Financial freedom is something that we cherish. However, there are times in life when we need quick cash support for numerous reasons, such as paying off unforeseen bills, covering medical costs, financing the dream wedding, pursuing higher education, renovating a home, etc. In such times, we may consider borrowing some money from friends or relatives. Borrowing from them, however, can sometimes cause strain in the relationship. This is where a personal loan comes in handy. 

A personal loan is one of the most popular types of loan among individuals. According to a study, approximately 77% of working professionals in India depend on personal loans to cover their expenses after COVID-19. Lenders have set eligibility requirements for personal loans that borrowers must meet to increase the chance of being approved for one. In this comprehensive guide, we will learn everything there is to know about personal loan eligibility and its nuances, as well as how to improve your chances of getting approved for one.  

Understanding the Significance of Loan Approval

When it comes to financial matters, loan approval can be an important aspect of our lives for fulfilling our objectives or getting financial stability. Be it handling the emergency or just managing your finances better, an approved loan can be the difference between meeting your needs and facing financial constraints. 

The fact that the loan was approved also indicates that our financial situation is stable enough for lenders to feel comfortable lending us money, boosting our confidence and opening up new opportunities. This validation not only provides us with the funds we require to meet our financial objectives but also increases our creditworthiness, making it easier to obtain credit and approval for mortgages, car loans, etc. in the future. 

The Impact of Loan Rejection on Credit Score and Financial Planning 

Loan rejection doesn’t only mean the denial of the credit by the lenders, but it also impacts your CIBIL score significantly. And if you are thinking that the CIBIL score is just a numeric number, you are wrong. 

The CIBIL score report includes some remarks and comments, as well as your credit history, including loan rejections. Every time you apply for a loan, a lender performs a thorough credit check, which is recorded in your CIBIL report. A loan rejection from one lender makes the other lender more vigilant and scrutinizes your loan application more carefully, making it very difficult for you to avail of credit. And even if you do get the approval, you might face higher interest rates or non-favourable loan terms. 

A personal loan rejection is not only detrimental to your CIBIL score but can also cause disruptions in your financial planning. When you do not get the loan you were counting on, it can either leave you scrambling for alternative solutions that are not very favourable and cost-effective or you may be forced to postpone your financial goals. 

Understanding Personal Loan Eligibility Criteria

The eligibility for a personal loan is typically determined by several important factors. Lenders assess the applicant’s current income, credit score, age, employment stability, and existing debts. The monthly income is crucial since it indicates the repayment capacity; the credit score emphasizes your past credit behaviour. Existing debts reduce the disposable income available for loan repayment, whereas job stability improves your credibility. Lenders typically consider your age when evaluating your repayment term – the younger the applicant, the longer the repayment term. Lenders assess the risk of lending by evaluating these factors before deciding on the maximum loan amount and interest rate. 

Here is a list of the basic eligibility requirements for applying for a personal loan. 

For Salaried Professionals: 

• Minimum age: 21 years 
• Minimum Monthly Income: Rs.15,000 (should be reflected in the bank statements) 
• Minimum Credit Score: While it differs amongst lenders, a credit score of 650 or higher is considered an ideal credit score. 
• Job stability: minimum 1 year

For Self-Employed Individuals

• Minimum age: 21 years 
• Minimum Credit Score: While it differs amongst lenders, a credit score of 650 or higher is considered an ideal credit score. 
• Business Stability: minimum 1 year

While eligibility criteria may vary by lender, these are some of the most common criteria for loan approval. 

Tips for Improving Your Credit Score

The CIBIL score plays a significant role when applying for a personal loan. It is one of the important factors for lenders to determine your financial health. The higher the credit score, the easier the personal loan approval. A higher credit score may also lead you to obtain a personal loan with more favourable loan terms and a lower interest rate. If you want to improve your credit score, let us look at a few quick and easy things you can do. 

Making Timely Payments 

Missing your EMIs or delaying your credit card payments are big no-no if you want to improve your credit score. Maintain discipline when it comes to credit repayments, and set regular reminders if necessary. A late EMI payment not only penalizes you but also lowers your credit score. 

Reducing Credit Utilization Ratio

Try not to take too much credit at once. The number of loans you apply for over a given period should be kept to a minimum. If you take out multiple loans at the same time, you may find yourself in an unforgiving credit cycle with insufficient funds, resulting in missed EMIs and a further decline in your credit score. 

Monitoring Credit Score Regularly 

Keep a close eye on your CIBIL score report to look for any inconsistencies. At times, CIBIL may make some mistakes while updating your information. Sometimes you may have repaid the loan but it has not yet been updated in your report, which can hurt your credit score. If you notice any discrepancies in your report, get in touch with CIBIL and get them rectified immediately. 

Avoiding Multiple Loan Applications

Every time you apply for a loan, the lender will conduct a hard inquiry on your credit report, which could lower your credit score by 3-5 points. While this may appear to have little impact on your CIBIL score, multiple hard inquiries will significantly lower it. To avoid this, conduct extensive research for lenders whose eligibility criteria match your profile. You can also seek professional assistance from experts such as Kreditbazar, who can help you obtain a personal loan with their expertise without you having to toil and moil around town.

Strengthening Your Financial Profile

Another important factor that influences personal loan approval is the strength of your financial profile. Let us look at some strategies that can help you improve your financial health. 

Increase Your Income

Income is one of the key factors that determine your repayment capacity. This may sound obvious, but a higher income indicates a greater ability to repay the loan. If it is within your means, think about increasing your income through getting a pay raise, making money off of your hobbies, freelancing, or taking on a side gig. 

Sustain Consistent Employment

While employment gaps and frequent job shifts may cause the lender to have concerns, a consistent employment record demonstrates the borrower’s financial reliability. Maintaining a steady job history expedites loan approval, and as we discussed above, a minimum of one year of stable employment is deemed satisfactory. 

Clearing Existing Debts 

If you have more than one debt or outstanding credit card bill, make it your top priority to pay them off first. You can pay off the credit with a smaller amount if it is feasible for you, or you can consolidate all high-interest-rate debts into one by obtaining a personal loan at a lower interest rate. This not only reduces your interest burden but also makes repayment easier. 

Choosing the Right Lender

One of the most important steps in the process of applying for a personal loan is choosing the right lender. Given the abundance of options available from various banks and NBFCs, you must shop around to find the best lender. Every lender has different loan conditions, interest rates, and other eligibility requirements. Let us talk about some selection strategies for the best lender for you.  

Comparing Interest Rates

Interest rate is one of the most important factors when choosing a lender for a personal loan. The interest rate is directly proportional to the cost of borrowing, and even a smaller difference in the rate can cause a significant difference over the tenure of the loan. The interest rates amongst NBFCs and banks vary based on numerous factors like lending policies, loan amount, loan tenure, and credit score. For example, if your credit score is high, some banks may offer a lower interest rate with a longer repayment period, while others may have their standard rate of interest. To get the best deal, it is important to compare interest rates before applying for a personal loan with any financial institution. 

Understanding Lender Requirements

There are specific requirements set by each lender to be eligible for a personal loan. Thus, it is prudent to review the eligibility requirements before applying for a personal loan. Common requirements include a minimum monthly income and a credit score. For example, while some only require a minimum of Rs. 15,000 in monthly income, others have a minimum requirement of Rs. 25,000. A 650 CIBIL score is acceptable for some lenders, and a 750 score or higher for others. Choose a lender whose eligibility criteria match your profile, resulting in a high chance of loan approval. 

Opting for Pre-Approved Loan Offers 

Another way to avail a personal loan is through a pre-approved loan offer. A pre-approved loan has two main advantages: it expedites the approval process and may result in better loan terms. Utilize DSAs such as Kreditbazar to receive loan offers that have been pre-approved by top NBFCs. Kreditbazar is India’s most trusted DSA that partners with multiple industry-leading NBFCs to provide a wide range of services—all through a very streamlined digital platform.

Prepare a Strong Loan Application

Once you’ve chosen your lender, it’s time to prepare a strong application. This includes gathering your documents and providing complete and accurate information. 

Gathering Required Documents

When applying for a personal loan, you will have to submit several documents to the lender. This includes: 

• PAN Card 
• Aadhaar Card 
• Income Proof – Form 16, ITR or Salary slips 
• Bank Statements 
• Address Proofs – Rent agreement or Utility bills. 

Please note that the lender may ask for additional documents based on their guidelines and your profile. 

Providing Accurate Information

While providing your details for a personal loan, it is very essential to provide complete and accurate information. Any mistake or discrepancies can lead to rejection or delay. Double-check all the spelling and other details before submitting it to avoid the consequences. 

Adding a Co-Applicant

If you are worried about your loan approval, consider adding a co-applicant with a stronger financial profile. Not only will this raise your chances of loan approval, but it will also raise the likelihood that you will receive a better interest rate, a larger loan amount, or both.

Dealing with Rejection and Reapplying

Sadly, if for any reason your loan is being denied, now know why and take the required action to increase your chances of getting approved for a loan the next time. Loan rejections are commonly due to insufficient income, a low credit score, an unstable job, and other factors. Review your rejection and try improving your financial profile before reapplying. 

Take advantage of professionals who can assist you with financial consultation and a thorough review of your profile, allowing you to strengthen your profile and secure the loan. 

Common Mistakes to Avoid

To improve your chances of having your loan approved, stay away from these typical mistakes. 

• Applying Without Proper Research: Take your time to do thorough research before making any decision. 
• Ignoring Fine Prints: Never avoid reading the terms and conditions of the loan before accepting it. 
• Over-borrowing: Relatively speaking, too much is true. You could run into financial difficulties if you borrow more money than you need. 

Conclusion

The bottom line is that improving your chances of your personal loan approval requires a perfect blend of strategic planning, careful research, and financial discipline. Remember, it is very important to maintain a strong CIBIL score, choose the right lender by comparing interest rates and eligibility criteria, and prepare an accurate loan application. 

Taking proactive steps to strengthen your profile will not only improve your approval chances but will also improve your overall financial stability. Keeping an eye on your credit score regularly will not only help you keep your financial profile strong but will also make a big difference in your future financial journey. 

If you still have doubts or ever find yourself in a dilemma, do not hesitate to consult a financial expert. As India’s most trusted DSA, Kreditbazar partners with leading NBFCs to offer a wide range of financial services. Receive pre-approved loan offers that are customized to your financial profile with ease thanks to our streamlined digital platform. You can obtain the best loan terms without any hassle by using Kreditbazar, which can also help you save time and avoid mistakes. Apply with confidence, knowing you have the help of experts who understand your requirements.