Personal loans have been among the top go-to financing options for funding a host of different expenses, urgent and planned. With the increasing popularity of this financial product owing to its features, it has extended financial freedom to individuals across different income strata.
The RBI’s data also reflects this popularity as personal loans have grown 11.9% in June 2021 compared to 10.4% in the previous year.
Moreover, personal loan application have become hassle-free with online procedures. At the same time, one can enhance the overall chances of loan approval with a few simple tips in mind.
5 tips to use before making a personal loan application
- Check for any errors in your credit report
An individual’s credit report represents past credit behaviors that he/she has maintained. It also consists of other critical factors that represent the overall creditworthiness. Along with one’s credit history, it also includes credit score, a three-digit number that sums up the credit behavior of an applicant.
An individual’s credit report carries critical weightage regarding personal loan application and approval due to this financial product’s unsecured borrowing-lending framework. Lenders often use it as a parameter for determining whether or not to lend to an individual. In this regard, 750 or more is considered the ideal score.
However, one’s credit report may not always represent a true individual profile. The reason being, errors like omission and wrong entries can reflect a poor credit report. It also lowers one’s chances of securing credit.
Thus, it is advisable that you check your credit report for any such error and dispute periodically and eliminate them. It is one of the critical ways that can result in an improved credit score and better one’s chances of securing a small personal loan. Make sure to check out the things you can do to improve your personal credit score for more ideas.
- Optimise your financial management
Fixed Obligation to Income Ratio (FOIR) and Credit Utilisation Ratio are two essential parameters to define one’s financial health and discipline. The lender thus verifies them during a personal loan application assessment.
While FOIR represents the percentage of fixed monthly liabilities to monthly income. The credit utilization ratio represents the percentage of credit used against the total availability.
Ideally, a FOIR of less than 50% represents good financial health as the repayment capacity of an individual remains high with a high disposable income. It also indicates minimum strain on personal finances, projecting the individual’s ability to manage credit better. As for the credit utilization ratio, a measure under 30% is considered suitable as it indicates minimum credit reliability.
Prospective borrowers thus may want to check these two ratios and optimize them as per requirement. Simple requirements like these enhance one’s chances of securing credit while filling a personal loan application.
- Resist from sending multiple loan applications
Individuals often tend to send out multiple loan applications with the hope of increasing the chances of approval. However, such practices are detested in the borrowing-lending market for various reasons.
For one, it represents an unplanned approach to securing the advance. Further, multiple loan applications also result in hard inquiries sent towards the borrower’s credit history, which is not considered a good practice among lenders.
It is thus wise to choose a single lender based on the loan amount, eligibility, personal loan interest rate, etc. Also, when sending more than one application, make sure to maintain a time gap of at least 6 months.
- Compare market lenders and negotiate
To avail the best interest rates for affordable financing, one needs to dig deep in the market for available offers with widespread research. It is advisable that borrowers start with checking loan availability with different lenders and compare them based on various parameters.
Some essential parameters to tick for lender comparison include interest rates levied, loan amount availed, tenor flexibility, etc. You can then proceed to negotiate with the selected lender based on your eligibility for the advance. Once decided, you can apply through their personal loan apps hosted online.
Reputed lenders also provide dedicated financial tools like personal loan interest rate calculator that help assess one’s repayment liability, including the EMIs. Such tools allow you to determine your loan amount and tenor based on liabilities created, thus facilitating affordable financing.
- Submit all primary and secondary income documents
The income of an individual represents his/her repayment capacity significantly. Thus, to improve it, it is ideal to provide your secondary income documents along with proof of primary income. Documents specifying the secondary income can relate to rental income from let-out property, investment profits, etc. Income proof is one of the important documents required to apply for a personal loan.
Once decided, you can proceed to send your personal loan application with lenders like Bajaj Finserv that also provide pre-approved offers.
These pre-approved offers simplify the process of availing of finance, making them quick and convenient. The offers are available on financial products like business loans, credit cards, personal loans, etc. Borrowers can check their pre-approved offer only with essential personal details.
Even though personal loan application has become hassle-free, it is always ideal to keep some tips in mind to make it even more convenient.