Depending on your needs, there are several types of personal loans to choose from. These are generally easy to apply for. Such loans also do not require any security. Due to the ease of acquiring a personal loan, they have become a popular means of financing. However, to get a personal loan, there are some criteria that you need to meet. Before approving your loan, the lender will check your personal loan eligibility based on several factors.
Various factors can affect your eligibility for a personal loan. Some of these factors are your credit history, current income, and age. It is important to check your eligibility for a personal loan before you apply. This can help you know the amount you can borrow.
Let’s take a closer look at some of the basic factors that can help determine your personal loan eligibility.
You can start checking your eligibility with one of the most basic criteria—age. A majority of lenders have a set age limit for personal loans. Generally, you must be within the age bracket of 21 to 67 years to be eligible to apply.
A higher income indicates a greater chance of loan repayment. This reduces the lender’s risk. Thus, people with a higher income have a better chance when applying for a personal loan. For this reason, there is a minimum income requirement when applying for loans. The exact amount may vary from lender to lender. Similarly, the maximum age will also vary depending on the bank.
Where you reside is also a crucial factor that can determine your personal loan eligibility. Having your own house helps when you apply for a loan. Rent takes away a large chunk of your income. This reduces your capacity to repay the loan. However, it is still possible to get a personal loan even if you do not own a house of your own.
Banks also consider the location of the applicants. Generally, applicants living in bigger cities are assumed to have a higher income. As stated earlier, a better income means a higher capacity to repay the loan. The minimum income needed for loans may also vary based on the city that you live in. The salary requirement for people living in Tier-2 and Tier-3 cities might be lower.
This might be one of the most crucial factors to consider when applying for a loan. The minimum credit score may vary from lender to lender. Generally, if you have a credit score of 750 or higher, you might have a better chance of getting your loan. People with a higher credit score are believed to be financially wise. A higher credit score shows a lower chance of default.
Some lenders may offer loans at a lower interest rate to people with a higher credit score. It is also possible to get a loan with a poor credit score. With a lower credit score, you will get loans at higher interest rates. To boost your chances of getting a loan at a lower interest rate, you can improve your credit score. You can improve your credit rating in the following ways:
- Ensure that you repay loans on time.
- Do not take out a lot of loans at the same time.
- Only apply for loans that you can repay.
- Check the activity of your joint accounts. Your joint accounts can also impact your eligibility.
- Keep a check on your credit history.
How many EMIs do you need to pay? What is your fixed cost? Banks may also consider your debt-to-income ratio. This indicates your net disposable income. Your disposable income can be a clear sign of your ability to repay your loan. Normally, this ratio should not exceed 50%. Simply put, your total fixed costs should not be more than 50% of your total income. Fixed costs include credit card bills, previous and upcoming EMIs, and other monthly expenses.
- Many banks demand that applicants have prior work experience. Salaried people might be required to have a minimum work experience of two years. You must also have a minimum work experience of six months at your current job.
- The reputation of your employer might also be a deciding factor. If you work for a reputed company or public enterprise, your chances of getting a loan are higher. People with such jobs have a stable income and better job security.
- If you are self-employed, you might need to have work experience of at least 2 years in your current business or profession.
The bottom line
While getting a personal loan may be easier, it is vital to check your eligibility. These factors can not only impact if you get a loan or not, but they can also impact the terms of your loan.
The higher your eligibility, the better the terms of your loan. While it might not be possible to meet all the criteria, you can work on building your CIBIL score. This would require financial discipline and patience.
These details must have helped you gain a better understanding of your eligibility for personal loans. Understanding financial matters can be tricky for most people. It always helps to be sure. Whenever you are unsure, you can consult reliable lenders like Piramal Finance. Their expert financial advisors can help you determine your eligibility. You can also check out their free credit report tool. They also have many articles and blogs on their website that will help you learn more about the world of finance.