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Finance

5 Tips for Getting a Personal Loan on a Low Salary

An instant Personal Loan can be a viable option if you need financial assistance for  home repairs, medical bills, or even a much-needed vacation. It is possible to get Personal Loans with a low income even though it may seem difficult. We are sharing with you five steps to  improve your chances of loan approval.

  1. Improve your credit score.

Your credit score is crucial in determining your eligibility for a Personal Loan. Financial institutions use your credit score to analyse your creditworthiness and determine the risk of default. You may face higher interest rates or even rejection from financial institutions if you have a low credit score. Therefore, it’s essential to improve your credit score before applying for a Personal Loan.

Here are some ways to improve your credit score.

  • Pay your bills on time: On-time payments positively impact your credit score, so make sure to pay your bills on time.
  • Reduce your credit utilisation: Keep your credit utilisation below 30% of your credit limit.
  • Check your credit report: Review your credit report regularly to identify any errors or inaccuracies that may hurt your credit score.
  • Diversify your credit mix: Have a diverse combination of credit types including credit cards, installment loans, and a mortgage on your credit report. Having a mix of credit shows that you can handle different types of credit responsibly.
  • Keep old accounts open: Your credit history is essential to your credit score. Do this only if you have old credit cards or loans with a positive payment history. Keep them open to show a more extended credit history.
  1. Compare features of financial institutions.

Not all financial institutions offer instant Personal Loans to low-income borrowers and those that may have different eligibility for Personal Loans and interest rates. Therefore, comparing financial institutions is crucial to find the best deal.

Here are various factors to consider when comparing financial institutions.

  • Interest rates: Compare different financial institutions’ interest rates to find the lowest rate.
  • Fees: Some financial institutions charge  processing fees, prepayment penalties, or other expenses that can add to the loan cost.
  • Eligibility criteria: Check the eligibility for a Personal Loans to ensure that you meet the requirements.
  • Reputation: Look for financial institutions with a good reputation and positive customer reviews.
  1. Consider a co-signer

If you have a low income, a co-signer can improve your chances of approval. This is because a co-signer agrees to repay the loan if you can’t. 

Here are various factors to consider when choosing a co-signer.

  • Credit score: Your co-signer should have a good credit score. This increases your chances of approval.
  • Income: Your co-signer should have a stable income source to show the financial institution that the loan will be repaid on time.
  • Relationship: Choose a co-signer who trusts you and understands the risks of co-signing a loan.
  • Responsibility: It’s essential to choose a responsible and reliable co-signer. They will be responsible for repaying the loan if you can’t.o, choosing someone who can handle this responsibility is crucial.
  • Communication: Communicate with your co-signer about the loan terms and repayment plan. This can help avoid misunderstandings and ensure you’re both on the same page about the loan.

Remember that co-signing a loan is a serious commitment, and choosing a co-signer who understands the risks and is willing to take on the responsibility is essential. It’s also important to repay the loan on time to avoid any negative impact on your relationship with your co-signer and on your credit score.

  1. Consider alternative financial institutions

If traditional financial institutions such as banks reject your application for Personal Loans, consider alternative financial institutions such as NBFCs. Here are various points to keep in mind when considering alternative financial institutions.

  • Interest rates: Alternative financial institutions may charge higher interest rates than traditional financial institutions, so make sure to compare rates before applying.
  • Repayment terms: Check the repayment terms and fees charged by the financial institution to ensure you can repay the loan.
  • Reputation: Research the financial institution’s reputation and customer reviews before applying.
  1. Do Not Apply for Multiple Loans Simultaneously

When you apply for a Personal Loan, your lender approaches the credit bureau to inquire about the risk of your default. This is referred to as a hard inquiry and is mentioned on your credit report. Multiple credit inquiries within a short period can give the impression that you are desperate for credit, negatively affecting your credit report. This increases the likelihood of rejection or getting unfavourable terms, such as higher interest rates. To avoid the same, you can do the following to prevent applying for multiple loans at the same time.

  • Plan ahead: Compare different lenders properly before you apply for a loan.
  • Apply for one loan at a time: Instead of applying for a Personal Loan with various lenders, apply with one lender at one time to avoid multiple inquiries.
  • Wait for the response: It is important to check if your application is approved or rejected before applying for a loan with another lender. This way, you can prevent multiple inquiries. 
  • Use a Personal Loan Eligibility Calculator: You can also use the Personal Loan Eligibility Calculator to get a clear idea about your chances of getting loan approval.

Conclusion

In conclusion, getting a Personal Loan on a low income can seem difficult, but you can get it with the right approach. Following the tips outlined in this article can increase your chances of getting a Personal Loan approved. Remember to take the time to improve your credit score, compare different financial institutions, and consider alternative lending options.

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