These days, the accessibility of getting a loan has become straightforward, as unsecured loans are available without any collateral. You can get a loan approved within hours just by completing the requirements and meeting the eligibility criteria set by the lenders.
However, you must ensure an excellent credit score as the lenders will first look at your credit history to assess your reliability and check whether you are eligible to repay the loan. Avoid missing any payments and pay off any outstanding debts to maintain a good credit score.
For the loan to be granted, you need to have a spotless financial history because even the smallest inaccuracy in your application or a gap in your eligibility will result in its denial. To make your profile trustworthy to lenders, maintain a steady income. By taking the actions outlined below, you can increase your loan eligibility and alleviate financial difficulties.
Here are a few handy tips you can apply to meet the requirements set by lenders and check your loan eligibility.
Tips to Improve Your Loan Eligibility
You can follow these simple and easy tips to improve your eligibility and increase your chances of getting a loan quickly. Whether you apply for a business loan or personal loan, you must consider the following —
- High Credit Score: A business or personal loan is categorised as an unsecured loan (if no collateral is involved) where the lenders need to assess your eligibility and ability to repay the loan on time. The first factor any lender will screen you for is a credit score, which is affected by timely repayments and no debt. A high credit score is usually a sign of well-managed payments of loans and credit card dues. If you have paid everything on time, your credit score will be high, favouring your loan application. The desired credit score is 750 and anything above is considered excellent. This will boost your chances of quick approval and help you negotiate the interest rates.
- Maintaining CIBIL Score: If you want to boost your CIBIL Score, you must avoid additional expenses and try not to take any new debt while applying for a business loan. Do not max out the credit cards and utilise the minimum amount to keep a high score. These things will boost your CIBIL Score and make you an attractive choice for the lenders.
- Increase your Income: This is one of the significant factors one needs to check to improve his/her loan eligibility. A higher income will help the lender to be sure that you can pay the loan back. You can easily highlight your income with sources like bonuses, incentives, variable pay, and any income generated from investments or other passive sources. You can boost your chances of getting your loan approved by showing the multiple income streams to the lenders beyond the regular monthly salary.
- Decrease your Debt-to-Income Ratio: You must decrease the debt-to-income ratio, which is the percentage of your monthly income that goes towards paying off debts.
Let’s understand with an example. If you have a car loan with an EMI of Rs 13,000 while your monthly income is Rs 25,000, your debt-to-income ratio will be 52%. This concludes that you’re spending more than half of your income on debt, which can harm your loan approval. To get a loan, you need to reduce the ratio and it must be between 20% and 35%. You can increase your income or pay off the existing debts to improve your ratio. This makes your lenders believe you have a better grasp of your finances and can manage a new loan comfortably.
- Long Tenure: If you opt for a longer tenure, you will have significantly lower EMIs; it will also let you fairly manage your finances and spending. The lender offers a repayment period of at least five years for the loan you take. This will help you pay back the loan easily. When you choose longer tenures for loans, you can have budget-friendly instalments that you can easily pay. This allows the applicants to manage their finances, pay the EMI on time, and maintain their credit score. This will also show the commitment to the lenders to repay the loan responsibly.
- Avoid Multiple Loans: If you have existing loans, try not to apply for any other loans. This will harm your credit score and may hamper your relationship with your lender. If you apply for a business loan over a short period from several banks or financial institutes, it will lower the chances of approval of the loan. Applying for several loans over a short period may make you look desperate. Try to apply with a lender you already have business relations with to ensure you have enough information and patience while it gets approved.
- Purpose of the Loan: Before applying for a loan, you must show a detailed plan that specifies the reasons why you need funds. Lenders will appreciate the clarity and the straightforward way of the applicants to get a loan. State clearly why you want to avail of a loan, have a well-thought plan, and the ways you are going to use the funds.
- Professional Advice: If you want to improve your eligibility, you must seek the advice of a professional. He/she can give you the best options with tailored guidance to help you grow your credit score and improve the overall structure of your finances. A professional can ensure that you have all the boxes checked before applying for a loan and have a plan to execute how you will use the funds.
Conclusion
Before you apply for a loan, you must keep a balanced credit score and have a consistent monthly income. Try to manage the cash flow and maintain a healthy bank balance throughout. Make sure to file the income tax return on time. Create a business plan that can explain the venture’s growth and potential. Look for financial institutions that offer the best interest rates that suit your budget.
