Personal Loan Eligibility: How to get approved for a personal loan
Planning a family vacation? Buying your dream home? A personal loan can help you borrow money for various expenses. It requires very little paperwork. Plus, lenders do not require collateral for the loan. You receive the loan amount quickly.
However, before applying for a loan, you need to check your personal loan eligibility. The criteria for loan approval differs from lender to lender. But do not worry.
In this article, you will learn how to check your personal loan eligibility and improve your chances of loan approval.
Which are the main factors that affect personal loan eligibility?
Most banks and lending institutions will evaluate your profile based on the following factors. Go through each of the personal loan eligibility requirements to better understand them.
- Age
You must be between 18 and 65 years of age to get a personal loan in India. However, the upper and lower age limits for applying for a loan vary from lender to lender. For example, some lenders offer loans to individuals between the ages of 21 – 60. Many others provide loans to individuals over the age of 65 based on their pension income.
- Income
Income is one of the most important factors in determining your personal loan eligibility. The higher your income, the higher your repayment capacity. Hence, the risk for the lenders is lower.
You can apply for a personal loan with an income of Rs 15,000 per month. However, most lenders prefer people with a minimum monthly income of Rs 25,000.
If you are self-employed, your annual income should be at least Rs 2 lakhs. However, many lenders do not specify the minimum income requirements for self-employed individuals applying for loans.
- Type of employment
Lenders offer lower interest rates on personal loans to salaried applicants. They have more income security than self-employed applicants.
If you are a government employee, lenders prefer you the most. They also prefer private sector employees who are employed with reputed companies. In the self-employed/non-salaried category, professionals such as doctors, lawyers, CAs, or architects are likely to receive loans at lower interest rates than business owners.
- Work experience
If you are a salaried individual, you need at least 6 months of work experience in your current company. If you are self-employed, you should have been in your current profession or business for at least 2 years.
- Credit score
Lenders review your credit report to determine your ability to repay. The report provides complete details about your credit payment history over a period of time. It captures your credit card transactions, existing loans, and outstanding debt.
It also summarises your credit history in a 3-digit CIBIL score, which ranges between 300 to 900. The higher your CIBIL score, the higher your creditworthiness and the better your chances of getting a personal loan. Thus, your credit score is a determining factor in obtaining a personal loan.
In addition, lenders calculate the ratio between EMI and NMI to determine your loan amount. The EMI/NMI ratio should not exceed 50%. This means that your total loan obligations, including the repayment instalments of the proposed loan, should not exceed 50% of your net income.
How can you better your personal loan eligibility?
The demand for personal loans has increased. But, annual default rates are also on the rise. Therefore, lenders are cautious in granting loans. Thus, we have listed here some tips that you can use to improve your personal loan eligibility.
- Maintain a CIBIL score of 700+.
Make sure you always have a healthy credit score of 700+. If your score is above 750, it’s easier to get loans at lower interest rates. Also, you can get pre-approved loan offers from lenders where you already have accounts, credit cards, or deposits.
Paying your credit card bills and existing loan obligations on time will improve your CIBIL score. A mix of secured and unsecured debt helps avoid defaults.
Before applying for new credit, settle your outstanding debts. Check that your CIBIL report is accurate and correct any errors.
- Do not apply for loans with multiple lenders at the same time.
Whenever you apply for a loan, the lender initiates a hard inquiry to assess your creditworthiness. This means the lender will request your CIBIL report from the credit reporting agency. With each hard inquiry, your CIBIL score goes down. So do not make multiple credit inquiries. You should not look like a credit-hungry person.
- Make sure you meet the basic eligibility criteria and include all required documentation.
The terms and conditions of a personal loan vary from lender to lender. Lenders will not process your application if the basic criteria are not met. So, check the basic requirements of the lender.
Also, attach all the required documents, such as identity proofs, salary slips, etc. If documents are missing, you cannot obtain a personal loan.
- Do not borrow too much money.
Choose your loan amount wisely. Never take out more money than you can repay. Make sure your debt-to-income ratio does not exceed 40%. Simply put, your financial obligations should not exceed 40% of your gross income.
- Add a co-applicant.
Your personal loan eligibility improves when you add a co-applicant. Your spouse, child, or a close family member could be a co-applicant. Lenders take into account the CIBIL score of both applicants. This makes it easier for your loan application to be approved.
- Do not change jobs frequently.
Lenders take into account the stability of the job. If you change jobs frequently, your chances of being approved for a loan decrease. Work in one company for at least 2 years.
Final thoughts!
We believe we have given you valuable insights into personal loan eligibility to speed up your loan approval process. You can apply for personal loans online and enjoy additional benefits such as instant disbursement, no early repayment or foreclosure fees, etc. Also, if you need expert advice, access to ready-made EMI calculators, or flexible repayment plans ranging from 12 to 60 months, check out lenders like Piramal Finance.