In a world of uncertain times, it is not uncommon for one to be in need of some immediate finance. A personal loan can come to your rescue. However, applying and getting one approved could be a strenuous task. There are several factors considered while approving a loan and there are steps you can take to improve your chances. Here’s what you should look into before you decide to apply for a loan.
Applying for a loan in any financial institution requires the applicant to submit an array of documents. Proof of identity, signature and address along with financial statements are necessary for the bank to carry out processing on your application. Usually, businessmen are required to submit Income Tax Returns for the past few years while salaried individuals must submit pay slips at the time of application, besides bank account statements. While submitting these, be sure that details across all documents are consistent and genuine. Your application could be rejected in case of any mismatch or uncertainty. For example, your name must be spelt the same way across your ID’s and other documental evidence.
- Credit History
All banks do a check on your credit history before they approve a loan. Credit history refers to your credit payments in the past years. A credit agency keeps tracks, analyses and summarises your credit behaviour with a score that is quite accurate and usually undisputed. When you are diligent in making payments, you will have a high credit score that will always work in your favour. If your score is not up to the mark, take a few weeks to sort out your finances and make amends. You may have a better chance at your loan application if you have paid off your dues in time.
- Check your Debt-Income Ratio
Calculated as the applicant’s recurring monthly debt payments, divided by her monthly gross income, the Debt-Income ratio speaks volumes of the applicant’s capacity to repay a loan. Most banks usually have a cap on this ratio, beyond which a loan cannot be approved. Be sure to check your Debt Income Ratio and make suitable alterations to your finances if you are looking at getting your loan approved. The higher the ratio, the lesser are your chances of getting the loan.
- Asset Base
Such loans are usually unsecured, i.e. the bank does not hold on to any of your assets while giving out a loan. However, they do check on the applicant’s personal asset base and savings before they approve the same. A financially sound applicant is one with a reasonable asset base to her name and is, therefore, more capable of repaying her loan. An applicant with no savings or assets is deemed unlikely to plan her finances well, and thus, faces the risk of getting a rejected loan application.