If you meet the personal loan eligibility criteria, the instant loan could be disbursed within minutes. Therefore, such loans can be more useful in case of unforeseen events or unforeseen expenses.
Nevertheless, it is essential to remember five factors of the eligibility criteria so that your loan application is not refused. Compliance with these criteria could also guarantee you an online personal loan at relatively advantageous conditions.
1. Check your debt-to-income ratio
Make sure you pay off all of your existing debt, including credit card bills, before you apply for an instant personal loan. In other words, you need to reduce the debt to income ratio because lenders may be reluctant to lend if there are multiple financial obligations that are affecting your ability to repay. This ratio can be calculated by dividing the total debt by your income.
It is imperative to ensure that this value remains below 50% because a higher percentage denotes a greater risk of default.
As a rule of thumb, the total IMEs you are currently paying should not exceed 30 or 40% of monthly income.
If not, prepay some of your debt before applying for a personal loan.
2. Improve and maintain a healthy credit rating
A healthy credit rating is crucial because personal loans are unsecured and will be used by lenders to assess your repayment capacity or creditworthiness.
Typically, a credit score of 725 and above indicates that you are a responsible borrower, while a credit rating of 800 and above is excellent, indicating that a person is a safe borrower. A score below 725 would indicate that you do not have a correct repayment history. As a result, you will be classified as a high risk borrower and your loan application could be quickly rejected. While some lenders can still give you a personal loan online, note that you will have to pay a much higher interest rate to partially offset the risk of default. Most lenders rely on CIBIL scores of between 300 and 900 points. Make sure you have a good credit rating before choosing a personal loan. You can do this by making it a point to periodically check credit scores.
3. Include all sources of income
Lenders check your monthly income to understand repayment capacity. In view of this, it is important to mention all sources of monthly income, not just salary income. It can be part-time income, rental income or any other source. Unlike home, auto, or gold loans, which are backed or secured by certain guarantees, personal loans are unsecured. Therefore, lenders should be reassured about your ability to make timely repayments.
4. Avoid applying for several loans at the same time
If you apply for multiple loans during the same period, your financial situation will be reported to lenders.
Whenever you apply for a loan, including personal loans, the lender will use extensive inquiries with the credit bureaus to estimate the risk of default. Multiple loan applications will result in many inquiries from lenders on your credit report. Hence, it will lower your credit score since you will be seen as a credit hungry customer. The lenders will then reject the loan application. Regularly checking your credit score will help you avoid such pitfalls.
5. Choose a lender with appropriate eligibility criteria
Don’t randomly apply to multiple lenders hoping that one of them will approve your loan. Keep in mind that different personal lenders require you to meet different types of eligibility criteria. It’s best to check your personal loan eligibility criteria with each lender beforehand and identify the one that’s right for you.
In essence, understanding the requirements before applying for a loan maximizes your chances of getting approved. Plus, you might be offered a cheaper interest rate and easier terms if you meet the eligibility standards.