Personal loans are great way to get your hands on some emergency cash.
The thing about personal loans is that they’re unsecured. Meaning that the lenders don’t ask you for a collateral against the loan amount you’re taking. This makes them somewhat easier to get, provided you have a credit score above 750, but also make them high interest loans.
In this article, we look at the criteria required to qualify for a personal loan.
Think about it - how likely are you to lend money to a stranger? Not likely at all, right?
When you establish credibility as a borrower, banks and other financial institutions are happier to loosen the purse strings for you. After all, your proven track record in the market is a sign that you are the perfect candidate to be eligible for a loan.
But with all the talk about credibility, how do loan providers know how to trust you? Surely, they must have access to some publicly-available metrics that represent your behaviour in the financial space.
Simply put, your credit score can improve or reduce your chances of getting a loan.
The credit score is a numerical value that advertises your ‘creditworthiness’ to institutions thinking about lending money to you. It starts from 300 and continues until 850. The higher your credit score, the greater your credibility as a borrower. You can check your credit score for free on the Fi Money app, in case you’re wondering where you can do it.
Increasing your credit score is a gradual task. Timely payment of loans, credit card dues and other modes of credit is a slow but confirmed way to improve your score.
Your income is an essential determinant of your chances of getting approved for a personal loan.
So, scout for all your IT returns and salary slips before you decide to apply for a personal loan. The lender is looking for official proof that you have a constant and sufficient income to pay back their loan amount.
What if the majority of your salary is spent on existing stuff, and there is little to no amount left for the loan repayment?
Banks and financial institutions realised this and drafted a debt-to-income ratio requirement. How much of your total monthly income goes to other expenses like rent, grocery and electricity bills? Only when the number is clear can banks project if you will have enough monthly funds left to pay back the loan.
A respectable record of clearing dues in the market is the number one way to get approved for a personal loan. But did you know that getting a personal loan is not as difficult as earlier?
Fi Money provides instant loans through Federal Bank that arrive directly in your savings account account. These are pre-approved personal loans made available to select users with good credit scores. But that’s not all! You can avail of the loans at competitive interest rates and tick some important things off your wishlist.
The good news is, yes - you can apply for a personal loan with a bad or low credit score. The only criterion is that either a guarantor has to tag along and vouch on your behalf, or you use collateral or security to assure the provider that you will pay back the loan.
In the end, your eligibility to get a personal loan boils down to these factors:
Your credit score significantly influences the likelihood of a personal loan approval. A higher credit score generally increases your chances of approval, as it indicates a lower credit risk to lenders. Conversely, a lower credit score may lead to loan denials or higher interest rates, as it suggests a higher credit risk to lenders.
Keep in mind that specific document requirements may vary among lenders and can depend on the loan amount, your credit history, and other factors. Always check with the lender for their exact documentation needs.
Yes, having a co-signer can significantly improve your chances of getting approved for a loan, especially if you have a limited credit history, low credit score, or unstable income. A co-signer is someone with a good credit history and stable financial situation who agrees to share responsibility for the loan.
The debt-to-income ratio (DTI) plays a critical role in the personal loan approval process. It's a measure of your financial health that compares your monthly debt obligations to your monthly income. Lenders use DTI to assess your ability to manage additional debt responsibly.
