Know these important tips before applying for a personal loan – Know how to make your loan application strong for approval!
Before applying for a personal loan, ensure that you meet the eligibility criteria set by the bank, NBFC (non-banking financial institution) or fintech. If you do not complete these, your application may be rejected. Credit score plays an important role in personal loan approval. Other factors include your age, income, job, KYC, debt-to-income ratio, city of residence, etc. Let us understand how all these impact.
Importance of Credit Score:
A credit score is a three-digit number provided by credit information companies (CICs). There are 4 RBI licensed CICs in India:
- CIBIL (Credit Information Bureau India Limited)
- Equifax Credit Information Services Pvt Ltd
- Experian Credit Information Company of India Private Limited
- CRIF High Mark Credit Information Services Pvt Ltd
They all have their own ways of building a credit score. Credit score reflects your financial habits and ability to repay debts. Banks and NBFCs give it great importance while approving loans.
Benefits of a good credit score:
Banks and NBFCs consider a score of 750 or above as good. Higher the score, better are the chances of getting the loan approved. If your score is more than 750, you can negotiate for lower interest rates, waiver or waiver of processing fees, higher loan amount, longer repayment tenure etc.
It is not necessary that the loan application will be rejected if the credit score is less than 750. Some banks may approve applications with lower scores on a case-to-case basis. However, in such a situation they may impose higher interest rates or stricter terms.
Some other important factors that play a role in personal loan approval are:
- Age:
Every bank and NBFC decides the minimum and maximum age for personal loan. The age of the applicant should be within this prescribed limit. - Income:
Banks and NBFCs decide the minimum income. Your monthly income should be more than this limit. - Education Qualification:
Some banks fix minimum education qualification. Generally, it is graduation or diploma. - Job:
Banks or NBFCs look at the job stability of the applicant. A steady job brings regular income, which helps in repaying the loan EMIs. Those working in government jobs, PSUs, or reputed private companies get preference. - Debt to Income Ratio (DTI Ratio):
The DTI ratio tells you how much of your monthly income goes toward paying off debt. This includes loan EMIs and credit card bills. If DTI is 35% or less, banks consider it good and chances of loan approval are high. If DTI is between 36% to 50%, some banks may approve it with special conditions. If DTI is more than 50%, the chances of loan approval reduce. - Application Form and Documents:
While applying for loan online or offline, the filled application form and required documents have to be submitted. The KYC document will use your photo, identity proof (like PAN card), and address proof etc. Income documents must include bank statement and salary slip for the employed and Income Tax Return (ITR) and bank statement for the self-employed. Take care that there is no mistake in your form. - City of Applicant:
Some banks and NBFCs provide services only in select cities. Applicants living in metros and Tier-I cities have more options. Whereas in small towns and rural areas the options are limited.
Keeping all these factors in mind, plan carefully to make your application process for personal loan better and successful.
