Securing personal loan approval holds significant importance in achieving one’s financial goals, as it can serve as a valuable resource for funding major life events, consolidating debt, or addressing unexpected expenses. The impact of a successful loan approval extends beyond immediate financial needs, influencing an individual’s ability to enhance their credit score and build a solid financial foundation.
However, the journey towards loan approval is not without its challenges. Common hurdles faced by individuals include a lack of a robust credit history, insufficient income verification, and high debt-to-income ratios. Additionally, stringent lending criteria and fluctuating interest rates can further complicate the approval process. Overcoming these obstacles requires careful financial planning, timely repayment strategies, and a proactive approach to address potential red flags in one’s credit report.
5 Tips to Elevate Your Financial Profile
Below are the 5 tips to boost your chances of getting approval on a personal loan.
- Maintain a High Credit Score
It is important to build a high credit score when seeking approval for personal loans. These loans are unsecured, meaning there’s no collateral involved, and lenders evaluate your ability to repay based on your credit history. Your credit history reflects how well you’ve managed repayments for loans and credit cards. Timely payments contribute to a high credit score, which is the key factor influencing personal loan approvals.
A credit score surpassing 750 points is deemed high, signalling responsible financial behaviour. More importantly, a high credit score empowers you to negotiate favourable interest rates for your loan, making it an essential asset in securing financial support. Therefore, consistently paying your dues on time not only enhances your creditworthiness but also opens doors to more favourable lending terms.
- Improve CIBIL Score
If your CIBIL or credit score doesn’t align with your goals, there’s no cause for alarm. There are actionable steps you can take to enhance your CIBIL score, ultimately boosting your eligibility for personal loans. One effective strategy involves trimming unnecessary expenses and creating room in your budget to prioritise debt repayment. Temporarily refraining from acquiring new debts is another prudent move, as it prevents further strain on your financial standing.
Managing your credit responsibly is crucial. By keeping credit utilisation in check and settling outstanding credit card dues in full, you actively contribute to improving your CIBIL score. These measures not only strengthen your financial profile but also increase your chances of securing favourable terms and approvals when applying for a personal loan.
- Reduce Debt-to-Income Ratio
This ratio is calculated by dividing your final monthly debt by your gross monthly income. For example, if you are paying off a car loan with a monthly EMI of ₹13,000 from your total monthly income of ₹25,000, your debt-to-income ratio would be (13,000)/25,000 = 0.52, or 52%. This indicates that more than half of your income is dedicated to debt repayment, potentially limiting your financial flexibility.
To enhance your personal loan eligibility, you can either augment your income to narrow this gap or focus on settling existing debts. Ideally, reducing your debt-to-income ratio to a range between 20% and 35% is recommended, signalling a healthier balance between your income and financial obligations and thereby increasing your chances of securing a personal loan.
- Opting for a Longer Tenure
Consider selecting a lengthier repayment period when obtaining a personal loan, as lenders commonly offer extended tenures, sometimes up to five years. Opting for a longer tenure translates to more manageable monthly EMIs. This approach proves beneficial in addressing financial challenges, allowing you to repay the loan in affordable instalments at a pace that suits your budget.
Moreover, committing to longer repayment periods and ensuring timely EMI payments are strategic methods to improve your personal loan eligibility. By choosing a repayment plan that aligns with your financial circumstances, you not only ease the burden of monthly payments but also demonstrate responsible financial behaviour, thereby enhancing your chances of securing favourable loan terms.
- Avoid Multiple Loan Applications
When you apply for a personal loan from various lenders, each one seeks access to your credit history. The accumulation of hard inquiries on your credit report categorises you as a high-risk, credit-seeking borrower. While individual loan rejections may occur, multiple denials can adversely affect your otherwise favourable credit scores.
Rather than pursuing loans from multiple sources, it is advisable to opt for a single application with a lender where you maintain an existing banking relationship. This strategic approach minimises the impact on your creditworthiness and also increases the likelihood of successful loan approval, given the established financial association.
Choose the Right Lender for Your Financial Support
If you’re currently exploring options for a personal loan, consider the convenience and ease offered by Tata Capital’s paperless loans. With this streamlined process, you can experience the benefits of pocket-friendly instalments, ensuring that your financial commitments align with your budget. Their unparalleled flexibility in personal loans allows you to tailor the loan to meet your specific needs. From the application process to repayment, the emphasis on a seamless and paperless experience sets Tata Capital apart, making it a reliable choice for those seeking not only financial support but also a hassle-free and customer-friendly approach to personal financing.