Personal loans often come in handy during an emergency. When you are a salaried person with a limited income, it often becomes impossible to cater to financial emergencies. The need for a substantial amount of money puts you in a situation where you look for options.
Personal loans are the easiest source of money. But before applying for a personal loan it is important to know everything about them. This blog will give you all the information you need to pass the personal loan eligibility criteria.
What is a personal loan?
A personal loan is an instant loan. You can get it at a fixed interest rate from financial institutions like banks. You can use it for personal financial needs such as weddings, education, or any other emergency.
Personal loans are unsecured because you don’t need to provide collateral or security to borrow the money. You can pay the loan amount and interest in EMIs during the set loan term.
Steps to check Eligibility Criteria for Personal Loans
Following are the steps to check your personal loan eligibility criteria:
- Visit a branch/website
- Go to the Personal Loan section
- Select a personal loan variant according to your needs
- Click on Check Eligibility or similar options to see if you are eligible for the loan
What are the Factors that Affect Personal Loan Eligibility?
- Credit score: Candidates with scores of 750 or above are thought to be more financially responsible. As a result, banks and NBFCs prefer to provide personal loans to them. They even offer reduced interest rates to those with good credit scores. However, you can still get a loan with poor credit ratings but less amount and high interest. The credit limit for a personal loan depends on the financial institution you are taking the loan from. However, those who have no credit score can also apply for personal loans.
- Type of employment: Financial institutes prefer to give personal loans to salaried people, especially to those in government jobs. For a self-employed person to get a loan, your business should be up and running for at least 2 years or more.
- Income: A high income indicates that you are most likely to repay the loan. The minimum salary requirement for salaries is between 15,000 to 25000 by lenders. When you are self-employed your annual income should be more than 2 lakh per annum to acquire a loan. You might not be eligible for a loan if you can’t show a steady source of income.
- Age: You should be between 18 and 65 of age for availing personal loan through most banks and NBFCs. According to retirees’ pension income, some public sector banks also provide personal loans to them.
- Employer Reputation: Creditors give personal loans to salaried applicants at low interest. It is because of their greater income stability as compared to self-employed candidates. If you are employed in a big reputed company, banks will not mind advancing you to a substantial loan amount at a lesser interest rate.
- Experience: According to many banks, salaried employees must have a minimum of 2 years of combined work experience to be eligible for a personal loan. Of those 2 years, at least 6 months of that experience should be with their present employer. Self-employed people and professionals need to be in their present business for at least two years to qualify for an unsecured personal loan.
- The other factor that is commonly taken into consideration is the Repayment capacity of the borrower. Applicants for personal loans are often approved by banks and NBFCs if their EMI/NMI ratio is between 50% and 55%. However, this might vary among lenders.
Important tips/ factors to improve personal loan eligibility criteria for your loan
There are a few ways to increase your chances of getting your loan approved. There are many variables to consider when establishing your eligibility for a personal loan. The following advice can help you become more qualified for a personal loan:
- Keep your credit score at or above 750: If your credit score is 750 or above, your chances of being approved for a loan will be greater. You can receive a personal loan with a high credit limit and reduced interest rates. With a better credit score, you can also get an instant pre-approved personal loan from lenders. You can also choose to take loans from those with whom you already have a credit card or deposit/loan account.
- Avoid frequent job changes: When determining your eligibility for a personal loan, lenders also look at your employment history and consistency. They can be hesitant to offer personal loans to those who often switch employment. Such behaviour indicates professional instability, which raises the chance of defaulting.
- Adding a co-borrower can help: Including a member of your immediate family in your application will improve your chances of getting desired loan amount at low interest. It could be your spouse, parents, children, etc. However, not all banks and NBFCs now permit co-borrowers. But adding a co-borrower, if available, can significantly increase your chances of getting a personal loan. It’s because, in these situations, lenders take into account the credit ratings and repayment capacities of both applicants.
You must consider the above-mentioned factors and tips before checking your loan eligibility as a borrower.
Piramal Finance is an Indian financial services company that provides personal loans, business loans, housing loans, and other financial products for you with a very simple process. Visit our website today for a simple and seamless instant personal loan process.