How a co-applicant can increase your personal loan eligibility?
To be eligible for a personal loan approval by the lender, you need a good credit score, a good income and minimum liabilities. Hence, a poor credit score and insufficient income can reduce your chances of getting your application approved by the bank. You can remedy this situation by making a joint application with a co-applicant. How does a co-applicant improve your chances of getting a personal loan ? Before answering this question we need to know who is allowed to be a co-applicant in your personal loan application.
Financial institutions only allow your spouse or your parents to be a personal loan co-applicant. Some lenders allow siblings to be a personal loan co-applicant but you need to check whether your lender has such a provision. Now let us have a look at why having a co-applicant in your application helps.
- Joint Income:When you make a joint application with your spouse/parent/sibling as the co-applicant, the sum total of your and your co-applicant’s income is taken into account by the lender. Thus, if you are missing out on a personal loan because of your low income, the income of your personal loan co-applicant fills the inadequacy. If your co-applicant has a really high income, it will make you eligible for a high loan amount at competitive interest rates.
- Credit Score:In addition to income amount, lenders also check your credit score to assess your loan eligibility. If you make a joint personal loan application with a co-applicant who has a strong credit score, it increases the chances of your application getting approved. If you have a poor credit score, the good credit score of your co-applicant can compensate for your low creditworthiness.
- Family Member:Since your co-applicant of your joint personal loan application is invariably from your family, it is relatively safe to have a co-applicant. When your personal loan co-applicant is a family member, there will be less chances of conflict in case your co-applicant fails to pay his/her part of the EMIs.
- Debt to Income Ratio:Lenders usually reject the loan application of those who have high debt to income ratio. Debt to Income Ratio is the ratio of your monthly EMI to your monthly income. In a joint application, the income of your personal loan co-applicant is added and hence, it decreases the debt to income ratio.
- Favorable Interest Rates:If your personal loan co-applicant has high creditworthiness, it might make you eligible to negotiate the interest rates with the lender and get a better interest rate than what was originally offered.
Adding a personal loan co-applicant decreases the credit risk for the lending financial institution as the co-applicant is equally responsible for the loan repayment on a timely basis. Hence, there are higher chances that the lender will be willing to negotiate the personal loan interest rate in your favor.