Getting money when you really need it can make a world of difference to many people. You may need urgent cash to meet medical expenses, educational needs, emergency travel expenses, or other personal requirements. Generally, personal loans are a good way to generate funds when you want them fast and without involving a lot of paperwork. Technology has also revolutionised the personal lending sector with the introduction of loan app companies. If you are planning to apply for a loan, these are your best bet.
When you apply for a loan, you want to make sure that you actually get the amount of money you need. For someone very new in the personal finance game, the lenders may offer a rather low borrowing eligibility. To improve your loan eligibility limit, here are five tips that you must know:
- Borrow from an instant loan app
Traditional lenders are very highly regulated and tend to be exceptionally picky about whom they lend and how much. On the other hand, you can now borrow from a modern fin-tech company that offers an instant loan. Since the operational cost of these loan app companies is much lower than traditional lenders, they are much more liberal with their lending practices. Thus they are open to lending you higher amounts of money as compared to what a traditional lender may be willing to offer you as a personal loan.
- Try getting a personal loan for a longer duration
Applying for a personal loan for a longer duration will help improve your loan eligibility amount. The lenders decide your eligibility for a loan based on several factors. Sometimes, you may be denied a certain amount of money because your income break-up does not allow you to run up the EMI needed. However, when you take a loan for a longer duration, you will be able to borrow a higher amount of money because the monthly EMI comes down. Consider this example—you apply for a one-year loan of Rs 1.5 lakh but are only sanctioned a loan of Rs 1 lakh. If you increase the period from one year to two years, the EMI for Rs 1.5 lakh will work out to be much lesser. The lender will be open to lending you a higher amount. This tip also works when you borrow from a loan app.
- Maintain a high credit score
Your credit score is the summary indicator of your financial health. Lenders rely on your credit score to decide how much risk they are taking by lending you money. The better your credit score, the lower the risk factor for them. You may find a few lenders who claim to offer instant loans without credit score checks, but the deal that they will offer can rarely match the one offered by a lender who has checked your credit score. Moreover, people with high credit scores get higher loan eligibility and better interest rates. The chances of their loans getting approved are also much higher. Lenders see these people as low-risk, reliable borrowers who are committed to their financial obligations and will pay off their loans as per schedule.
- Explore the option of a co-borrower or loan guarantor
Not many people realise this but applying with a co-borrower or a loan guarantor is a good way to improve your loan eligibility. This applies to instant loans as well. When you apply for a personal loan with a co-borrower, the lender considers the total net income of both borrowers. Thus, they are able to offer you better loan eligibility and lower interest rates. Adding a co-borrower to your loan application can double your loan eligibility amount.
- Pay off any existing loan or credit card EMIs
The lenders decide how much you can borrow based on how much disposable income you have. Any running loans or EMIs on credit cards are considered to be a cut from your disposable income. If you already have multiple EMIs running, there is a risk that you will meet only low-figure loan eligibility. Therefore, pay off some old loans and card instalments to be eligible for a higher loan amount.
When applying for a personal loan, be it from a traditional lender or on an instant loan app, borrow only as much as you need. Even if you are eligible for a higher loan amount, avoid over-borrowing. Credit is a very powerful thing but as the saying goes, with great power comes greater responsibility. So, always be mindful of when and how much loan you take.