Personal loans are helpful to access immediate funds in an emergency. Today, you have various banks and other organizations offering personal loans. However, every organization has its set of eligibility norms that applicants have to satisfy to be eligible for a personal loan. These personal loan eligibility norms include the following.
- Income – The applicant should have a stable and regular source of income.
- Repayment record – An impeccable repayment record is essential for anyone to apply for a personal loan.
Documents that banks verify:
Besides verifying the KYC norms, banks check for income eligibility and repayment track record.
- Income eligibility – Documents like salary slips, salary certificates, Form 16, IT returns, and bank statements enable the bank to verify the applicant’s income.
- Repayment record – Banks call for the applicant’s credit report from credit rating agencies like CIBIL and Experian to gauge their repayment record.
How do I increase my eligibility?
Here are five convenient tips that can help improve your personal loan eligibility quotient.
Increase your income
Banks look at your net income or the take-home pay when calculating your repayment capacity. The thumb rule is that your take-home salary should be at least 50% of your gross income after accounting for all deductions and liabilities, including the proposed personal loan instalment. There are two ways to enhance your income levels.
- You can include alternate sources of income, like rental income, interest income, etc. You can also include your spouse’s income to increase your income levels. However, you should have documents to prove the additional income.
- Another way of increasing your disposable income is to reduce your liabilities. For example, you can consider closing some of your existing loans and thus, increase your take-home pay.
Increasing your income levels enhances the disposable income available to cater to your personal loan instalment.
Improve your credit score
Your credit rating/score plays a vital role in your personal loan approval process. Banks generally look for CIBIL scores of 750 and above as an indication of a good credit rating. Unfortunately, many people feel that improving the CIBIL rating is not in their hands. However, it is not so because the CIBIL rating reflects your credit behavior.
Before improving your credit rating, it is imperative to know your credit score. You can get your CIBIL report from your bank’s website. Many banks like HDFC Bank and ICICI bank offer their customers the facility to call for their CIBIL report through their internet banking module. Alternatively, you can apply for your CIBIL report from the official CIBIL website by paying a nominal fee.
On receiving your report, you should check it for its accuracy. If there are discrepancies, you can take up the matter with CIBIL and get the matter rectified. It can result in improving your credit scores and make you eligible for a personal loan.
Pay your loan EMIs and credit card bills on time.
Your repayment behavior is a crucial aspect of your credit report. Banks report the status of every loan to CIBIL to enable them to update the credit profiles. Hence, it becomes essential to pay your loan instalments on time. A default for even one month can pull down your credit score substantially.
Similarly, you should ensure to pay your credit card bills on time. You should try to pay your entire credit bill every month. Even if you do not pay off the entire bill, you should pay the minimum amount due listed on the bill. It helps in ensuring against default and adverse reporting with CIBIL.
If you consistently pay your loan instalments and credit card bills on time, it can improve your credit rating considerably and enhance your personal loan eligibility.
Go for an extended repayment tenure.
Your personal loan EMI depends on the following factors, the loan amount, interest rate, and repayment tenure. Generally, banks offer a maximum repayment tenure of 60 months. Therefore, it is better to opt for the maximum tenure of 60 months to ensure that your monthly liability reduces considerably. Automatically, it increases your net take-home pay. Alternatively, it makes you eligible for a higher personal loan.
One agrees that choosing an extended tenure could result in paying more interest over the loan tenure. However, the reduced EMI can help ease your liquidity position and improve your personal loan eligibility.
Refrain from applying for multiple loans simultaneously.
One of the critical factors that affect your credit rating is your credit-seeking behavior. Whenever you apply for any financial assistance from banks and other organizations, it entails a hard enquiry from these institutions with CIBIL. Every such enquiry results in docking of a few points from your credit score. Besides, it gives the impression that you are a credit-hungry person. Therefore, it can have a negative impact on your credit profile.
Your CIBIL report can provide much more information to the lender institution than you can imagine. The lenders get an idea about your repayment record. It also provides information about your credit-seeking behavior. The higher the frequency of your loan applications, the riskier your profile is. Hence, the chances of rejection are high. Therefore, refraining from applying for loans frequently can help enhance your personal loan eligibility.
A Bonus Tip – Look out for the lender who offers the lowest interest rates.
Almost all banks and financial institutions offer online personal loan applications. You can check out your personal loan eligibility and ensure that you satisfy all the bank’s norms before applying for the personal loan. It reduces the chances of rejection and thus, increases your personal loan eligibility.
The public sector banks like SBI offer the lowest interest rates, whereas the private sector banks like ICICI Bank and HDFC Bank offer higher rates. The other private organizations that offer instant personal loans through smartphone apps offer the highest interest rates. A higher rate entails you paying a higher EMI. Hence, it makes sense to look out for the institutions that offer the lowest interest rates on personal loans.
The tips discussed above should help you enhance your personal loan eligibility and reduce the rejection rate considerably.