When you need a significant sum and prefer not to rely on friends or family, a personal loan can be an ideal solution. However, securing approval isn’t always straightforward. This is because lenders carefully assess various factors to determine eligibility.
Knowing what influences their decision—and taking steps to strengthen your profile—can make all the difference. Here’s a look at the best ways to improve personal loan eligibility.
Build a strong credit score
A strong credit score is essential for personal loan eligibility, as it reflects your financial reliability. To build or improve your score, make sure to pay all your bills on time and reduce outstanding debts. Also, maintain a low credit utilisation ratio (ideally under 30%).
Regularly check your credit report to identify errors or discrepancies that might be affecting your score. Responsible credit behaviour over time builds trust with lenders and shows you’re a reliable borrower.
Increase your income
Lenders look favourably at higher income levels as it signals an increased capacity to repay the loan. Consider taking on a second job, freelancing or negotiating a raise to boost your income.
In addition to income growth, document any consistent streams of revenue you may have, such as rental income or freelance work. A higher income-to-debt ratio makes you a safer risk for lenders, enhancing your overall loan eligibility.
Showcase work/business stability
Lenders are more likely to approve a loan if they see stability in your employment or business history. Consistent employment over several years, particularly with the same employer, signals reliability.
For business owners, showing steady income growth and stability is equally important. Employment or business stability suggests that you’re less likely to face financial issues that could impact loan repayment. Thus, making you a more appealing candidate.
Consider a co-applicant with stronger credit profile
If your credit score is lower than desired, applying with a co-applicant who has a higher score can improve your eligibility. A co-applicant, such as a spouse or close family member, essentially shares the responsibility of the loan, which reduces the lender’s risk.
Ensure the co-applicant has a solid credit history and stable income, as this can make the loan application more attractive to lenders. In fact, it can even lead to better interest rates.
Keep income tax return documentation
Lenders often request income tax returns to verify financial stability, especially if you’re self-employed. Having the last two to three years of tax returns readily available demonstrates financial transparency and consistency.
Tax returns provide lenders with an in-depth view of your income history, helping them assess your capacity to repay the loan. Regular filing and maintaining proper documentation also create a positive impression of financial responsibility.
Consider working for larger organizations
Employment with a well-established, larger employer can positively impact your loan eligibility. Many lenders view employees of reputed or government organisations as more financially stable. This is due to greater job security and steady income associated with these employers.
The perceived stability can lower the lender’s risk, making it easier to secure a loan. If you’re considering a job change, working for a larger organisation could enhance your financial profile for future loan applications.
Conclusion
Following these steps will improve your personal loan eligibility. It won’t only increase your chances of loan approval but also position yourself for better interest rates and terms. The result is a stronger financial profile, which can be invaluable when facing unexpected expenses or pursuing significant life goals.
Take the right steps now and prepare for a future where you can manage your financial needs with confidence and ease. To further understand the specific requirements, consider reviewing the personal loan eligibility criteria at Unity Small Finance Bank.
