® 
When should you go in for a personal loan? Sometimes, you might have a large or unexpected one-time expense that you might be able to fund on your income like a child’s wedding, or house renovation or even a vacation. At these times, it is advisable to apply for a personal loan to overcome this temporary shortfall in funds.
You can improve your chances of having your personal loan approved by following these tips:
1. Check your credit score before you apply for a personal loan: If you apply for a loan without knowing your credit score, you run the risk of being rejected for a low score. The first thing you should if you are planning to apply for a loan is to obtain your credit report so you do not get a nasty surprise when you apply for the loan. You might think you have a good score because you are paying all your bills on time, but there might be other factors that could be dragging down your score like a high credit utilisation ratio, being the guarantor for a loan that has been defaulted on, or even fraud or reporting mistakes on your credit report. Obtain a copy of your credit report so that you are up to date on your credit situation, and rectify any errors to avoid the possibility of being rejected.
2. Ensure you have a credit score of 750 or above: If you have a score in this range, you stand the best chance of having your personal loan approved. Your credit score is especially important for a personal loan as there is no collateral that lenders can use to safeguard their money in case of default. Lenders typically look for a credit score of 750 to judge if you are loan eligible. If your score is less than 750, identify the weak areas in your credit profile and work towards improving your score. If you are rejected because of a poor score, each rejection will cause your credit score to drop even further, making it more and more difficult to rebuild your credit health.
3. Do not make multiple loan applications: It is tempting to apply to several banks/lenders at the same time in order to maximise your chances of being approved by at least one lender. This is not a good idea! When you do this, potential lenders get the feeling that you are ‘hungry’ for credit and need to apply to several sources to fund your expenses. Moreover, too many loan applications without corresponding approvals can lead to a drop in your credit score. Make sure you only apply to the place where you have the best chance of being approved.
4. You should not have availed of a personal loan in the past 6 months: If lenders see that you have availed of a similar loan recently, they might be unsure about your ability to take on the burden of a new debt obligation and make additional repayments. There should be a gap of at least 6 months between your loan applications. If it is for a non-urgent reason like a vacation or house renovations, you are better off waiting for some time before you apply again.
5. Have a mix of secured and unsecured loans: A secured loan is one where the customer provides collateral to the lender – for example, for home loans it is the property being bought, for auto loans it is the vehicle, in the case of gold loans it is the gold that is pledged. However, in a personal loan the lender has no collateral with which to secure his money. Your credit score improves when there is a mix of both secured and unsecured loans that are being repaid on time, and potential lenders are reassured.
6. Ensure not more than 30% of income goes towards EMIs: Lenders want to judge if you have enough income left over from your existing loan obligations to take on a new loan. Make sure that the EMIs from all your other loans do not exceed 30% of your income. This does not include your home loan EMI. So for example, if your income is Rs. 60,000 a month, the total outflow of all your non-home loan EMIs should not exceed Rs. 20,000 a month.
Also, make sure that you have been in the same job or company for at least six months before you apply. Banks want to see stable employment and a steady source of income so that you are able to make all your loan repayments on time. In the case of a personal loan, your income is very important as the banks do not have any collateral in case you default on your payments. If you have been changing jobs frequently, there is a good chance that your application will be rejected.