A personal loan is a great way of finance for individuals. It is generally for duration of 5 years or less and can be used for many purposes. Before applying it is necessary to know how you can improve the chances of getting your personal loan application approved.
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What is a Personal Loan?
The number of people who apply for personal loan increases every year. Personal loans are unsecured loans provided to the individuals by a bank or an NBFC (Non-Banking Financial Company) for five years or less. These loans can be used for many things such as purchasing vehicles, renovating homes, marriage or other religious functions, vacation, or anything that the individual wants to use the money for. The application of the money is not monitored by the bank. The interest on personal loans is a little higher than that of other types of loans because it is an unsecured loan, which means there is no requirement for collateral security.
Since there are no collateral securities pledged, it is a high-risk investment for the banks or other financial lenders. This is why they scrutinize the loan applications thoroughly before granting approval. The eligibility for getting a personal loan consists of your employment history, credit score, net income, age, other liabilities, and several other factors which affect your ability to pay the Equated Monthly Installments (EMI).
Here is a list of reasons why people apply for Personal Loans:
- Debt Consolidation, that is using the personal loan to pay off other debts;
- Medical Expenses;
- Renovating house;
- Religious Ceremonies;
- Purchasing furniture, gadgets and electronics, appliances, and several other items;
- It can also be used to purchase gold and vehicles without putting them up as collateral securities;
- Additionally, it can also be used for education or starting up a business if the individual does not have any asset to provide as collateral to the lenders.
Improve Your Chances for a Personal Loan Approval
There are a few factors that affect the chances of getting your application for personal loan approved. Considering them before applying for a personal loan would ensure that your chances for approval improve. Here is a list of things that you should consider before applying:
- Credit Score: Credit score is a method used to determine the possibility of debt repayment by an individual. Banks and other financial institutions use this credit score to screen the applicants. Before applying for a personal loan you should always check your credit score as a higher credit score of 750 or more would mean better chances for loan approval. In addition to it, you should always strive to maintain a high credit score by repaying your debt timely.
- Be Realistic: You should be realistic about the amount of loan that you want to apply for. Personal loans are generally used for loans up to ₹20 lacs. However, this limit varies depending on the banks and financial institution as well as your credit score, net income, and other factors which affect your loan repayment abilities.
- Compare the Lenders: Before you apply for personal loan you should compare all the different personal loans offered by the various banks and financial institutions. The eligibility criteria, interest rate, the maximum amount of loan, tenure of loan repayment, and other details vary among these banks and financial institutions. Comparing them would provide you with better resources to make an educated decision.
- Necessary Documents: To apply for a personal loan you will need a few documents such as an address proof, identity proof, income tax returns, and other documents as specified by the lender. Check the requirements before applying and attach these with your application.
- EMI to Net Income Ratio: Use the EMI calculators provided online to determine the EMI for the loan that you want to get. Make sure the EMI does not exceed 30% to 40% of your net income. This would also determine the maximum amount of loan that you can get. You can also jointly apply for personal loans with your spouse or parents which would increase the net income. It would not only increase the amount of loan that you can take but also improve the chances of getting the loan approved.
- Apply: Choose the best lender based on their requirements and your eligibility, and apply for a loan there. Make sure you do not apply to those lenders where the chances of being approved for a loan is significantly low as unapproved loan applications decrease your credit score. Applying to multiple lenders for a loan also decreases your credit score, thereby decreasing your chances for approval.
Some of the Best Lenders for Personal Loan
You can avail personal loans from various banks as well as Non-Banking Financial Companies (NBFCs). Before applying to any lender for a personal loan you should always consider their interest rates, loan tenure, and the maximum amount of loan that they provide. Let us look at some of the personal loans which you can apply for.
- Abhyudaya Bank Personal Loan: Abhyudaya is a co-operative bank which provides personal loan for up to 60 months or 5 years. The Abhyudaya Bank Personal Loan can be availed by salaried as well as non-salaried individuals for up to ₹5 lacs. They require one third-party guarantor for a loan amount of up to 3 lacs and two guarantors for more. The interest rate for Abhyudaya Bank Personal Loan is 14%. The minimum net income for an individual to apply for this loan is ₹6000 for loans up to ₹2 lacs, ₹8000 for up to ₹3 lacs, and ₹10000 for more than ₹3 lacs.
- RBL Bank Personal Loan: RBL Bank Ltd. provides personal loans for ₹1 lac to ₹20 lacs for a period of 12 to 60 months (1 year to 5 years) to salaried and self-employed individuals. The interest rate of RBL Bank personal loan differs for the salaried individuals and self-employed individuals which is 13.99% and 20% respectively. The minimum net income of the individual applying for the personal loan should be ₹ The individuals Applying for RBL Bank Personal Loan should be 25 years or more but less than 60 years at the time of application.
A personal loan is preferred by many individuals because of its flexibility and no requirements for collateral securities. These can be processed in 7 to 10 working days depending on the lender. However, you should not apply for a new personal loan within 6 months of getting a personal loan approved. Any EMI towards a loan is also considered by the lenders before approving the application and it affects the chances of loan approval.