Lenders offering personal loans follow strict eligibility criteria when evaluating their loan applicants. To avoid loan rejection, personal loan applicants should take the necessary steps to improve their chances of loan approval. Here are a few tips to enhance your chances of availing personal loans:.

Keep your credit score at 750 or more

Banks and NBFCs use your credit score as a primary filter to determine your creditworthiness. They usually prefer approving personal loan applications of those having credit scores of 750. Many lenders may also offer pre-approved instant personal loan to their select existing customers having higher credit scores, depending on their credit profiles. Some lenders are more likely to offer lower personal loan interest rates for such applicants. Those having lower credit scores may either face personal loan rejection or the lender may approve their loan applications at higher interest rates.

As you may require personal loan at short notice due to financial/medical exigencies, you should take the necessary steps to maintain higher credit scores to avoid loan rejection. To ensure this, you should fetch your credit reports at regular intervals. Doing so will give you enough time to take corrective steps to improve your credit score, if found low. You should also review your credit report to identify any error or incorrect details in your credit report or any fraudulent credit activities made in your name. Any such issues should be reported immediately to the respective lender(s) and the credit bureaus for rectification. Rectified credit reports can improve the loan applicants’ credit scores and increase their chances of availing personal loans. 

Try to keep your EMI/NMI ratio within 60%

Personal loan lenders use the EMI/NMI ratio to ascertain the repayment capacity of their loan applicants. This ratio depicts the percentage of a loan applicant’s net monthly income that goes into repaying his existing debt obligations, including the EMI of the proposed personal loan. Lenders usually prefer granting personal loan approval to those having their existing EMI obligations, including the proposed personal loan’s EMI, within 60% of their monthly income.

Those exceeding the aforementioned limit usually have lower chances of availing personal loans. Such applicants can choose longer personal loan tenures to reduce their EMIs. Opting for longer tenure will reduce your proposed personal loan’s EMI, thereby reducing your EMI/NMI ratio to the acceptable limit and improving your loan eligibility. 

Avoid making multiple loan applications

Lenders fetch your credit scores from the credit bureau(s), when you apply for a loan or a credit card. Credit bureaus consider such lender-initiated requests for credit reports as hard inquiries. They in turn reduce your credit score by a few points for every such inquiry. Thus, making multiple such inquiries within a short span can reduce your credit score significantly and reduce your chances of availing personal loans or other credit instruments in future.

To avoid this, prospective applicants can visit online financial marketplaces to check and compare personal loans offers from multiple lenders before making the final loan application. Credit report requests raised from online marketplaces are known as soft inquiries, which have no negative impact on your credit scores. 

Avoid frequent job changes

Lenders usually avoid granting personal loan approval to loan applicants who change their jobs frequently. Frequent job changes project career and income instability, which increases the lenders’ credit risk. Therefore, lenders usually reject the personal loan applications of those changing their jobs frequently or sanction their loans at higher interest rates. Some lenders also require their salaried personal loan applicants to have a minimum 6 months to 1-year of service in their current organisation. Therefore, prospective personal loan applicants should avoid changing their jobs to improve their chances of availing personal loans.