Financial institutions and NBFCs such as banks and Tata Capital offer a variety of loans to customers who are in need of funds to make purchases. They could need funds for buying a home or a new car or a used car or start a business or expand an existing business. Besides these loans for specific purposes, lenders also offer loans called as ‘personal loans.’ These loans are extended to customers for use for any general purpose. Customers may need funds to celebrate a wedding, get treated for a medical condition, and travel on holiday or pursue higher education.
Personal loans by their very nature are unsecured loans and hence attract higher rates of interest than secured loans. They are typically easy to obtain and need minimal formalities. However, lenders conduct due diligence of the borrowers to determine personal loan eligibility before extending personal loans. They want to ensure that personal loans extended to borrowers get repaid.
In order to have a higher eligibility for a personal loan, borrowers can follow the 10 tips that we have highlighted below.
- Get a high credit score
Lenders seek a credit score of borrowers from CIBIL or other credit bureaus. A high credit score in excess of 750 indicates that the borrower is highly credit worthy. Lenders are confident that they run low risk of default when lending to borrowers with high credit score. It is worthwhile to find out your credit score from the 4 credit bureaus operating in India and use the highest one to apply for a personal loan.
- Choose a lender who offers the highest personal loan amount
Lenders tend to have different caps on the highest amount they want to lend under the personal loan product. If you need say Rs 20 lakh, then you need to approach a lender who has a cap higher than that amount. There is no point in applying to a lender whose cap is Rs 15 lakh.
- Keep your professional life spotless
Lenders seek high creditworthiness in borrowers. They want to feel safe that the borrower will repay the loan amount without defaulting on the repayment through EMIs. One of the yardsticks they use is the credentials of the borrower with the employer if the borrower is a salaried person or the borrower’s standing in the industry if the borrower is a business person or a professional. The better the borrowers standings in either a job or a business, makes him/her more creditworthy.
- Ensure take-home pay is more than 50 percent of gross pay
Lenders tend to ask for take-home pay particulars after providing for any other loans, income-tax payment and living expenses. The chances of extending higher personal loan amount are higher if the take-home pay is higher.
- Ensure you pay all dues of credit cards or EMIs on time
The biggest negative for any personal loan is defaulting on credit card payments or loan EMIs. Any default gets reflected in the credit score and also reduces the credit worthiness.
- Include spouse’s income to enhance your loan eligibility
It makes sense to include your spouse’s income while applying for a personal loan. Of course, the lender will check for the spouse’s credit score and creditworthiness.
- Be upfront with the purpose for which you are seeking a personal loan
Lenders consider higher eligibility if they know the purpose for which you are taking the loan. For instance, if you are taking the loan for treatment of a medical condition or for a wedding, the lenders consider this as genuine and extend higher loan amounts.
- Close down other smaller personal loans before you apply for a higher loan amount
Your eligibility can increase if you can close down your earlier loans before applying for the larger personal loan. The effect of the closing down is to increase your take home income leading to higher eligibility.
- Do not apply to different lenders at the same time
You eligibility suffers if you are applying to more than one lender. Choose your lender after evaluating all the offers from different lenders and apply only to that lender. Multiple applications will endanger your loan eligibility.
- Make sure you need the loan
Since personal loans carry higher rate of interest and have shorter tenures, make sure that you need the loan that too after availing all other loans, which carry much lower rate of interest. Be aware that you must repay this loan the fastest.
The above steps will give you higher eligibility when looking for a personal loan. Connect with us at Tata Capital to know more.