Personal Loans are one of the most popular credit forms for financial shortfalls and necessities. Compared to most other loan types, their approval times are faster, have no end-use restrictions, and require no collateral, guarantor, or security for backup. However, the unsecured nature of these loans increases the lender’s credit risk, resulting in a more stringent verification process for loan applicants.
If you plan to apply for a Personal Loan, here are a few smart ways to enhance your loan eligibility, qualify for a bigger loan amount, and get a lower interest rate.
Fulfil the Lender’s Eligibility Criteria
Lending institutions have various eligibility conditions you must check and fulfill to maximize your chances of approval. These include age, income, financial obligations, credit rating, employment, work experience, etc. The more easily you fulfill the conditions, the higher the loan amount and the lower the interest rates you can avail. So, check the lender’s eligibility conditions and ensure you fulfill them before applying for a Personal Loan. Use an eligibility calculator to know the size of the loan amount you can borrow and the applicable interest rates.
Apply for an Adequate Loan Amount
Loan companies offer ample loan amounts they evaluate based on your eligibility, credit history, and repayment capacity. However, qualifying for a bigger loan does not mean you must borrow it. Evaluate your expenses and decide on a loan amount you can easily repay.
When you apply for a Personal Loan, lenders check your repayment capacity by looking at your credit rating and other factors affecting your eligibility. If they feel you can easily repay the loan amount you borrow, they may offer a bigger loan amount at lower interest rates. However, if you have a lower repayment capacity, they will offer a smaller or big loan amount at higher interest rates. Therefore, evaluate your loan requirement and seek an adequate loan amount for the best loan deal.
Maintain a Good Credit Score
The credit score is a crucial measure to determine your creditworthiness. The higher your credit score, the higher the loan amount you can borrow and the lower your interest rate. A decent score assures the lender that you can repay your loan on time without stretching your finances. Financial difficulty makes the lender sceptical about timely repayment, causing them to offer a smaller loan and increase the interest rate. Here are some smart tips to increase your credit rating and improve your loan eligibility:
- Always stay consistent with your credit repayments.
- Minimise credit utilisation to keep your credit limit free.
- Pay off outstanding balances to reduce your DTI ratio.
- Diversify your credit portfolio with different types of credit accounts, including secured and unsecured loans, credit cards, lines of credit, etc.
- Retain old accounts to lengthen your credit history.
Maintain a Low Fixed Obligation to Income Ratio
Fixed Obligation to Income Ratio or FOIR is the percentage of your income you spend on your existing financial obligations. These include your current loan EMIs, insurance premiums, fixed investments, credit card bills, regular household expenses, etc. Your FOIR indicates the amount of disposable income you have after fulfilling all your financial commitments. Since loan providers want to ensure you repay your loan on time, they give due importance to the ratio of your income in relation to your debt obligations.
Ideally, your FOIR should be less than 30-40%. A lower FOIR means you have enough disposable income to accommodate new loan EMIs. As a result, lenders feel assured of timely repayment and are safer to lend you a bigger loan amount at lower interest rates.
Add a Co-Applicant
When you add a co-applicant to your loan application, the lender gets two borrowers answerable for the loan repayment. Therefore, they feel safer lending you a bigger loan amount and reducing your interest rate. Add a co-applicant with a decent income and high credit rating to improve your eligibility and get a better loan deal.
Mention All Your Income Sources
Lending institutions feel safer if you have a decent income with low financial obligations. They avoid lending to borrowers who stretch their finances to meet their expenses. Such borrowers have a high chance of missing EMI payments and defaulting on the loan. Therefore, to demonstrate a higher repayment capacity, mention all your income sources from different avenues, including rental income, investments, part-time jobs, freelance work, etc. Showing a high income will improve your chances of getting quick loan approval and make you eligible for a higher loan amount at lower interest rates.
Opt for a Longer Term
When you opt for a longer term, your monthly EMI amount decreases, making repayment easier. As your default risk reduces, the lender feels safer lending you a bigger loan amount and charging a lower interest rate. Opting for a longer loan term also reduces your financial burden, visiting your chances of approval. However, one drawback is that you will pay a higher interest by opting for a longer repayment tenure.
Choose Your Loan Company Carefully
Before settling for an instant loan app, research and compare various loan offers to get the best loan plan. Even when you need quick funds to cover an urgent expense, avoid applying for a loan from the first lender you come across. Numerous financial players are flooding the market these days. Do a stringent check and compare offers based on various parameters, including loan amounts, interest rates, repayment terms, processing charges, customer service, eligibility and documentation requirements, etc.
Enquire About the Prepayment Option
Most lending institutions allow borrowers to prepay the loans. Whenever you have excess funds, you want to utilise that amount towards your loan prepayment and become debt-free sooner. However, some lenders charge prepayment fees for loan repayment before the term end. Therefore, enquiring about the prepayment option is crucial, eventually saving your interest cost.
Remember these points to ensure a hassle-free and quick Personal Loan approval with a high loan amount and a low-interest rate. Choose a lender that supports a 100% loan procedure with instant approval and swift processing facilities for a stress-free and convenient loan process. Download the instant loan app from a reputable lender and begin the application process now.