An instant personal loan can be a great funding avenue to resolve instant financing needs for individuals, households, and businesses. It is one of the prime reasons personal loans have emerged as one of the most popular financing instruments. These loans come in high value and are unsecured, so one can avail of big-ticket financing to meet their funding needs without risking their assets through collateral creation. But because personal loans are unsecured, lenders see them as high-risk lending tools. Lenders filter out loan applications based on certain eligibility criteria to ensure the repayment of these loans. Whether applying for a loan through an instant loan app or a conventional lender, you must meet their specified eligibility rules.
Although the requirements for instant personal loans are quite simple, you must ensure that you fulfill each without any glitches. Missing out on any criteria can lead to your loan rejection. A loan rejection delays your process and negatively impacts your credit score. That’s why before you click the ‘apply now button, go through all the critical factors.
Critical Factors to Consider to Avoid Rejection of Your Loan
Your fixed obligation to income ratio
Your income capacity is a crucial aspect that lenders consider when assessing your instant personal loan application. While it is important to see that your monthly income suitably accommodates your EMIs payable, your finances must not be burdened by such a liability. For this purpose, lenders prefer providing loans to individuals with a fixed obligation-to-income ratio (FOIR) of less than 50%.
It is a ratio that indicates the percentage load of fixed monthly liabilities on your fixed monthly income and includes the newly assessed EMI for calculation. If your FOIR exceeds 50%, you may offload your finances by paying off existing debts. To increase your chances of loan approval, include all your income sources in the loan application.
Your credit utilization ratio
Another individual financial ratio that lenders calculate when assessing an instant personal loan application: is the credit utilization ratio. It is a ratio evaluated to check the overall credit dependency of the individual and the risk so involved. A low credit utilization ratio is always appreciated, preferably under 30%.
To calculate your credit utilization ratio, you must compute the percentage of credit utilized out of the total available credit. If your credit utilization ratio is high, it may be time to bring it down by limiting your credit usage.
Your credit score
Your credit score is a typical indicator of your creditworthiness, allowing the lender to assess the patterns in which you have availed, managed, and repaid your loans and advances. Any EMI or bill payment default can negatively impact your credit score. Many people are either unaware of their credit scores or don’t understand the importance of credit scores.
It is ideal for maintaining a high credit score for a personal loan. Take a quick credit score check online before applying for your loan. If your credit score is not excellent, you can take the necessary steps to improve your credit score. Paying off some of your existing debt, being regular on your payments, and maintaining low credit card utilization can help gradually improve your credit score.
The loan amount sought.
The loan amount you seek to avail of also impacts the approval of your instant personal loan. It is the principal amount on which your monthly liability will depend. So, if you seek a higher loan amount, your monthly EMI will also be higher. You can extend your loan tenure to accommodate the loan amount, but a higher assignment will increase interest payout. Thus, it is important to understand your need and adjust your loan amount. You can easily use an EMI calculator available on the instant loan apps and find your loan amount eligibility.
Existing portfolio of loans
Your existing portfolio of loans and advances is another aspect that impacts your loan availability. Your bag of credit must combine a balanced mix of secured and unsecured loans to keep the risk fairly distributed across your finances. It vests confidence in the lender that you are a disciplined borrower who makes mindful credit decisions and helps with the easy loan approval. You must be very prudent about your borrowing habits and never avail of an instant personal loan unless you have weighed your options.
Multiple applications within a short span
Often, it is found that people tend to submit multiple applications for instant personal loans within a short span with different lenders. This may or may not be after the rejection of their previous application. Either way, making multiple applications within a short span negatively impacts your credit score as each application sends a hard inquiry your way, which lenders do not consider favorably. Numerous such inquiries can be the reason for loan application rejection and must be avoided.
To hasten your loan application processing, you can ensure all the documents required are in place and that all the details of other factors to free. You can also apply for the advance through an instant loan app, which helps reduce the time taken for loan processing through minimal steps and paperless documentation. Along with these factors, you can also consider aspects like your existing details in your credit report, your monthly income, and other factors to determine your instant personal loan eligibility and apply. Along with these factors, you can also consider aspects like your existing details in your credit report, your monthly income, and other factors that finally tone your instant personal loan eligibility and apply.