Personal Loan: A high credit score is one of the most crucial factors for personal loan approval. This number indicates your creditworthiness.
Unsecured personal loans are a popular option for borrowers who require immediate funding without the need for collateral. Due to the unsecured nature of these loans, lenders employ stringent eligibility requirements to mitigate their risk. Let’s examine some tried-and-true methods for improving your eligibility for personal loans.
Keeping a decent credit rating
A high credit score is one of the most crucial factors for personal loan approval. This score reflects your creditworthiness and repayment history, thus influencing the lender’s decision. In general, lenders require a credit score of at least 750 to approve a loan, though scores of 700 and above may also be considered. To maintain a good credit score, timely repayment of all credit card balances and EMIs is required, as well as the avoidance of excessive harsh inquiries.
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Ratio of debt to revenue management
Lenders also evaluate the debt-to-income ratio, which is calculated by dividing your monthly debt payments by your gross monthly income. This ratio should be kept low to indicate improved financial health. A lesser ratio may indicate that you are not overleveraged and can effectively manage your existing debt.
The FOIR (Fixed Obligation to Income Ratio) is a metric used by lenders to gauge your ability to repay a loan. It is the percentage of your income that has already been allocated to existing EMI payments and other recurring expenses. To improve loan eligibility, maintain a FOIR below 40% by ensuring that your monthly expenses do not exceed your income.
Maintaining employment security
Lenders also consider your employment stability when determining your personal loan eligibility. Stable employment can indicate a reliable source of income, enhancing your ability to repay loans. Maintaining steady employment is essential because it influences your eligibility for a personal loan.
Demonstrating additional sources of revenue
Providing evidence of additional sources of income, such as commissions or investments, can increase your eligibility. It assures lenders of your ability to repay, increasing your likelihood of approval.
Maintaining a positive financial rapport with lenders
When applying for personal loans, it can be advantageous to have a stable financial relationship with your lender. This is especially true for immediate personal loans, where lenders offer credit to low-risk borrowers with positive credit histories. In such cases, lenders can pre-approve your loan, allowing you to obtain funds quickly.
