When looking for a Personal Loan, it is key to choose the best-suited offer available to you. Following are some tips to improve the chances of availing personal loans at lower interest rates and favourable terms.
Build and maintain your credit score
Lenders usually prefer to lend personal loans to individuals with a strong credit history, which is reflected in a good credit score. A strong credit score implies higher credit discipline and thus, reduce the credit risk for the lenders. This leads the banks and NBFCs to offer them personal loans at the best interest rates. While some lenders may approve personal loan applications made by those having lower score, lenders usually charge higher interest rates to price in the higher credit risk.
Having a high credit score also improves the chances of getting pre-approved personal loan offers. While some lenders disburse pre-approved personal loans within a few minutes of loan application, others usually offer same day disbursal. Lenders usually offer such pre-approved loans to their existing customers having high credit scores and good credit profile. Thus, having higher credit scores can increase your capability to raise quick finance for dealing with unforeseen financial emergencies or shortfalls.
Observing certain healthy credit practices like fetching your credit reports at periodic intervals, repaying your credit card bill or EMIs by their due dates and ensuring the timely repayment of loans guaranteed or co-signed by you can steadily build your credit score.
Fetching your credit reports at periodic intervals would allow you to take corrective measures for improving your credit score. It would also allow you to identify any inaccurate information or fraudulent credit activities included in your credit report(s). Report such errors or fraudulent activities to the concerned credit bureaus at the earliest. A rectified credit report may increase your credit score and thereby, improve your chances of personal loan approval.
Keep your EMIs within 50-60% of your monthly income
Lenders usually prefer to approve personal loan applicants whose monthly repayment obligations, including the proposed EMI of their personal loans, are within 50-60% of their monthly income. Loan applicants exceeding this limit have lower chances of approval. Note that the lenders also factor in the credit card outstanding of their loan applicants while evaluating their monthly repayment obligations. Personal loan applicants exceeding the 50-60% limit can opt for longer tenures or avail a smaller loan amount to reduce their EMIs.
Avoid loan/credit card applications with multiple lenders within a short span
Whenever a lender receives any loan or credit card application, it fetches the credit report of the applicant to assess his/her creditworthiness. The credit bureaus consider such lender-initiated credit report requests as hard inquiries. The bureaus then reduce the credit scores of the credit card or loan applicants by a few points. Thus, making direct loan applications with multiple lenders within a short span can significantly reduce your credit score and thereby, reduce your chances of securing loan approval.
Compare personal loan offers on marketplaces like Paisabazaar
The chances of securing personal loan approval from various lenders and the pricing of their interest rates can vary widely depending on the credit risk policies. For example, some lenders may reject personal loan applicants having credit score of 690 while others may approve such applicants by charging higher interest rates. Thus, always ensure to compare the personal loan offers of as many lenders as possible before making the final loan application. The most convenient way to do this is to check online financial marketplaces like Paisabazaar to compare the best personal loan offers, including the pre-approved ones, from multiple lenders based on your credit profile. This would save you from the hassle of making separate loan applications with each lender and thereby, reduce the risk of credit score depletion caused by multiple loan applications.
Ensure a stable employment history
Many banks and NBFCs consider frequent job changes as a sign of unstable career and thus, consider applicants with such occupation history to carry higher credit risk. This in turn adversely impacts their chances of personal loan approval or may cost them higher interest rates.
Many lenders also set an eligibility criterion of at least 6-12 months of continuous work experience with their present employers. Thus, individuals planning to avail personal loan in the near future should try to avoid job switches, to the extent possible, to reduce the risk of personal loan rejection.
(An edited version of this article was printed in Financial Express)