Personal Loan

What Factors Go Into Getting Approved on a Personal Loan?


Personal loans can be a quick and easy way to get the cash you need to repair your house, pay for medical bills, start a business, or even go on holiday. 

You can easily and quickly apply for a personal loan in a matter of minutes. But, lenders would decide whether to approve a personal loan request based on a list of their specific needs. The lender’s evaluation of the person’s capacity to repay the loan is crucial because personal loans are unsecured. This is to prevent people from missing their payments.

Here are some factors that lenders consider before approving a personal loan. 

Features of a Personal Loan

  • Flexibility of Use

Banks and NBFCs provide open-ended and closed-ended loans. It means closed funds are used only for the purpose it is taken. Open-ended loans can be used as per the user’s needs. Close-ended loans are car loans, home loans, study loans, etc.

A personal loan can be used for medical expenses, college tuition fees, marriage expenses, repay multiple loans, etc. It’s not like a car or home loan. This financial resource can be used for any necessity without limitations. It’s an easy way out of a money crunch.

  • Easy Payout

Getting a personal loan is usually easy. One should qualify for all the criteria when applying for an urgent loan. The usual loan payout is between 24 hours and 72 hours at most. This time frame can differ between lenders. 

  • Hassle-free Payments

Personal loans give an easy way to repay the amount. EMIs, post-dated cheques, bank online transfers etc, are some of the few methods of paying the loan back. When applying for a personal loan, it is vital to know the payback format. The payback is usually done in monthly payments, also known as EMIs. These are decided before getting the loan. One thing to pay attention to here is EMIs should be pocket friendly. Otherwise, it will be a needless burden on the finances. If the user chooses a longer payback tenure, the EMIs will be lower and vice versa. 

  • Low-Interest Rate 

Before applying for a loan, the primary concern is the interest rate. Bankers are pushing to bring down the personal loan rate to attract users. The interest rates of personal loans are low in comparison to other loans. It also depends on whether the loan is secured or unsecured. 

  • Income Tax Perks

The TDS for a personal loan can be claimed while using the amount. Users can use this amount for building a home or for higher studies. The tax benefits can be up to Rs. 2 lakhs and call for proper paperwork that shows where and how the money is used.

Factors That Affect Personal Loan Approval

  • Credit Score Merit

A person’s credit score is crucial in approving a personal loan. It helps lenders track the payment habits of the person. The credit score depends on how the person has previously managed their credit. The thumb rule is that the higher the credit score, the better the chances of getting the loan approved.

  • Repayment Schedules

Lenders prefer larger repayment cycles. A larger payback period means that the lender can get back the loan within a long period. If you choose a shorter loan term, your chances of getting a low-interest personal loan are increased. Your repayment period shouldn’t be too long and the EMI payment should fit easily into your monthly spending plan. 

  • Personal Loan Documentation

All legal papers should be in order at the time of application. You will be asked for your PAN card, photo proof, address proof, and financial papers. The loan officer will check all the papers to ensure that they are authentic. If there is any mistake or you’re found to have a criminal record, then it is likely that the loan will be rejected. The required documents may vary depending on whether you are a salaried person or self-employed.

  • Employment Background

A person with more work tenure will have an edge over a new joinee. While getting the loan, a new startup may face some issues. But, the period of work-life may be different with many factors. There is a general mindset that business owners need some years of work tenure to qualify. This criterion is easy for salaried employees. The tenure can be short for salaried employees as compared to business owners or self-employed persons.

  • Age of the Applicant

Age shows the financial grounds and cash flow of the individual. If the applicant is in their early twenties, they will not earn as much. The same is the case with people above 60 years. Banks offer personal loans to individuals from the age of 25 to 55 years.

Few Points to Note before Applying for Personal Loans

  • Conduct proper research before applying 

Think about the bank giving loans with simple terms and low-interest rates. Even though most banks have similar rules, some may be more flexible and have less strict penalties. Before choosing a loan, always do proper research.

  • The chosen lender must offer low-cost EMIs 

One should choose EMIs that are easy to pay each month without the risk of penalties. Estimate the ability to pay with an EMI calculator. An EMI calculator can be used to find a result based on the loan amount, interest rate, processing fee, pre-payment options, and loan tenure.

  • Always keep other options open 

Personal loans are not the only way to get out of a problem. If the amount is not too big, one can ask family and friends for a loan. This eliminates the need to pay interest rates; even if someone pays them off early, it won’t cost them anything.


Getting a personal loan depends on many important factors. To improve your chances of getting a personal loan with a lower interest rate, keep all of the above in mind. 

Aside from these, banks also look at how long a person has been with their institution. If you have a good relationship with your bank and a good amount of money in your account, your chances of getting a loan go up. 

Once you get your loan, make sure to pay it back on time. This is so that the next time you need a loan, your bank will be happy to give it to you.

For similar blogs, you can visit Piramal Finance and explore their products and services.