Personal Loans are an extremely popular type of loan that people avail. They are unsecured loans, meaning you do not have to provide any collateral to avail them. This is what makes them so popular. Moreover, lenders don’t usually monitor what the borrowed money is being used for, which further adds to their popularity.
Personal Loans can be used for a variety of reasons, including home renovation/decoration, going on international vacations, conducting weddings or other family functions, funding higher education, and even medical emergencies. You can even use Personal Loans to consolidate debt, or make down payments for cars, and so on.
Banks and NBFCs like offer unsecured Personal Loans at affordable interest rates. Be sure to compare the Personal Loan interest rates offered before availing the loan. Additionally, these loans come with several features like a flexi loan facility, quick approval and disbursal, online account management, flexible repayment tenors, minimum documentation, etc., that make them easily accessible and easy to repay.
However, there are several factors to consider before you can be eligible for a Personal Loan. Your income, credit score, age, financial statements, etc., all play a major role in your Personal Loan application being accepted. Here are a few tips you can follow to improve your Personal Loan eligibility:
- Plan a Monthly Budget: You need to have a budget and know exactly how much you earn and spend per month. That will tell you whether you can afford to pay off a loan or not. Moreover, while calculating your salary, you need to do away with any allowances and prerequisites that you may have. This is because they will not be considered while calculating your Personal Loan eligibility. For example, if your post tax salary is Rs.2 lakh including all the allowances and prerequisites, and is Rs.1.4 lakh without them, then your salary will be calculated as Rs.1.4 lakh. However, if all the prerequisites and allowances are added into the base salary and your post tax salary is calculated as Rs.1.9 lakh, then your Personal Loan eligibility increases, along with the interest rate.
- Have a stable job: Having a stable job means that you have a stable income. This adds significantly to your Personal Loan eligibility. That isn’t to say that a self-employed individual cannot avail a Personal Loan; they just have to show proof of having a steady income for at least two years. However, this factor varies from lender to lender, so be sure to check your particular lender’s eligibility criteria.
- Maintain Good Credit: Your credit score plays an extremely important role in your Personal Loan eligibility. Checking your credit report regularly, making timely EMI payments, repaying existing loans within the tenor, reducing credit card usage, etc., can all help you increase your credit score, and your Personal Loan eligibility in turn. Remember, the lower your credit score, the higher your Personal Loan interest rate.
- Choose your Lender Carefully: Different lenders have different methods of checking Personal Loan eligibility. For example, to avail Personal Loans from most large private banks, you need to have an excellent credit score and a good credit history. On the other hand, NBFCs may be more flexible in terms of eligibility for their Personal Loans. Additionally, if you apply for your Personal Loan from a bank or NBFC that you already have a relation with (in terms of having an account at the bank, or having borrowed from the NBFC or bank before), you are more likely to be approved for the loan.
- Have Back up Funds: Ideally while creating a budget, you need to put a part of your income into savings before using the rest. These savings can then either be put into fixed deposits or used for other investments like equity. This will ensure that you have another source of finance in case you find yourself short of funds during an emergency, or if you need to repay the loan and you have no money.
Following these tips is guaranteed to improve your Personal Loan eligibility. Additionally, while Personal Loans are an attractive choice if you need some quick cash, availing such a loan needs to be done only after careful consideration. Ensure that you really need the money, and that you can repay it within the tenor before applying.