Ways to Increase Loan Eligibility: Loans are more accessible now than before, with banks and non-banking financial companies (NBFCs) offering loans after a simple process. Some even claim to provide instant digital loans.
However, before granting a loan, these institutions assess the applicant’s creditworthiness. Applications with high loan amounts and low credit scores are often rejected. This article will explain how to improve loan eligibility quickly.
Before approving a loan, banks and non-banking financial institutions consider a good credit score and loan history.
They are inclined to lend to individuals with positive credit histories and even offer interest subsidies on home, vehicle, and personal loans.
Although they are lenient in some aspects, certain factors affect credit history and must be addressed when seeking new loans.
Existing Loans: When applying for a loan, banks assess an individual’s financial capacity and inquire about existing dues.
They evaluate the possibility of meeting these obligations. Banks may not be concerned if the applicant has a loan that will be fully repaid within six months.
However, the ratio of loan EMIs to income is crucial. Banks may consider granting a new loan if over 40% of revenue goes towards paying off EMIs.
However, loan approval may be difficult if this is less than 60%. Therefore, it is advisable to clear smaller loans before seeking a big loan, such as a home loan.
Importance of Credit Score: Individuals with existing loans should regularly check their credit score. Many organizations now provide free access to credit scores.
Ideally, banks prefer to lend to those with scores above 750, although some may accept a score of 700.
If a credit score is damaged, it should be repaired promptly. Excessive credit card usage can harm the score. For instance, if the credit card limit is Rs. 100,000, the credit utilization should be at most 40%.
Most lenders prefer a 30% credit utilization rate. Applying for loans at multiple banks negatively impacts the credit score, conveying to financial institutions that the applicant is overly reliant on loans. It is also unwise to take on too many loans quickly.
Joint Loan Applications: One of the easiest ways to increase eligibility for a home loan is to apply jointly with a spouse or immediate family members. Some banks allow close family members, such as parents, children, or siblings, as co-applicants.
Income-Based Considerations: Individuals with lower starting salaries can still receive loans from financial institutions that offer step-up loans.
These loans provide the needed amount with lower repayments initially. As the individual’s salary increases, the EMIs also increase.
However, compared to regular loans, these may come with higher interest rates and should only be considered if the individual is confident about future income growth.