Looking for a Personal Loan? First Know These Eligibility Factors

Banks and NBFCs exercise caution while assessing your personal loan applications as there is no underlying asset or security to recover losses in case of default. Thus, lenders consider several factors like the applicants’ income, existing liabilities, age, occupation profile, employer’s profile to decide whether their application should be approved, how much loan amount should be sanctioned and at what interest rate. 

Therefore, it’s crucial for applicants to understand these factors used by lenders for assessing loan applications and determine whether or not they qualify for a loan.

To help you with this, stated below are the personal loan eligibility factors:

Credit Score

Credit score is one of the first filters used by lenders for determining their applicants’ eligibility for availing personal loans. Credit score is a three-digit number assigned by the credit bureaus, which indicate the creditworthiness of individuals based on their credit history. Applicants with credit scores of 750 or above are considered to have responsible credit behaviour, which increases their chances of being approved for personal loans. Additionally, some lenders offer lower personal loan interest rates to applicants having higher credit scores. Thus, prospective borrowers should fetch their credit report from the credit bureaus at regular intervals. By doing so, they will be able to timely detect any reduction in their credit score and take necessary steps to improve it.

In case of any inaccurate information or fraudulent credit activity found in the report, individuals should contact the respective credit bureaus, banks or NBFCs to get those rectified. A rectified credit report may improve their credit score and thereby, increase the chances of getting loans at lower interest rates. 

Loan repayment capacity

Lenders evaluate the loan repayment capacity of the applicant to determine whether the applicant can comfortably pay their EMIs. Lenders usually approve the applications of those applicants whose total EMIs, including the EMI of the proposed personal loan, fall between 50% and 55% of their monthly income. If your EMI of the proposed loan exceeds the mentioned threshold, you can opt for longer tenures and/or lower personal loan amounts to reduce your EMI to increase your eligibility for personal loan.

To ensure that the total loan EMIs do not exceed 50% to 55% of their net monthly income, prospective loan borrowers should use a personal loan EMI calculator to calculate the total EMIs and tenure for their proposed personal loan.

Employment Profile

Employer and occupation profiles are also taken into account when determining an applicant’s eligibility for a personal loan. Some banks and NBFCs also take this factor into account while setting the interest rate for their personal loan applicants. Personal loan lenders usually give preference to salaried applicants, especially those employed in public sector undertakings, government, multinational corporations and other well-known private sector businesses. This is because the salaried applicants have a higher level of income certainty. Professionals such as architects, chartered accountants, doctors, company secretaries and other non-salaried workers also have high chances of getting personal loans approved at lower interest rates. Applicants whose employer profile or occupation is not on the list of recommended employer or occupation profiles of a lender can have their loan application rejected. 

Job/Business Stability

Before approving a personal loan application, lenders look at employment and financial stability of the loan applicant. Those who frequently switch their job are less likely to get their loan applications approved.. This is because unstable jobs or businesses increase the chances of loan default. Thus, salaried applicants are usually required to have a minimum of 1 to 3 years of total job experience. Some lenders also require applicants to have a minimum of six months to a year of work experience in their current company. On the other hand, self-employed applicants are usually required to have a minimum of 3 years of business experience. Therefore, individuals planning to apply for personal loans soon should refrain from switching jobs.