayment capability.
Also, make sure to mention all your income sources apart from your salary while applying for a loan. If there are other sources of income like income through monthly rent of a property you leased, freelancing gigs, interest on investments, side business, car on rent or something else. This will improve your financial ratios.
- Avail a Balanced Mix of Loans
When availing loans, it is a smart choice to take them in a balanced mix of secured and unsecured funding options. This can help distribute the weight of your repayment liability equivalently on your income while keeping you in a low-risk borrowing profile.
You can also opt for a consolidation of your loans and continue with just one loan account. This will help improve your credit score and make it easy for you to get a new loan in case of any emergency.
- Borrow within Your Financial Capacity
Several loan apps provide financing up to Rs.1.5 Lakh for easy fulfilment of your small-ticket funding needs. Traditional lending institutes can offer a much larger amount of personal loan. While having more finances will ease your life, it does not always mean that you must borrow the maximum amount you are eligible for.
You can use financial tools like personal loan EMI calculator to assess how much you should borrow as per your financial standing, and choose a loan amount accordingly. Several reputed loan apps provide the accessibility to these financial tools, simplifying borrowing assessment for individuals.
Getting a personal loan is much easier these days, but you have to meet certain eligibility criteria to be able to avail a loan. In case, your loan application gets rejected, you can still improve your chances of getting a loan. Also, before applying for the loan, make sure to check the requirements, compare interest rates, read the fine print to discover hidden charges and more.
Download a personal loan app and get complete online assistance while applying for a personal loan. It’s perfect for small-ticket loans that can be repaid with easy repayments.