When you require financial help, the first step is to decide how to do it. You might consider applying for a credit card, but getting a personal loan is a much better option. With a personal loan, you can get access to cash instantly. A personal loan does not require any security; you do not have to pledge any of your valuable assets as collateral.
There are numerous banks and financial institutions that provide personal loans for self employed or employed individuals at attractive loan interest rates. The loan amount availed from the loan can be used to cover all your financial requirements with ease. However, before applying for a personal loan you need to take a few things into consideration to avoid rejection of your loan application.
The following are the factors that you should keep in mind when applying for a personal loan:
- Enquiring about Personal Loan with lenders
Personal loan applicants should avoid direct loan and credit card inquiries with lenders as credit bureaus consider such inquiries as hard inquiries. This refers to lender-initiated credit report requests to evaluate the creditworthiness of the borrowers, and this can pull down your credit score. Instead, personal loan applicants should visit the online financial marketplace and compare various personal loans offered by the lenders in the financial market and select the best possible option based on the financial requirements. Any credit report inquiries made by you through online financial marketplaces will be considered as soft inquiries and it will not impact your credit score.
- Keep your credit utilization ratio low
The credit utilization ratio is the proportion of total credit card limit on your credit card. If your credit utilization ratio is over 30 percent you will be seen as someone who is credit hungry and hence, credit bureaus will reduce your credit score on breaching this limit, thereby reducing your loan eligibility. Hence, to avoid such situations you need to make sure you have a credit utilization ratio below 30 percent.
- Check if you fulfill the personal loan eligibility criteria
Before you apply for a personal loan you need to check if you are eligible or a personal loan or not. You can check the basic eligibility criteria of your respective bank or financial institution where you are applying for a personal loan. Many banks also provide a personal loan eligibility calculator to make things easier. The eligibility criteria mostly consist of information like the city of residence, annual income, and age, among other details. After you have checked the eligibility criteria, you can make use of the loan EMI calculator to estimate the amount of EMI payable on the loan. This will help you get an idea about the amount that is to be paid.
- Keep a track on your CIBIL score
An individual’s CIBIL score plays an important role when applying for any kind of loan. The lender always runs a check through the borrower’s credit report and payment history before granting a loan. Your CIBIL Score is the one that denotes your previous credits. Moreover, you need to check with the terms and conditions of the loan. A good credit score means you make timely payments towards your EMIs. On the other hand, a low CIBIL Score denotes a bad credit history and it implies that the applicant is not responsible for their credit repayments. This kind of behavior is seen as someone who is not creditworthy and ultimately leads to a rejection of your loan application.
- A stable source of income
Having a stable source of income is a positive sign for the lenders. As they tend to view someone with a steady job or income capable of repaying the loan in a timely manner. On the other hand, an individual with a history of frequent job switches throughout their career will have a negative impression on the lenders. The borrower will be seen as unreliable and pose a big risk in the eyes of the lender. Hence, lenders prefer to give personal loans to those who have a stable job. For sanctioning a bigger amount of loan, they also consider the time period of your employer’s present employment. An incase of a self-employed individual they check with the business vintage and bank statements to get a clear picture of the individual’s financial capability.
You can avoid making common mistakes that lead to personal loan application rejection and follow the tips we’ve discussed to improve the chances of getting your loan approved. There are a lot of options for loan providers in the financial market. Do your research and compare your personal loan options to find lenders that you may be eligible for and can fulfill your loan requirements.