Common Mistakes to Avoid While Checking

Personal loans can provide valuable financial support when you need it most, but applying for one requires careful planning and attention to detail. However, in a rush to secure the loan quickly, it is easy to make avoidable mistakes that can delay approvals, lead to rejections, or negatively impact your credit score.

In this article, we’ll explore the most common mistakes applicants make while checking personal loan eligibility and how to avoid them. But first, let’s take a moment to understand the crucial factors that influence personal loan eligibility.

Key Factors Impacting Loan Eligibility

Loan eligibility for personal loans typically hinges on an evaluation of your credit score, employment history, and income level. Below, we explore these factors in detail:

1. Credit Score: A credit score is a numerical representation of your financial health and repayment behaviour, ranging from 300 to 900. For personal loans, an ideal score is generally 750 or higher. A strong credit score indicates you’re a low-risk borrower, which can improve your chances for better interest rates and higher loan amounts. Conversely, a low credit score signals higher risk to lenders, potentially leading to loan rejection or less favourable terms. Regularly check your credit report for discrepancies or outdated information through authorised platforms like CIBIL, and rectify any inaccuracies promptly to maintain a healthy score.

2. DTI (Debt-to-Income Ratio): Your DTI ratio measures your monthly debt obligations relative to your income. Lenders typically prefer applicants with a low DTI ratio, as a lower ratio suggests better financial management. A high DTI ratio signals potential difficulty in managing additional debt, making lenders hesitant to approve your loan. Before applying for a loan, check with the lender their DTI ratio requirement, and then try to reduce existing debts to improve your ratio. Simple actions, such as repaying credit card balances, can make a significant difference.

3. Income Stability and Employment History: Lenders value stable and consistent income over time, as it reflects your ability to repay the loan reliably. Most lenders require a minimum of 1 year of work experience, with at least 6 months in your current job. Avoid changing jobs right before applying for a loan, as this could raise concerns about income stability.

Other factors, such as age and minimum income thresholds set by lenders, also play a significant role in determining Personal loan eligibility.

With the fundamental factors outlined, let’s now examine the common mistakes that can hinder loan approvals – and how to avoid them effectively.

1. Ignoring Personal Loan Eligibility Calculators

Many applicants skip checking lender-specific eligibility requirements or using personal loan eligibility calculator and proceed directly to applications, increasing the likelihood of rejection. Multiple rejections can harm your credit score due to unnecessary hard inquiries.

Lenders like SMFG India Credit provide personal loan eligibility calculator on their website, that can help you assess your borrowing capacity without impacting your credit score. These tools allow you to avoid unrealistic applications that could lead to rejections or unfavourable loan terms.

2. Neglecting Credit Score

Failing to prioritise your credit score can significantly affect your loan approval chances. A low score reduces approval likelihood and often results in higher interest rates and stricter repayment terms. To maintain a good credit score:

• Pay all dues, including credit card bills and EMIs, on time.
• Keep your credit utilisation ratio to a minimum.
• Regularly check your credit report for errors and resolve them promptly.

3. Applying for Unreasonably High Loan Amounts

Borrowers sometimes overestimate their repayment capacity and apply for larger loan amounts than they can manage. This can lead to rejection or financial strain, as higher EMIs may not align with your monthly budget. To avoid this:

• Use a personal loan EMI calculator to estimate the monthly repayment burden.
• Ensure the resulting EMI does not exceed more than half of your monthly income for a sustainable repayment plan. If it does, opt for a lower amount or a longer tenure.

4. Overlooking Debt-to-Income Ratio

Neglecting your DTI ratio is a common mistake that could lead to loan rejection. A high DTI ratio indicates unsustainable debt levels, making lenders wary of approving your loan. To address this:

• Clear smaller debts to improve your DTI ratio.
• Aim to keep your DTI ratio low before applying.
• If you have too many unsecured or credit card loans/EMIs, consolidate them all using a single personal loan for debt consolidation. Depending on your eligibility, you may even get approved for a top-up amount.

5. Submitting Incomplete or Incorrect Documentation

Errors or mismatches in your submitted documents can cause delays or result in rejections.

Common Errors Include:

• Incorrect names on official documents.
• Address mismatches between your ID and current proof of residence.
• Outdated income proofs.

Double-check all documents – such as your PAN card, salary slips, and bank statements – before submission to avoid delays.

6. Rushing into Multiple Applications

Submitting several applications simultaneously might seem like a good idea to increase approval chances, but it can be counterproductive. Each application submission results in a hard inquiry, which can cause a temporary dip in your credit score. A high number of inquiries within a brief period may have a lasting negative effect on your score. To avoid this:

• Compare lenders’ eligibility criteria, interest rates, and terms carefully before applying.
• Use a personal loan eligibility calculator to narrow down the best options.

Conclusion

Applying for a personal loan can be a smooth process if you avoid the common mistakes outlined in this article. Regularly monitor your credit score, and use tools like the personal loan eligibility calculator to prevent unnecessary hard inquiries which could negatively impact your score. Avoid applying for loan amounts that may exceed your repayment capacity.

Additionally, make sure you understand all associated fees and charges, such as prepayment charges or late payment penalties, to avoid surprise costs that could affect your financial stability. By taking these precautions, you’ll be better equipped to make informed and confident decisions when applying for a personal loan.

*T&C apply. Please note that final approval, loan terms, and disbursement process may vary based on lender policies and borrower’s eligibility.