Personal loans: Keep EMIS below 50% of after-tax pay

If you need funds in a hurry, personal loans are a good option. Lenders come up with special offers every now and then. However, since these are unsecured loans, lenders tend to be cautious while approving applications and reject those that fail to meet their criteria.if you are thinking of availing a personal loan, here are the steps you can take to improve your chances of getting it.

Maintain a good credit score

The credit score is calculated on the basis of the information provided by your existing lenders and credit card issuers. You need to build and maintain a strong credit history to have a good score. This can be achieved by adopting healthy financial habits, such as timely repayment of equated monthly instalments (EMIS) and credit card bills. “The best loan offers today are reserved for persons with credit scores of 750 or more (out of 900). Track your credit score regularly to make sure it’s healthy. If it’s not, repair it with timely and full repayment of your dues,” says Adhil Shetty, CEO, Bankbazaar.com. In case your credit score has been impacted by any error or fraudulent transaction, get it rectified by informing the credit bureaus and the concerned lender.

Existing debt burden matters

Lenders assess your loan repayment ability. Generally, if your total loan payment obligations, including EMI of the new loan, does not exceed 50 per cent of monthly take-home income, your chances of approval are higher. “The key points lenders consider while evaluating a personal loan application are credit score, monthly income, monthly loan repayment obligations, and the employer's profile,” says Gaurav Aggarwal, director, Paisabazaar.com. Your chances of getting a loan improve if you work for a top-tier company.

Don’t approach multiple lenders

When you submit a personal loan application, the financier requests for your credit report from the credit bureaus to evaluate your creditworthiness. If you make multiple enquiries within a short span of time, your credit score can get severely impacted. “When you apply for a credit product, the lender initiates a ‘hard’ credit history check. Such a check marginally lowers your credit score. Therefore, multiple loan applications at the same time could lower your score significantly,” says Shetty.

Compare loan offers online

Interest rates on personal loans range between 9 and 24 per cent per annum. Avoid this high-cost loan unless it is absolutely necessary. But if you must take it, compare all the offers in the market and choose the best one. “The credit evaluation process and the risk appetite of lenders vary widely. So, the chances of loan approval and interest rates levied also vary across lenders,” says Aggarwal. He suggests borrowers should first enquire with banks and NBFCS with whom they have an existing relationship. In addition to interest rates, also compare other aspects like processing fee, repayment tenure and prepayment charges.

Offer collateral

If no lender is willing to extend a loan, “provide some collateral,” says Shetty.