Personal loans are simple borrowing solutions that are easily accessible since they are approved based on your income profile and credit history, they typically do not require collateral. However, this accessibility comes with responsibility. Recent industry findings (Source: Jan 2025 report by the CRIF High Mark and Digital Lenders Association of India) show that smaller-ticket personal loans, especially those under ₹10,000, have seen higher default rates in India. Because of this, lenders have become more selective and tend to scrutinise applications more carefully before approving them.
As a borrower, applying for a personal loan is not just about filling up a form but about preparing and presenting yourself as a responsible borrower. If you understand what banks and NBFCs actually check for, before deciding; and make minor improvements to your financial profile, your chances of approval can go up significantly.
In this article, we give you five practical and responsible loan approval tips so that you can improve your chances of getting your personal loan.
Work on Improving Your Credit Score Before Applying
Your credit score is usually the most important factor in personal loan approval decisions. Maintaining a score above 750 improves your chances of securing a personal loan with competitive interest rates and other loan terms. Most lenders expect borrowers to have scores of 750 or higher, but you can always get one with lower scores but at less competitive interest rates. The process of increasing your score takes time, so you want to make sure you begin this process at least 3-6 month prior to your loan need.
Here are some useful tips to improve your credit score:
- Get your free credit report from the respective credit report body (CIBIL, CRIF, Experian, or Equifax) to know your credit score. If your score is below 700, focus on improving it before applying. Try to bring down past due credit card balances to below 20% of your limit. If you have past-due payments, pay them off as quickly as possible. They tend to negatively affect your score. Even a 50-point gain might get you more competitive interest rates.
- Pay dues on time and keep your credit utilisation within limits.
- Do not frequently apply for loans.
- Monitor your credit report regularly to correct any errors.
- Common mistakes that hurt credit scores include paying only minimum amounts on credit cards, missing EMI payments, and applying to multiple lenders simultaneously. Therefore, make sure you maintain discipline in this regard.
Use Personal Loan EMI Calculators to Make Smart Borrowing Decisions
Typically, several applications get rejected because borrowers apply for loan amounts that exceed their repayment capacity. Use personal loan EMI calculators to get a sense of what you can actually afford before applying. If you assess your repayment capacity before choosing a loan tenure, you can avoid financial strain.
Related reading: Smart Ways to Use Personal Loans for Financial Needs
Follow the 40% Rule While Estimating EMIs
Using a personal loan EMI calculator, it is important to ensure that total EMIs do not exceed 40% of your monthly salary. So, for a monthly salary of ₹50,000 and existing loan EMIs of ₹ 8,000, you should only pay up to ₹12,000 for a personal loan EMI (or total loan amount of ₹3.5 lakhs on a 3-year personal loan at 16% interest). Be sure not to stop with calculating just one scenario. Calculate many different combinations of loan amounts, loan tenures, and interest rates to find a balance between an affordable EMI and an acceptable total loan amount.
Get Your Documentation Right
Incomplete or incorrect documentation is one of the main reasons loan applications get rejected. Each lender has different documentation and eligibility requirements. Typically, here is what you can expect to submit:
- Proof of Identity: Aadhaar card, PAN card, Passport, Voter ID or Driving licence
- Address Proof: Utility bills, passport, Aadhaar card, rental agreement, or bank statement with your present address
- Proof of Income: Latest salary slips (generally last 3 months for salaried, or IT returns/bank statements for self-employed)
- Bank Statements: Generally last 3 to 6 months of your bank account statements reflecting consistent credits, especially salary deposits for salaried individuals
It is important that your documentation is also consistent. If your address does not match on each document, you make sure to get it updated in time. Salary slips should clearly indicate your employer details, and salary crediting in your bank statements should show matching salary crediting amounts.
Apply to the Right Lender at the Right Time
All lenders have their own unique guidelines when approving customers for personal loan applications. Non-Banking Financial Companies (NBFCs) have flexibility when processing applications and often, if applicants have a low credit score, will still approve their applications, but at a slightly higher rate.
Make sure to check which lenders approve customers like you, with your profile, needs and income. When you submit your application also matters. It is recommended that you avoid applying during festival seasons where processing will be slower or immediately following the disbursal of any other loan. It is best not to apply to lenders for new credit in very close succession or within the same 3-6 month period. Give time between credit applications so you do not have lenders think you appear 'credit-hungry'.
Consider a pre-approved loan. A pre-approved loan is a loan that is not based on a fresh application but the lender has already reviewed your financial profile based on your existing relationship. This means the lender has preliminarily determined how much you may be eligible to borrow.
Summing up
Getting your personal loan approved is a lot about preparing adequately as an informed borrower. Focus on building a strong credit score first. Use the online personal loan EMI calculator to know your interest outgo and other details. Always remember that loan rejections can temporarily impact your credit score. It's a good idea therefore to strengthen your application first rather than applying multiple times.
Shriram Finance provides personal loans at competitive interest rates and with flexible loan tenures. For more information on personal loan interest rates and other terms and conditions, please visit our website.
FAQs
What are the best ways to improve my chances of loan approval?
To improve your chances of getting a Shriram personal loan approved, maintain a good credit score, keep your existing loan EMIs within limit, and apply for a loan amount that matches your repaying ability. Checking your eligibility and using a personal loan EMI calculator can also help you decide on the right loan amount and tenure before applying.
How does my credit score affect approval success?
Your credit score is one of the first things lenders check when reviewing your personal loan application. A score above 750 usually means that you are a disciplined borrower. This typically increases your chances of approval at competitive interest rates.
What documents can help speed up the approval process?
Getting documents ready can make your loan processing smoother and faster. The following documents are usually necessary for getting a personal loan:
- Identity Proof (Aadhaar card, PAN card, Passport, Voter ID, or Driving Licence)
- Proof of Address (utility bills, Aadhaar, rental agreement, or bank statement)
- Income Proof (recent salary slips for salaried individuals or ITR for self-employed)
- Last 3 to 6 months’ bank statements
If your documents are up to date and consistent (such as your name and address matching everywhere), the approval process usually becomes quicker.
How can I manage my debts to get approved?
Lending institutions usually prefer borrowers who keep their total EMIs within 40% of their monthly income. Before applying for a personal loan, try closing or reducing outstanding credit card balances and clearing overdue payments.
How important is employment stability for loan approval?
Employment stability is an important factor because it shows lenders that you have a steady income. Typically for a personal loan, if you have worked continuously with the same employer for at least 12 months, this can improve your approval prospects. For self-employed individuals, consistent business income reflected in bank statements or ITR improves your loan approval chances.
What common mistakes should I avoid when applying?
Many loans are rejective or not approved primarily due to simple errors such as:
- Applying for a loan amount too high that may not match your income range
- Submitting incomplete documents
- Applying to multiple lenders at the same time
So make sure you are wary of making such mistakes before applying for a personal loan.
What steps can I take if my loan application is rejected?
If your application is rejected, first check for the reason. It may be due to a low credit score, incomplete documents, or high existing debts. You may reapply after working on your financial profile. (clearing pending/overdue EMIs, minimise credit card usage, etc.)