During the financial crisis, personal loans act as a lifeline for individuals. One may take a personal loan for his expenditure, home renovation, or for covering some unexpected expenses. However, securing a personal loan is not that easy as you need to meet several factors that help you to meet the loan eligibility. There are a few proactive steps that make one’s approval for loan changes higher. In this article, we’ll discuss the tips and strategies to meet one’s eligibility for a personal loan.
Before discussing how to improve one’s eligibility for a loan, the borrower should be aware of the several key factors that lenders look at while reviewing loan applications. Here are the factors discussed below:
- Credit Score: The credit score of an individual helps to determine his/her creditworthiness. A person with a high credit score represents his responsible financial behavior and increases his chances for loan approval.
- Income and Employment Stability: A person with a stable income and employment has increased his eligibility for the loan as his steady income ensures his means to repay the loan.
- Debt-to-Income Ratio (DTI): Borrowers with a lower DTI indicate a lower risk of default, thus their possibility for loan approval increases. DTI Ratio helps one to compare the monthly debt payments with your gross monthly income.
- Credit History: Lenders of loans review one’s credit history, including the length of credit history, types of accounts one has, and payment history.
- Collateral for all secured loans: For a secured personal loan, the value of collateral one offers also affects his eligibility for the loan.
After the understanding of the key factors, one must aim at improving those to meet his eligibility for the loan. Here are a few suggestions to increase your eligibility for a personal loan:
- Check and Improve Your Credit Score: One must start by obtaining a credit report from a few major credit bureaus. He/she should thoroughly review the reports and analyze any inaccuracies that might lower your score. Work on the discrepancies and try resolving the negative pointers like late payments, etc.
To Boost our Credit Score, we should keep in mind that:
- Try to make timely payments on all your bills and debts
- One must try to avoid overspending and maxing out credit limits
- Do not open multiple new credit accounts as it lowers the average account age and represents financial instability.
- Try to have a positive payment history by being an authorized user on a family member or friend’s credit card.
- Reduce your Debt-to-Income Ratio (DTI Ratio): One must aim at lowering his DTI Ratio as it can improve his/her eligibility for a personal loan. He/she should start paying the existing debts like credit card balances, instalment loans, etc., and keep his monthly debt payments low.
- Increase your Income: An individual should try to boost his income level by involving himself in some part-time job, freelancing, internship, etc. His higher income increases one’s ability to repay the loan and represents the level of his financial stability.
- Build a stable employment history: Lenders prefer to approve those loans of those borrowers who have a stable employment history. A stable employment history ensures the reliability and steady income of the person, thus avoiding changing jobs too frequently to improve the chances of your application for loan approval.
- Consider a Joint Applicant: If one faces certain issues or problems while qualifying for a personal loan, then he can go ahead with his application with a joint applicant. A joint partner with a strong credit history and stable income increases the chances for approval of a loan.
- Shop around and Compare offers: Before taking a final call for application, take your time to compare multiple offers that are offered by multiple lenders. As every lender has different factors for eligibility, interest rates, etc., so one needs to find the best option.
In conclusion, to secure a personal loan one must do careful planning and preparation, and that too with the apt strategies. Try to increase his/her eligibility by focusing on all the factors like his credit score, income, employment, financial stability, etc factors to improve the chances of approval. Aim at improving your financial profile by reviewing your credit report regularly, paying your existing debts, and boosting your income.
