Loan providers, including banks and non-banking financial companies, (NBFCs), such as credit unions and online lending platforms, play the crucial role of evaluating the borrower’s creditworthiness and financial health.
Personal loan providers often help borrowers make responsible financial decisions by providing them with customized financial advice. This article will discuss the top eleven hacks for making a personal loan application responsibly before consulting a lender.
- Assess Your Loan Eligibility
Before applying for a personal loan, assess your eligibility to determine the loan amount for which you qualify. Lenders use these eligibility criteria to assess your repayment capacity, financial stability, and your overall credit risk. Also, learn about the specific criteria that every lender has, which depend on factors like your credit score, income, existing debts, previous loan repayment histories, and employment stability.
Evaluating these parameters to understand your chances of loan approval is crucial, allowing you to avoid unnecessary loan application rejections. Your eligibility criteria will vary based on your employment status (that is if you are self-employed or salaried). This will ensure that you are getting approved for the loan you need to cover your desired financial needs.
- Boost Your Credit Score
Maintaining a good credit score (between 750 and 900) is vital to receiving favorable loan terms and improving your loan approval chances. If you have a low credit score, take active measures to improve it and aim to reach a high score before applying. One of the best ways to boost your credit score and credit history is by paying off all your existing debts before making a fresh loan application. Ensure not to miss a payment date and keep track of or set reminders for all your due dates.
Furthermore, lower your credit utilization ratio by reducing your spending and regularly evaluating and managing your credit card balances. You can also consider correcting probable errors on your credit report by reviewing and filing a dispute. Leaving even minor errors unresolved may affect your credit score and lower your chances of getting a personal loan.
Common credit report errors include incorrect account details, like credit card balances or payment history, or incorrect personal information, including name, phone number, address, and email. Other common credit report errors include missed or late payments, mixed identity, duplicate accounts, and inaccurate credit limits or inquiries.
- Prepare All Required Documents
To hasten and smooth the loan application process, keep all your necessary documents handy. Some commonly used documents are ID cards, address proof, income proof, employment details, and bank statements. Keeping all these documents near you will prevent delays in the application procedure.
- Compare Various Loan Offers
Before signing a deal, compare the loan services offered by its competitors. You can look for lenders providing better value for money and competitive interest rates. Also, check whether you have low processing fees and flexible repayment options. Some banks or non-banking financial companies even provide customization of repayment options along with lucrative interest rates. Choose a lender that provides good after-sale support and best suits your financial expenses, needs, and objectives.
- Avoid Multiple or Frequent Loan Applications
If you are applying for multiple loan applications simultaneously with little to no breaks in between, it may impact your credit score severely. Also, it portrays the borrower as having a hunger for credit. It can be a major factor affecting your credit score, causing lenders to reject your loan application.
- Show Additional Income Sources
Try showing additional sources of income, which helps lenders verify your financial stability. One’s primary income stream is often evaluated by lenders before approving a loan application. For instance, you can show additional income sources, such as rental income and interest from previous investments (like dividends or shares), etc.
- Go for a Short-term Repayment Tenure
Aim to choose a short-term repayment tenure for your new loan application, if you are confident about repaying the high EMI amounts. If you choose to repay a personal loan faster by opting for shorter repayment terms, the lender will view you as having a higher potential for making timely payments. The lender will also picture you as a less risky borrower, who is less likely to make payment defaults or irresponsible financial decisions.
- Apply Online
Applying for a new loan application online is the best way to ensure smoothness and efficiency in the process. You can start the process at any time and from anywhere. You can withdraw your desired funds right away when you need cash urgently. All you need is a smartphone, tablet, or PC and a stable internet connection.
Within just a few clicks, you can submit all paperwork, get approved for your eligible loan amount, and receive the funds instantly or within the next few hours in your bank account. Unlike traditional (offline) loan application procedures, you don’t require hectic and long paperwork in an online application and hate waiting in long queues to submit the loan application.
- Apply with a Co-Applicant
It’s always the best way to enhance your eligibility by applying with a co-applicant, as it improves the chances of promoting quicker approvals. This step is usually beneficial for individuals with low credit scores, who can get loan approvals by signing a contract with a partner. Since it results in quicker approvals, choose a co-applicant who has a stable income, a healthy and long credit history, and a good credit score. It, therefore, minimizes the chances of getting rejected.
- Be Responsible
Always try to apply for a suitable amount, only that is what you require at the current moment. Withdraw enough funds to fulfill all your financial needs. The higher the loan amount, the longer the tenure or costlier it gets. Therefore, avoid your repayment amount from turning into a burden. At the same time, the funds should be sufficient to fulfill your needs.
- Apply with an Old Lender
It’s always a good idea to apply for a new loan amount with your existing lender without searching for a new one. Choose someone with whom you have already built a strong relationship, such as because of making timely payments. This bond will help you get great deals on loans and promote quicker approvals. As a result, it helps the lender to evaluate your financial health and stability.
Final Words
In a nutshell, the above financial hacks before opting for a personal loan or visiting personal loan providers. These tips will help you make better decisions and evaluate your financial standing. Online loan application is a quick and hassle-free process and is an excellent choice for people who wish to cover urgent cash needs.