A personal loan can be your quick financial solution when you need funds for your education, home renovation, dream wedding, or emergencies. But before applying for a personal loan in the UAE or anywhere around the world, you must get several things in order first.
There is no concrete formula for getting a personal loan application approved. Requirements for one’s income and credit score vary from lender to lender, and some banks even ask for nontraditional data such as educational level and free cash flow.
However, one thing is for sure – all lending institutions want to receive loan repayments on time. This means that they will only approve borrowers who can meet their set of requirements.
To help get your application approved, here are six tips to consider.
1. Determine your debt-to-income ratio
The debt-to-income ratio compares a person’s monthly debt payment with their monthly gross income. This personal finance measure is used to determine how much of an individual’s monthly income must be allotted for loan repayments. So before borrowing an amount, you need to compute your debt-to-income ratio.
Keeping your ratio low is a sure-fire way of getting your loan application approved.
2. Be aware of the different types of personal loans available
There are different types of personal loans in the market. Knowing the difference between each loan is crucial when it comes to choosing the best loan for your situation.
Secured loan
A secured loan asks for an asset as collateral. It can be your property or vehicle. So if you were not able to repay your loan, the lender would seize your asset to cover the amount you owed.
Since it has collateral, the amount of money you can borrow with a secured loan is higher than what you can get from an unsecured loan. Moreover, interest rates are lower.
Unsecured loan
An unsecured loan won’t ask for any collateral. But since the lender does not have any right to take any of your assets in case you miss repayments, the amount of money you can borrow tends to be smaller with higher interest rates.
But this does not mean that not paying your repayments on time does not have any consequences. Not paying your loan can negatively affect your credit history.
Whether you choose a secured or an unsecured loan, you must compare all available loans. Look into the loan amount, interest rates, ease of application, and repayment period. Most importantly, make sure that the overall costs are realistically aligned with your current financial standing.
3. Speak to lenders
Learn more about the available loan products by getting in touch with the lending establishments. You can inquire through email, call their customer service hotlines, or visit their office.
Some of the crucial things to ask include their terms, application process, timeframe, repayment schemes, and additional fees. This may take time and effort, but this will help you better understand the loan you want to get.
4. Get your documents ready
Get a checklist of the items you must submit and prepare them as soon as you can. For instance, it might be faster and easier to apply for a personal loan if you have a no late payment fee credit card for at least a year.
Generally, you need to submit the following:
● An accomplished personal loan application
● Proof of income or salary certificate for three months on your current job
● A photocopy of your valid ID or passport
Moreover, you have to look into the lender’s eligibility requirement. Some only cater to borrowers who are at least 21 years old and residents in the country. Furthermore, some lenders require a minimum monthly salary to qualify for a personal loan application.
5. Boost your credit history
Lending institutions will look at your credit history to check if you are a disciplined and trusted borrower. Paying your credit on time shows that you can make timely loan repayments.
You can boost your credit history by:
● Paying in full and on time
● Spending less than your credit limit amount
● Keeping old accounts
● Avoiding external factors that can negatively affect your credit history, such as bankruptcy and foreclosure
6. Maintain the right expectations
When you are in a hurry, avoid applying for a personal loan. Lenders have a protocol for approving an application and giving the money. Discuss the sequence of events with your chosen lending establishment so you will have an idea of what to expect. Also, ask for advice regarding how to follow up on your application.
Going through the process of applying for a personal loan is not easy. It involves several steps before you can receive the amount you want to borrow. Use these six tips to increase your chances of getting your loan approved. Provided that you show you can make repayments in full and on time and that you are a disciplined borrower, you will have a higher chance of loan approval. Remember not to apply for just any loan you want because this can be dangerous to your credit score, thereby obliterating your chances of getting one in the future.
AUTHOR BIO
Venkat Mahadevan is currently the head of the Wealth Management and Branch Banking business for Citi’s Consumer Bank in the Middle East. He has 30 years of experience in banking and in Citi, having spent most of his career in various roles in consumer banking and especially in Wealth Management. He also has extensive experience in the various aspects of Off-shore Wealth Management. He has worked with Citi in India, USA and Singapore prior to moving to the UAE.
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