Individuals often resort to personal loans to meet their wide range of fund requirements. Both sala- ried and self-employed in- dividuals can avail the loan easily without having to pledge any collateral or furnishing a long list of documents. End-to-end on- line loan processes with quicker disbursals have made these loans easily accessible to everyone. H- owever, applying for them without careful conside- ration can lead to loan rejection. Hence, avoid these things when making a personal loan application.

Having a credit score below 750

Lenders check your credit score as one of the preliminary measures to assess your creditworthiness. They prefer offering personal loans to applicants having credit scores of at least 750 as such applicants tend to have greater credit discipline. Applicants with lower credit scores, on the other hand, have lower chances of getting personal loans. Some lenders offer personal loans to applicants having lower credit scores but at higher interest rates.

As the need for funds may arise anytime, individuals must check their credit scores regularly and maintain it at at least 750. Those having lower credit scores should take corrective steps to improve their scores. Reviewing your credit report is also important as certain clerical errors or incorrect information on your credit report can lead to a dip in your credit scores. If any such issue is identified in your report, notify the concerned lender and credit bureau for correction. A rectified credit report can improve your credit score and thereby, your probability of availing personal loan.

Applying for loan without considering your repayment capacity

When evaluating a personal loan application, lenders also assess if the applicant has sufficient funds to pay back the loan. To assess this, they use EMI/NMI ratio, which simply helps lenders know how much percentage of an applicant’s net monthly income (NMI) goes into servicing his EMI payments, including EMI of the proposed personal loan. Banks and NBFCs usually prefer sanctioning personal loans to applicants having EMI/NMI ratio within 50-55%. Those going beyond this limit should select a longer repayment period on their proposed personal loans to increase their chances of approval.

Applying with multiple lenders frequently

Lenders request your credit report from credit bureaus whenever you apply for a loan with them. Such lender-initiated credit enquiries are considered as hard enquiries. Every hard enquiry leads to a reduction in your credit score by a few points. Hence, applying for a personal loan with multiple lenders in a short period can instantly cause a quick drop in your credit score, thereby, lowering your chances of availing personal loans. Therefore, instead of applying for a personal loan directly with lenders, prospective personal loan borrowers should visit online financial marketplaces to compare and avail optimum personal loan from multiple options by several banks and NBFCs. Credit report requests raised through online financial marketplaces are considered as soft enquiries and therefore, these do not affect your credit score.

Availing personal loans from unrecognised lenders

Prospective personal loan borrowers should be cautious when applying for personal loans online. There are numerous unrecognised lending platforms, which may claim to offer lower interest rates or other favourable terms on their personal loan offers but may steal your personal loan data or have hidden charges, which may balloon your cost of borrowing. Thus, prospective personal loan borrowers should always avail for personal loans from lenders that are recognised by the Reserve Bank of India (RBI) and have reliable lending history and good customer reviews.

Skipping payments on your existing loans and credit card bills

Those planning to avail personal loans should ensure timely repayment of their EMI and credit card bills. Failing to do so will not only attract late payment fee charges and/or penal interest rates on the amount due but also lead to a reduction in their credit scores. A reduced credit score would hurt their chances of availing personal loans in future.