With the wedding season and festivals fast approaching, several individuals may require finance for honouring their plans and commitments. And with other monthly expenses, such as electricity, water, other utility bills, rents and others, it might be difficult to spare money to make certain purchases around this time.
If you are also stuck in one of those situations, you might want to consider the prospect of applying for a personal loan online. With a personal loan, you can get money to cover immediate expenses without collateral and minimal documentation. Personal loan eligibility depends on several factors, and the interest rates also differ for each individual. Before you apply for one, below are six tips that will improve your personal loan eligibilityand get a loan at a reasonable interest rate.
Contents of the article
- What are personal loans?
- Six tips for improving your personal loan eligibility
- Personal Loan EMI calculator
- Personal Loan Eligibility calculator online
What are Personal Loans?
A personal loan is an unsecured class of loans taken by individuals for their varied needs. They are usually paid back in fixed monthly instalments over time.
It is an unsecured loan, so your credibility becomes an essential benefactor for determining your eligibility. Besides, personal loan interest ratesare very low as compared to that of other classes of unsecured loans, making them a viable option.
Six tips for improving your personal loan eligibility
Here are some tips that you should keep in mind before applying for a personal loan. In most cases, these will help you get more credit at lower interest rates.
a) Lower your debt-earnings ratio
All the lending institutions have a predetermined debt-earnings ratio that an individual can afford to repay with ease. In simple words, the money you can borrow as debt cannot be higher than a certain percentage of your monthly income, or you may be considered a credit-hungry person.
Commonly, a debt-to-income ratio of less than 36% is considered ideal. So, before you apply for a personal loan, make sure you pay off your credit card bills and other liabilities to the best extent feasible.
b) Maintain a healthy credit score
It is a common practice by banks and other lending institutions to report your debt-taking and repaying habits to the credit bureau, which generates a credit score based on the factors reported.
Consequently, a healthy credit score becomes a primary requirement before applying for a loan anywhere, as it is easily accessible by the lending party.
A credit score of at least 700 works well and will increase the probability of getting a loan. For bettering your credit score, always pay your instalments and credit card bills on time, use not more than 30% of the credit limit extended, and do not close your old accounts.
c) Include all your sources of income
As discussed above, only a certain percentage of your earnings is extended in the form of loans. So, increasing your income can also be a viable option.
Ensure that you file your Income Tax Return and include all your other sources of income like rent, interest, and dividends, apart from your primary source. It shows an increase in your paying capacity and significantly improves your eligibility.
d) Apply for a joint loan with spouse or children
This is another great option to increase your creditworthiness. When two people apply for a joint loan, their incomes are clubbed together, and their paying capacity is decided.
Thus, if you apply for a personal loan with your spouse, you have a much greater chance of approval. Applying with your children is even better as young people are granted loans more efficiently, considering numerous years of earnings they will have before retirement.
e) Choose a long-term tenure
Personal loans are generally extended for short durations like 1-3 years or longer periods like 3-5 years. At the time of applying, always opt for the longer term.
Applying for a longer term divides your instalments into smaller proportions. This reduces the payment burden and has less impact on the debt-earnings ratio, which is calculated monthly.
f)Avoid applying for multiple loans at a time
The credit bureau also checks how many loans a person has applied to in the recent past, irrespective of whether it was approved or not. Resultant, your credit score is affected, and institutions may not extend the loan to you.
The easiest way to prevent this is to read and understand the eligibility criteria of institutions and only apply at places where you feel you fulfil the requirements well.
Key Eligibility Criteria include Age, Monthly Income, and Work Experience.
It also helps you get the loan at a low-interest rate. You can also compare the personal loan interest rate of banks and other lending organisations before making your decision.
Personal Loan Eligibility Calculator
Now that you are aware of the tips and tricks, you can apply for your personal loan. You can also get an estimate of your personal loan eligibility.
Online personal loan eligibility calculator is simple and easy to use. All you have to do is choose whether you are salaried or self-employed, input your net monthly income, and how much EMIs you currently pay. However, do note that the amount is an estimate and might differ from institution to institution.
Personal Loan EMI Calculator
All these factors apart, you need to have a rough estimate of the instalment liability that shall arise each month and plan accordingly not to disrupt your financial goals.
Although the rate of interest that will be charged is not fixed, you can estimate the same based on your profile. Calculation of EMI is also a bit complex for personal loans. If you wish to know your EMI amount beforehand, you can calculate your personal loan EMI.
You are now all prepared to take a personal loan as per your need. Please ensure you take a loan of an amount that you can easily repay while managing your other expenses.
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