If you’re looking for a loan, you may have received emails and phone calls regarding pre-approved loan offers, promising low-interest rates and quick disbursal. But after filling the loan application and submitting all the required documents, your loan gets rejected for no specific reason.Most of us might have faced similar problems while applying for personal or home loans. Adding to this issue is that the exact reason for rejection is rarely disclosed by most of the lenders. To avoid this frustration in future, you must know what it takes to get your loan approved.
Get your Personal Loans Approved with these 5 TipsDinesh Maheshwari December 9, 2019
Follow these instructions to increase the chances of your loan approval:
1. Check your credit score
CIBIL score is designed to predict the repayment capacity, and it is used to check the credibility of the borrowers. Lenders who provide unsecured loans usually perform the first set of customer filtering based on the credit scores. A good score significantly increases the probability of getting approved with lower interest rates. Therefore, it is essential to check your credit score and know where you stand before applying for a loan.
2. Income to debt ratio
Check the minimum salary requirements with the lender before you apply for the loan. Lenders usually go through the last 3 months bank statements of the borrowers to calculate their income to debt ratio. Your debt to income ratio determines how much amount you can borrow. A higher ratio means you are using a significant amount of your salary in paying EMI’s of ongoing loans.To increase your loan approval rate, make sure your fixed monthly EMI payments are less than 35% of your monthly income.
3. Verify and submit mandatory documents
Having a steady cash flow and good CIBIL score might help you increase your loan approval rate. But if you fail to submit all the required documents with the loan application form, the lender will not consider you as a legitimate borrower. Hence, there is weaker chance that your loan request will be approved.
4. Maintain sufficient collateral
Usually when you approach banks to get big amount especially for home loans, business loans, education loans, and so on, they will ask you to provide collateral ( almost equal to the loan amount) in order to borrow. People with sufficient collateral will receive their loan with better repayment terms and lower interest rates, as there is minimum risk involved and the loan repayment is secured.If a borrower stops making loan payments and defaults for 4 to 5 consecutive months, the loan will be declared as a non-performing asset (NPA). In this case, the lender will seize the borrower’s collateral and use it to recover from losses.
5. Compare Lenders
5. Compare Lenders Currently, multiple banks and NBFCs are providing loans at affordable interest rates in the market. Before finalizing your lender, it’s best to do some market analysis and get loan quotation from several different lenders. Compare processing fees, interest rates, terms & conditions and other charges offered by each lender. In the end, select the one which provides the best deal according to your needs and requirements.If you are considering taking a loan for the first time or you don’t have any prior credit card history, then it’s best to approach a bank. This is because banks require less documentation compared to a private lender providing unsecured loans.
Before applying for a loan, make sure you know where you stand financially. Check your credit score, calculate debt to income ratio, gather all the required and ensure that your application form is filled correctly and meets all the required criteria before submitting the loan application form. Always remember to compare various loan offers from banks and NBFCs and select the one that best suits your needs.