Lenders don’t just assess your credit score but also check your income to determine your potential to repay the personal loan on time. If your income is low, lenders may turn down your application. Rejection is a sad affair and witnessing it amid a financial emergency can be disappointing. However, you don’t need to lose hope. Rejection on the grounds of low income can be fixed by adopting some strategic tips. But before discussing these tips, let’s understand what impact low income has on your personal loan eligibility.
Impact of low income on your eligibility for a personal loan
As the minimum income requirement for a personal loan is fixed by most lenders at Rs 25,000 per month, a salary of a lower amount than this may lead to loan application rejection. This is because the lender wants to ensure that you earn enough to be able to pay the loan’s Equated Monthly Instalments (EMIs) on time.
A rejected loan application heavily affects your credit score, which, in turn, impacts your future eligibility of availing a loan. A lower score may lead to other lenders to turn down your application, placing you in a loop of a low score and personal loan rejections. To get out of this, you can follow these simple tips.
What are the tips to improve your personal loan eligibility?
If your income is on the lower side, you can adopt these tips to increase your personal loan eligibility.
- Show your additional income from investments
Your income earned from different investments can serve as proof of additional income and can be used for enhancing your personal loan eligibility. This can help you reach the minimum salary required for a personal loan. For example, if you have a fixed deposit, you can compute the annual returns from them and divide the total by 12 to enhance your monthly earnings. Likewise, if you get dividends from shares, you can even show this income.
- Show your income from variable pay
If you fail to meet the personal loan minimum income requirement, then you can compute your monthly/quarterly incentives, annual bonus, and other variable income to increase your personal loan eligibility. Also, you get the choice to show your earnings from your other sources of income like freelance, rental income, etc.
- Meet other eligibility parameters fixed by the lender
If you are unable to meet the minimum income requirement for a personal loan, you must make sure to meet the other eligibility needs. For example, you should try maintaining a good credit score of at least 750. Also, you must timely repay your other loan dues or credit card dues in full by the due date to enhance your chances of loan approval. Likewise, you should not use over 30% of your credit card limit, must remain employed with a reputable company for more than two consecutive years, and show additional income proof, if any. Such parameters might convince the lender to reconsider your personal loan application even if you have a low income.
- Apply with a co-applicant or guarantor
In case your credit score or income is low, you can apply for personal loan with a co-applicant or guarantor. This is because lenders club your income with your co-applicant or guarantor’s income to determine your repayment capacity for a personal loan. A co-applicant or guarantor with a high income can enhance your chances of getting personal loan approval. Thus, before you hit on the personal loan apply button, ensure to check your co-applicant’s income. Also, remember if you default on the personal loan EMI repayment, not only will your credit score be negatively impacted but also your co-applicant’s score. Hence, make sure to be cautious and enlighten your co-applicant about this before you apply for the loan.
Following these tips can help you improve your personal loan eligibility and get your application approved despite low income. However, before applying for a personal loan, ensure to use a personal loan EMI calculator to understand your repayment capacity and your loan affordability. Avoid opting for a higher loan amount if it is not required as the proceeds come with an interest constituent, which you must repay within the predetermined tenure. Doing so unnecessarily burdens your financial budget. Thus, ensure to opt for just the loan amount you require.