PersonalLoan is an unsecured loan and is generally taken by individuals for purposes like debt consolidation, meeting personal obligations, weddings, and functions in the family or purchase of assets for which specific loans are not available. Rates of interest applicable on Axis Bank Personal Loans or other personal loans are generally higher to rate for secured loans. A few steps to increase one’s chances of being approved for Personal Loans have been discussed below. Almost all banks including Bank of Baroda, Federal Bank, and other private and public banks offer Personal Loans.
Readiness and preparedness for taking Loan
Personal Loans are generally issued without any collateral security. However, the financial institution verifies and confirmsthe identity and repayment capacity of the person before approving the Loan. So, one should ensure that they meet the eligibility criteria before applying for an unsecured loan.
Personal Loans are generally sanctioned to people in the age band of 21 to 60 years.The applicant should be ready with the documents required such as income certificates and tax returns, which are pre-requisites for getting the Personal Loan sanctioned.
You should also acquire knowledge about the rate of interest, processing fees, pre-payment clauses, foreclosure charges, and monthly instalments before applying for the Loan.
Gaining complete knowledge about all possible aspects and then Applying for a Personal Loanafter complete preparation boosts chances of easy sanction.
- Maintain a high credit score
Credit Score measures the creditworthiness of an individual. A high Credit Score is a reflection of one’s repaying capability. Hence, with a good score, you can expect a quick approval of a Personal Loan. A poor credit score on the other hand may result in rejection of your loan application.
Paying one’s debts regularly, maintaining a low credit utilization ratio and opting for a variety of credit mix are a few easy steps which help improve your credit score. A score of 750 or more is considered as idealfor availing fast credit.
- Keep a check on how a credit score is changing
Credit Score keeps on changing on the basis of one’s performance on defined yardsticks. It is thus important to keep a tap on movements therein. There may be mistakes in data which would require immediate corrective steps. Moreover, the individual would be in a position to work on the parameters to achieve desired scores by exercising a constant watch.
- Refrain from making multiple loan applications
An individual should refrain from applying for various loans with various lenders. This generally leads to a belief that the person is desperate for credit and may not be able to pay off multiple debts availed from different lenders. It should be noted that there is a hard enquiry on one’sCredit Report every time a Personal Loan is applied for and this may lead to impacting one’s Credit Score adversely which in turn may impact one’s ability to get loan approvals. It is also important to note that every application rejection further reduces the chances of loan approvals in the future.
- Sufficient time gap to be maintained between two loan applications
While Applying for a Personal Loan, one should ensure that the credit history does not have a mention of any other loan application in the period of the last 6 months. Applying for loans at a smaller time gap, may make the lender doubt whether the person would be able to repay his debts. If a personal loan is not of immediate requirement, a gap of at least 6 months should be maintained at the time of raising a new requirement.
- Check amount being expended on paying off other loan obligations
A lender would generally access a person’s loan repaying capability by checking his financial obligations. At the time of application, one must ensure not more than 30% of his income is used for paying off non Home Loan related credit. This would enhance the chances of getting Personal Loan approved promptly.
- Maintain a healthy Debt-Income ratio
Debt to Income ratio is a ratio of a person’s gross income and the amount of debts he is liable to. This is a tool to check the disposable income of a person after paying the liabilities. The lower the ratio, the more favorable it is for loan approval. A ratio of less than 40% is considered good at the time of aloan sanction.
- A mix of secured and unsecured loans in the portfolio
A secured loan is one in which the individual seeking Loan has to provide collateral to the lender. For example- the house in case of a Home Loan, vehicle in case of an Auto Loan and ornaments in case of Gold Loan are pledged with the lender. If there is a secured loan extended to any person, getting an unsecured or Personal Loan becomes much easier because the lender is re-assured on the basis of the asset held. Hence, a mix of secured and unsecured loans in one’s portfolio increases the chances of being approved for a Personal Loan.
- Stability of income and job
A Personal Loan is extended to an intended borrower without any collateral, hence job and income stability are essential parameters. One must ensure they are in the same job for at least six months before the loan application. People who change jobs frequently run a high chance of having their loan application rejected.
- Loan amount should be reasonable
The loan amount should be reasonable and such that the loan seeker would be able to repay the same with ease. The loan amount should be decided depending on one’s income, expenses, other loan commitments, and such other factors which may influence one’s capacity to pay off the Loan and interest thereon. If the amount of Loan is decent, the chances of getting approval are high. Unreasonable demands which defy logic are generally turned down by financial institutions.
Following these points, you will significantly enhance your chances for Personal Loan approval.