Want to take loan? Here's how to assess your eligibility
What's the story
Evaluating your loan eligibility is a crucial step before applying for credit in India. It ensures that you understand how much you can borrow and what your repayment capacity is. By assessing certain parameters, you can avoid the pitfalls of over-borrowing and ensure a smooth loan application process. Here are five practical ways to effectively evaluate your loan eligibility, helping you make informed financial decisions.
#1
Check your credit score
Your credit score is a key factor that lenders look at while determining your loan eligibility. A score of 750 or above is usually considered good by most banks and NBFCs. You can check your credit score for free on various online platforms. If your score is low, you may want to improve it by paying off existing debts or ensuring timely bill payments before applying for a loan.
#2
Assess your income stability
Lenders also look at the stability of your income while deciding on your loan eligibility. A steady income from a full-time job or a successful business increases your chances of getting approved. Make sure you have all the necessary documents like salary slips or income tax returns to prove your income stability. This will help lenders assess whether you can repay the loan without defaulting.
#3
Calculate debt-to-income ratio
The debt-to-income (DTI) ratio is calculated by dividing your monthly debt obligations by your gross monthly income. A lower DTI ratio indicates that you have more disposable income to manage additional debts. Ideally, try to keep this ratio below 40% to improve your chances of getting approved for a new loan. You can do this by either reducing existing debts or increasing your income.
#4
Understand loan types and terms
Different types of loans come with different terms and interest rates, which can affect your eligibility. For example, secured loans may have lower interest rates than unsecured ones but require collateral. Research various loan options available in the market and understand their terms before making a decision. This knowledge will help you choose a loan that fits your financial situation best.
#5
Maintain a healthy savings account balance
Having a healthy balance in savings accounts can also improve your loan eligibility as it shows financial discipline and stability. Some lenders even offer better interest rates or terms if you maintain certain minimum balances in linked accounts during the tenure of the loan agreement. This could be beneficial when negotiating with banks or non-banking financial companies for favorable conditions on the borrowed amount requested by you as a borrower seeking funds from them directly.