Loan approval primarily depends on your credit risk assessment by the lender, supporting your credit score, income, job profile, among others.
Lenders approve loan applications and set their interest rates totally on the idea of their cost of funds and credit profiles of loan applicants.
Loans are often extremely helpful in meeting the financial shortages stopping you from achieving your financial goals. However, authorization primarily depends on your credit risk assessment by the lender, supporting your credit score, income, job profile, etc. Choosing the proper lender also becomes necessary because the interest rates and costs charged by them can vary widely.
Here I will be able to list some crucial steps to require before making the ultimate application.
1. Fetch your credit report before making your application
While evaluating your application, lenders assess your creditworthiness by checking your credit report. Usually, those with a credit score of 750 and above have higher chances of authorization at a lower rate of interest than those with lower scores. Lower score applicants are either denied authorization or granted approval at higher interest rates.
Fetching your credit report before making the application will allow you to require corrective measures to enhance your credit score. it’ll also assist you to identify any wrong information or clerical errors, if any, on the part of the lender or credit bureaus demolishing your credit score. A rectified credit score can increase your credit score and thereby, your loan eligibility.
Prior fetching of your credit report may additionally get you pre-approved loan offers through the credit bureaus or the web financial marketplaces supporting your credit score, income, job profile, etc. These pre-approved loan offers might offer you a good idea about your loan eligibility for further comparison.
2. Ensure to match loans available from various lenders
Lenders approve loan applications and set their interest rates totally on the idea of their cost of funds and credit profiles of loan applicants. This might cause the rate of interest range for an equivalent loan type to vary widely across the lenders. Hence, it’s important to match the loan offers from a good spectrum of lenders to land with the simplest loan offer.
A loan applicant should first approach his existing bankers and lenders, if any, on the supply of the loan he’s seeking and its features. Then, he should visit online lending marketplaces to match the varied loan offers offered by other lenders on the idea of his monthly income, credit score, job profile, employer’s profile, etc. the ultimate application should be made with the lender charging rock bottom rate of interest, fees, etc for the optimal loan tenure and margin money.
3. Choose a loan tenure on the idea of your repayment capacity
Loan tenure plays an important role in determining your EMI outgo and total loan cost. Ideally, selection for loan tenure should support your repayment capacity. Shorter loan tenures end in higher EMIs and lower interest costs and the other way around. Thus, choose a shorter loan tenure if you’ll pay your EMIs on time without sacrificing your contributions to your essential financial goals. just in case you can’t, choose an extended loan tenure for lower EMIs.
4. Avoid loan applications with multiple lenders within a brief span of your time
Each time you submit an application, lenders fetch your credit report from the credit bureaus to gauge your creditworthiness. Such credit report requests initiated by the lenders are considered as hard inquiries, each of which can lead the credit bureaus to scale back your credit score by a couple of points. Hence, making loan applications with multiple lenders within a brief span can significantly reduce your credit score, thereby reducing your loan eligibility.
Instead, visit online financial marketplaces to form loan inquiries across a good spectrum of lenders. While these marketplaces too will fetch your credit report back to provide you the loan offers, credit report requests by them are considered as soft inquiries and don’t reduce your credit score.
5. Ensure to think about your new EMI in your emergency fund
Financial emergencies like medical illness, job loss, etc come unannounced. These emergencies can disrupt your future income and cash flows and thereby, your future loan repayment capacity. Failure to form loan repayments by the maturity won’t only cost hefty penalties, it’ll also adversely impact your credit score. While you’ll redeem your investments to form loan repayments, doing so can adversely impact future financial health.
The best thanks to steeling oneself against such future uncertainties are to create an appropriate back-up within the sort of an emergency fund. This fund should be a minimum of sixfold of your monthly mandatory expenses including your existing and new loan EMIs. Hence, as soon as you begin planning for a replacement loan, attempt to simultaneously increase the emergency fund’s size by a minimum of sixfold of the expected EMI of the new loan.
