Your loan eligibility matters greatly when it comes to borrowing money, whether it’s for emergencies, school funding, or buying a house. It impacts your borrowing limit, interest rate, and even if your loan is accepted or rejected.
The good news is that with careful financial planning, you can increase your loan eligibility. Lenders will consider you as more qualified if you take a few steps before rushing to apply.
Let’s explore in detail how you can increase your loan eligibility before applying to increase your chances of getting the best possible rate.
What Is Loan Eligibility and Why Does It Matter?
The requirements that lenders use to figure out your loan eligibility are known as loan eligibility criteria. Your income, job type, credit score, current debts, and repayment history are all included in this.
Lenders want proof that you can pay back the money you borrow. You may receive a smaller loan amount or pay higher interest rates if you don’t meet their requirements.
Because of this, being aware of loan eligibility requirements in the beginning can help you better prepare and improve your financial profile.
1. Check and Improve Your Credit Score
Your credit score is a major factor in your loan eligibility. A high credit score (usually over 750) indicates that you are a responsible borrower who can be trusted to pay back loans.
Advice for raising your credit score:
- On-time bill and EMI payments are important because late payments can affect your credit score.
- Don’t use out your cards; instead, keep your credit utilisation below 30%.
- Stay away from applying for loans too frequently, as this may give the impression that you require credit.
- Regularly check your credit report: Fix all mistakes immediately.
2. Reduce Existing Debts Before Applying
Lenders might be unwilling to offer you new credit if you currently have repayments on several loans or credit card bills. A major consideration in this situation is your debt-to-income ratio (DTI), which is the percentage of your income used for debt repayment.
Your DTI is supposed to be less than 40%. A higher number could indicate problems with finances.
What you can do:
- To free up money, pay off smaller loans first.
- Combine several debts into a single, affordable EMI.
- Avoid getting new credit right before submitting a loan application.
3. Show a Stable Source of Income
Borrowers with a regular source of income are preferred by lenders. Proving financial stability boosts trust, no matter whether you work for a living or are self-employed.
Here’s how to make this element stronger:
- Before applying, stay in your current position for at least six to twelve months.
- To demonstrate consistent income, file your income tax returns regularly.
- As evidence of your financial stability, keep bank statements and pay slips on hand.
Mention any sources of income you have, such as rental income or freelancing. Your eligibility for a loan will improve with your income.
4. Choose the Right Loan Type and Amount
Rejection may result from applying for a loan amount that is far higher than your ability to repay. Rather, truly assess your financial status and apply for a loan amount that is suitable for your income and ability to repay.
Depending on the type of loan, personal, home, vehicle, or educational, different lenders have different requirements for loan eligibility. You can make a smart choice by comparing these.
5. Add a Co-applicant or Guarantor
Mentioning a co-applicant, such as a spouse or parent, can greatly increase your loan eligibility if your income is not enough to satisfy the lender.
Lenders take into account both applicants’ combined income, which may lead to:
- Increased chance of loan approval
- Reduced interest rates
- Greater eligibility for a loan amount
Similarly, having a loan security with good credit gives lenders confidence in your ability to repay the loan.
6. Maintain Healthy Financial Habits
Your lending habits reveal a lot about how trustworthy you are. Your bank statements are frequently examined by lenders in order to identify similar savings and spending trends.
Here are some tips for improving your financial discipline:
- Keep an appropriate sum of money aside.
- Avoid excess funds and rejected checks.
- Maintain a steady flow of money into your account.
- Use your credit card sensibly and avoid making sudden purchases.
7. Compare Lenders and Their Criteria
Not every lender uses the same approval process. While some might put a greater value on your income, others may be more interested in your credit score or type of work.
Actions to take:
- Examine loan offers from various NBFCs and banks.
- Evaluate feedback from customers regarding their approval process.
- Select a lender whose loan requirements match your financial situation.
This not only quickens up approval but also makes sure you don’t apply carelessly and run the risk of being turned down.
8. Avoid Frequent Loan Applications
Lenders perform hard enquiries on your credit report each time you apply for a loan. Your credit score and loan eligibility may suffer if you submit too many applications in a short amount of time. Even if it’s not true, it gives the impression that you require credit. Instead, do thorough research and wait to apply until you know for sure that you meet all of the criteria.
9. Strengthen Your Financial Profile
It’s not always just about money. Your entire financial situation, including your assets, investments, and savings, is another factor that lenders consider.
Having a variety of assets, such as real estate, mutual funds, or fixed deposits, indicates you have backup plans.
Conclusion
It all comes to careful preparation and wise financial practices to increase your loan eligibility. You can increase your chances of quick approval and better loan terms by keeping your credit score high, managing your debts sensibly, and making sure your income is steady. Borrowing can be made easier tomorrow by getting ready today.
