Personal loan belongs to the category of unsecured loans, so it does not need an asset to be offered as collateral for the lender to give you the loan. However, to make sure that you do not face a drawback while you apply for a personal loan. Let us discuss some of the tips you must know how to get approved for a personal loan. You must note that the personal rate of interest varies from bank to bank. The bank may provide you as low as 10 percent interest rate personal loan or it might go up to 37 percent rate of interest-based on the policy of that particular bank for their rate of interest and processing charges.
Meeting the Credit Score Criteria
Across most of the banks in the world, the minimum age limit of applying for a personal loan is 21 to 60 years of age. Some banks also provide individuals of 18 years of age to apply for a personal loan.
An excellent Credit Score
An excellent credit score is given to any person based on their debt to credit ratio which is calculated using the previous loan repayment figures as well as credit payments. More regular are your credit payments bill then you will have a good chance to get your loan approved. If in case, you have a low credit score then you must wait for a few months till you complete all bill payments and penalties on time to improve your credit score. It is the most important tip for how to get approved for a personal loan
Don’t Send in Multiple Applications
The another most important tip how to get approved for a personal loan is that if you think that you are applying to more banks then there are higher chances of getting the loan, it is the exact opposite that banks don’t prefer the applicants who apply to different banks since it dilutes the applicant selecting that particular bank.
Do Not Apply for Personal Loan While You Are Paying Off Another Loan
You must ensure that you have not taken another loan in at least the previous six months. Banks reject lending money to such applicants, assuming that they cannot take the burden of more than two loans at a time.
Look for Problems on Your Credit Report and Fix Them
Your credit score may have some issues that can prevent you from getting a personal loan. So, credit report issues such as payments reported incorrectly or closed account showing up as they are active are dangerous as they may reduce your credit report. If you observe something is not right, then you must raise a dispute with the credit bureau.
Consider Your Debt or FOIR to Income Ratio
A most necessary factor that banks use to decide on your application for a personal loan is your fixed obligation to income ratio or also known as income ratio. As the name suggests, this ratio means how much debt you have against your annual income. A lower ratio means that you have:
- High chance of approval
- Better repaying strength
- Increased disposable income
- Fewer liabilities
Your debts must not exceed 40 percent of your income. If your ratio is high, then you must ensure to pay off some debts before you apply for a new one. Also, ensure that you do not apply for more money than what you require.
Improve and Build Your Credit History
Building an excellent credit score is vital because personal loan eligibility varies upon how good your credit history is. Banks allow you for a personal loan if you are not a defaulter by checking your credit history. If your credit history shows a string of credit card defaults, then it reduces your CIBIL or credit score and surely acts against you.
If you have a poor credit score, then you must take measures to improve it to get your loan approval at favorable loan terms.
If you don’t have sufficient experience of credit score, then the banks may not have any idea about how disciplined you are with your repayments. That might result in a rejection of your loan application. So, before you apply for a personal loan make sure that you apply for a credit card first.
However, ensure that you use your credit card correctly to maintain timely payments and financial discipline.
If you miss paying your credit card bills, then it creates a bad credit history. So, when you have a credit card for your convenience and hassle-free experience, it can also be a double-edged sword if you don’t pay your payments or installments on time. If you think that the amount to be paid is too big then make sure to convert it into monthly installments before it shows as a missed payment. Discover about instant personal loan here.