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01 JULY, 2022
Applying for a personal loan is fairly easy today. You can apply for a personal loan online and get the required funds quickly. However, this does not mean that there are no chances of application rejection. You need to consider the personal loan eligibility criteria before you go ahead and apply for the loan. In fact, it’s best to stay away from the common financial missteps that most people tend to make that end up negatively impacting their personal loan eligibility. Here’s what you need to know:
1. Applying for loans with multiple lenders
Whenever you apply for personal loan or send hard enquiries to multiple lenders during a short span of time, it impacts your credit score. That’s because to assess your creditworthiness, the lender raises an enquiry with the credit bureau. The credit bureau can reduce your credit score by a few points if there are multiple hard enquiries because this shows higher credit risk and debt dependence. This, in turn, can negatively impact your personal loan eligibility. Hence, instead of applying to multiple lenders, make sure to do your research well and compare the different personal loan terms available online.
2. Not checking your credit report
Since one of the first things a lender will do once they receive your personal loan application is check your credit report, you should ensure you have done that yourself before you apply for a personal loan. A big part of your personal loan eligibility is dependent on your credit history, so you need to make sure that not only do you have a high credit score but also that there are no errors in your report. In case of any errors, make sure to get your report rectified before you apply for a personal loan.
3. Taking loans for consumeristic purposes
Taking a personal loan makes sense for certain purposes such as a medical emergency or other emergencies. Essentially, a personal loan is a helpful tool when you need immediate access to additional funds for an unavoidable reason. However, taking a personal loan for consumeristic purposes such as buying designer clothes, or a second car on a whim is not a financially prudent decision. For consumeristic goals like these, the smarter thing to do is to first save up the money you require and then spend it. Debt is a serious financial obligation, and it is not free of cost. The personal loan interest rate that you pay is the cost of borrowing.
4. Not checking your loan affordability
Before you apply for a personal loan, it is crucial that you consider your loan affordability. This means thinking about how you can repay the loan and if you would be able to comfortably pay off your Equated Monthly Instalments (EMIs) with your other financial obligations. Your repayment capacity impacts your personal loan eligibility. So, if you apply for a personal loan amount that is beyond your repayment capacity, the lender may reject your personal loan application.
In addition to avoiding these financial missteps, you can also use a personal loan eligibility calculator before you apply for a personal loan. This is a free, online tool that factors in important details of your financial profile and estimates your personal loan eligibility.
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