7 key things to know to improve your chances to procure a personal loan

A personal loan is a viable option if you have a large impending bill or a requirement for urgent financial help at this time. A personal loan is an unsecured loan from a bank, non-bank financial institution, or a fintech platform to help with unexpected expenses. It gives you the flexibility to meet a variety of personal financial needs without requiring any collateral, whether that is to resolve a personal emergency, plan a vacation, make a major purchase, or pay for a wedding.

It is sometimes more challenging to procure a personal loan, compared to secured loans like a mortgage or car loans, because a personal loan is an unsecured form of credit and not based on any assets. 

Here we discuss a few tips to raise your chances of procuring a personal loan. These are some of the things you should know in order to improve your eligibility.

What makes it difficult to procure a personal loan?

Though personal loans are typically available, securing one can be a challenge for a variety of reasons. Because these loans are unsecured, lenders put a lot of weight on your credit history, income, and employment history. High interest rates, rigid eligibility criteria, and wanting documentation can also hurt your chances of approval. Although you can't eliminate the chance for rejection, knowing these challenges can help you better prepare your application.

7 essential tips to improve your chances to procure a personal loan 

1. Credit score: It’s very important to have a high credit score in order to get a personal loan. If your credit score is above 750, the chances of procuring a personal loan would be high. Conversely, a poor score lowers the chances of procuring a personal loan.

2. Income tax return: Another factor that matters in helping you secure a personal loan is filing of income tax return on a regular basis. Oftentimes, your personal loan application will require you to submit form 26AS to indicate the tax paid during the past two years before they determine your eligibility to raise personal loan.

3. Salary above a threshold: Typically, personal loan is given only when your monthly salary is above a minimum of ₹25,000 per month. But this is the minimum threshold. So, if you don’t fall in this tax bracket, you can wait until you do before applying for a personal loan.

4. Work for a year: Another criteria that changes your loan-taking ability is your association with the employer. If you have worked with your current employer for a year or longer, your chances of procuring a personal loan become higher. So, if you have just started working with your employer, you must spend some more time before you apply for a personal loan.

5. Your residential address: Another key criteria that changes your loan taking ability is your current address. If you have been staying at the current address for a few years, the credit department of the bank becomes more confident to procure the personal loan. On the contrary, if you are new to the city or state where you are currently staying, it may work against you.

6. Guarantor: Additionally, banks also ask the applicant to give guarantee of someone you know. This also improves your chances of being given the approval.

7. Category of employer: Last but certainly not the least, the category of employer matters a lot. If your employer is central or state government, a PSU or even a large corporation, getting a personal loan is quite easier than if the employer is a small enterprise or if you are a freelancer.

It is worth noting that even self-employed persons can also procure personal loans subject to meeting other eligibility criteria such as income tax returns (ITRs), high credit score and a high earning potential, the right age, among others.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.