A Personal Loan gives you access to cash without collateral. Therefore, lenders have strict eligibility criteria to rule out potential risks as they have no security to compensate for any losses incurred. Lenders typically evaluate your credit score, monthly income and debt-to-income ratio, to determine your creditworthiness. If you wish to ensure that your Personal Loan application is sanctioned without any hiccups or hindrances, you can follow these simple tips to increase your chances of getting a Personal Loan.
How to Enhance Personal Loan Eligibility
- Maintain a Good CIBIL Score
Your CIBIL score, also known as your credit score, is a 3-digit number ranging from 300 to 900 points, indicating your creditworthiness. Credit Information companies determine your score based on your debt repayment patterns. A lower score suggests poor financial health, whereas lenders find a score above 750 acceptable. Applying for a loan with a low credit score may lead to rejection and further reduce your score. The best way to increase CIBIL score is to repay all debts, such as loan EMIs and credit card dues, on time, and in full. Other things you can do to improve credit score include utilising only 30% of your credit limit and refrain from taking on too much debt at a time. - Avoid Applying for Loans if You Have a High Debt-To-Income Ratio
An unspoken rule in finance states that you must not borrow more money than you can repay. Before taking on a loan, you must ensure your income can support the EMI payments. For instance, if your monthly income is ₹25,000, and your EMIs exceed 50% or more of your monthly income (eg ₹13,000), you will not have enough funds to manage your other obligatory expenses. For lenders, this high debt-to-income ratio is a red flag, indicating that you may struggle to repay your loan. To improve your chances of acquiring the loan, you need to ensure that the debt-to-income ratio does not exceed 40% of your monthly income. - Avoid Multiple Loan Applications
Yet another way to secure your loan is to send your application to one lender at a time instead of sending multiple loan applications to various lenders. Remember that all lenders can access your credit report when you apply for loans. While you may think multiple applications can help you acquire a loan from at least one lender, the truth is that lenders will collectively view you as a credit-hungry candidate and reject your application. One rejected application can trigger multiple rejections and negatively impact your credit score. Instead of sending multiple loan applications, you should research and choose a lender with basic eligibility requirements to increase your chances of obtaining the loan. - Show Multiple Income Sources
A common mistake most borrowers make while applying for a Personal Loan is showing only their monthly salary as their chief income source. However, you can enhance your eligibility tremendously by showing your other income sources. For instance, you can show your income from incentives, annual bonus, variable pay, market investments, etc., to increase your eligibility. Besides this, if you earn anything from part-time jobs and side hustles, you can add that income to your total monthly income as well. These little tricks make you a suitable candidate for Personal Loans and allow you to show a high income ratio.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Personal Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.