Four Ways To Increase Your Personal Loan Eligibility Amid COVID Crisis

COVID 19 has thrown the entire economy out of gear. Many people have lost their primary jobs or are facing temporary pay cuts. Industries and service providers are hit badly, and their income levels are dwindling. Under such circumstances, repaying bank loans can be a significant issue.

With the pandemic affecting the income-generating capacities of almost every individual, the chances of defaults increase. Under such circumstances, people worry about whether it will affect their personal loan eligibility.

Here are four ways to increase your personal loan eligibility amid the COVID crisis.

Ensure that your credit rating does not go down.

If you continue to service your loan instalments during the COVID period, it will improve your credit rating. Please call for your credit report to verify your credit scores. If your CIBIL score is above 750, there is no cause for worry because you already have a good rating. The right approach would be to ensure that the rating does not go down.

Regular repayment of your loan instalments helps maintain the ratings. Similarly, you should not keep applying for new credit facilities or credit cards frequently. It shows that you are a credit-hungry person and affects your credit scores adversely. If you use a credit card, you should maintain the minimum credit utilization ratio at 30%. Anything over 30% can harm your rating. In the meanwhile, you should ensure to pay the monthly card bills on time without any default.

These steps can help you to maintain your credit score and thus, enhance your personal loan eligibility.

Check out the EMI affordability before applying for a new personal loan.

Your monthly income could have taken a hit because of COVID 19. A reduced monthly income can affect your EMI schedules and throw your financial planning out of gear. In addition, the reduction in your monthly income reduces the disposable income on hand to service your loan liabilities.

Generally, lenders stipulate a minimum take-home pay of 50% of your gross income after servicing all your loan liabilities. When calculating this amount, they factor in the prospective EMI repayment of the fresh personal loan under consideration. If the net monthly income is less than 50% after all deductions, the chances of personal loan approval recede. You can opt for a longer tenure and a smaller EMI to bring your net income levels to those acceptable to banks.

Choosing a suitable tenure becomes crucial as it enables you to afford to repay the EMIs. Any default in repayment affects your credit scores and your future personal loan eligibility. Therefore, if you cannot afford the EMI with your current income levels, it is better to wait for some time for your income to increase.

Avoid making too many loan inquiries.

People tend to make multiple loan inquiries when they face a financial crunch. One should understand that banks have a set of rules to follow. The banks have the discretion to approve or reject your personal loan application.

While processing your loan application, the banks make hard inquiries with the credit rating agencies. Each hard inquiry reduces your credit score. Depending on your credit score, banks approve personal loans. If a specific bank has rejected your personal loan, it could be because of an inadequate credit rating. Under such circumstances, one should avoid applying with a different bank or lending institution frequently.

Multiple inquiries with the credit rating will not help you in any way. But, on the other hand, it reduces your credit rating further, making it more difficult for you to restore it to normalcy. Therefore, it is a better idea to cool for at least six months before applying again. It shows that you are not desperate for credit. Besides, you have sufficient time to improve your credit rating by repaying your regular loan instalments on time.

You can go for alternate lending arrangements like loans against gold jewellery to tide over the immediate financial crisis.

Try to get in a credible co-applicant.

You can include your spouse’s income and apply for a personal loan jointly. Unfortunately, banks generally do not accept co-applicants for personal loans. However, you can explain to your bank that you have double income in the home to cater to your loan responsibilities. Thus, you have enough disposable income to repay your existing and future loan liabilities.

Banks are considerate when you include your spouse as a co-applicant because it convinces them that you have the income and the intention to repay your loan instalments. However, it is not advisable to include any person other than your spouse as a co-applicant.

When you include both incomes, your eligibility levels automatically rise. Secondly, having your spouse as a co-applicant means that they are equally liable for the loan repayment.

An additional tip – Keep a watch on loan moratoriums

The Central Government had instructed banks to offer a six-month moratorium period in March 2020. It also instructed banks not to classify accounts as NPA because of default in the regular loan repayment because of COVID. At the same time, it also advised credit ratings not to impact the customer’s credit rating if they avail of the moratorium benefit.

A similar scheme could come at any time in the future. Therefore, one should look out for Government announcements in this regard. If your bank announces a moratorium, you can take it if you have a financial crunch. On the other hand, if you earn sufficient income to afford the EMI, it is better not to avail of the moratorium. Anyway, your credit rating will not suffer because your credit rating is protected under such circumstances.

A word of caution

Though loan moratoriums appear attractive, one should read the terms and conditions properly. The loan amounts continue to accumulate interest, and thus, your overall repayment amount increases accordingly. If you do not avail of the moratorium, you can save on the interest component.

Final Words

We have seen many ways by which you can increase your personal loan eligibility amid the COVID crisis. There is no better way than repaying all your regular instalments on time. It will help improve your credit rating and make you eligible to apply for personal loans.