InvestorQ : I am planning to apply for a personal loan. Can you share any tips that could make my loan process a little easier?
vani Patil made post

I am planning to apply for a personal loan. Can you share any tips that could make my loan process a little easier?

priya Shah answered.
3 years ago

A personal loan is a kind of unsecured loan that is sanctioned by banks or non-banking financial companies (NBFCs). As it is unsecured, personal loans do not carry the requirement of a collateral.

Thus, these loans are given to applicants solely on their credit history and their ability to repay the loan from their incomes.

Here are few tips that can help you get a personal loan approved in the first instance:

1. Meet the eligibility criteria:

Banks or non-banking financial companies (NBFCs) are not going to process you personal loan application if you do not meet their eligibility criteria. There have been numerous instances when applicants have applied for loans without even checking the eligibility criteria. Do not do that!

As a rule, check the eligibility criteria of every lender you’re willing to apply to, and apply only if you meet every single criterion. Generally, the minimum age for applying for a loan is 21 years, and the maximum is 60 years. Ensure that you meet their eligibility criteria in every aspect, such as documents, income certificates, tax returns, credit reports, etc.

2. Have a good credit score:

Credit score is a score, between 300 and 900, that is assigned to you based on the your payments towards your credit cards or loans. It is a way to identify your credit worthiness and helps banks or NBFCs decide whether they should lend to you or not. Although it is subjective, but a score above 800 is considered to be good or safe to lend to.

However, if you don’t have a good credit score, it is better that you don’t send your application straight away, but take measures to improve your credit score and then apply for a loan.

3. No successive loans

Try to maintain a gap of at least six months between your successive loans. Also, do not apply for a personal loan when you have another loan in your name. This is because banks/NBFCs will see it as an added burden on your finances, and most probably reject your application. The reason is not as altruistic as it might seem. Financial institutions see how feasible it is for you to repay their loan and this is done to mitigate the institution’s financial risks of ending up with a bad or non-performing loan.

4. Decide your loan amount reasonably

Lenders check your repayment ability before deciding on whether to approve your loan application or not. Financial institutions refer to your current income to gauge your repayment ability. If you ask for an amount that is outrageously high with respect to your income level, chances are that your loan application will be rejected by the borrowers. Thus, do your own homework and figure out if you can repay the amount comfortably in the decided tenure, and only then ask for that amount.

5. Don’t send multiple loan applications

This is as true for loans as it is for credit cards. Most applicants, in a rush to get a loan immediately, apply to numerous banks or NBFCs. They think that applying to multiple banks or NBFCs increases their chances of loan approval. But the reality is exactly opposite because lenders view you as being credit hungry.

So, apply to only one financial institution at a time and up on getting a definite decision from the lender, decide whether to apply elsewhere or not.

In order to get a loan sanctioned easily, you need to be able to prove your repayment ability and have a good credit score to prove your impressive repayment track record. Hence, apply to lenders patiently, and look for a deal with a low-interest rate and with terms and conditions that you are most comfortable with.