27 DECEMBER, 2021

It is often an unpleasant experience to get your personal loan application rejected. However, not many know that one of the reasons for rejections is applicant’s low eligibility. If the lender finds that you are not eligible and are barely meeting the loan eligibility, they choose to reject the application. Therefore, the best way to avoid getting your application rejected is to know the factors that affect your eligibility and to ensure that you meet the lender’s criteria. Here is a guide to help you improve your eligibility and ensure the approval of personal loan applications.

  • Debt to income ratio

It reflects the percentage of your income spent towards paying debts and EMI. Usually, lenders prefer a candidate whose debt to income ratio is below 40%, as a percentage higher than that can denote a greater risk of default. You can find your debt to income ratio by dividing total debt by your income.

Lenders can reject your application, if your debt to income ratio is too high. To avoid that, you must keep it below 40%. It would be best to pay off some of your debts before applying for a personal loan to enhance your repayment capacity and eligibility.

  • Credit score

Your credit score reflects your creditworthiness and repayment capacity. Through your credit score, the lender judges if you will be able to pay the EMI on time and if it's safe to lend you money. Typically, you must have a credit score of 750 and above to get a personal loan at attractive interest rates. To enhance your personal loan eligibility, you must maintain a high credit score. Pay your credit card bills and EMIs on time and check your credit report. If there are mistakes in your credit report, it would be best to get them rectified.

  • Income

Your income is a significant determinant of your eligibility. Lenders consider your income to understand if you would be able to repay the loan. If your income is below their set limit, they can reject your application. As a personal loan is unsecured, lenders rely on your income to judge your repayment capacity. It would be best to mention all sources of income and not just your salary. You can add rental or interest income or income earned from any other sources.

  • Joint personal loan

Having a co-applicant can substantially enhance your loan eligibility and improve chances of approval. You can take a personal loan with your parents or spouse. Lenders club the income and credit score of your co-applicants to determine your eligibility. Therefore, to improve your chances, you can apply for a joint personal loan.

You might be tempted to apply for multiple loans simultaneously to ensure that you get approval from at least one of them. However, it can project you as credit hungry and affect your credit score. Avoid applying for multiple loans in a short period. It would be best to wait for a few months after you have applied with a lender. Knowing these tips will enhance your eligibility and can help in getting a loan approval.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.