Lenders approve your personal loan application on the basis of various factors such as your credit score, age, income, repayment capacity, occupation and employer’s profile. You can predict the odds of getting a personal loan by seeing how well you measure up against its eligibility factors. Some of these factors are discussed here to help you improve your chances of personal loan approval.
Key Factors Affecting your Personal Loan Approval
1. Credit Score
Credit score is probably the first thing that lenders look into when assessing an applicant’s personal loan application. Applicants with credit scores of 700 and above have higher chances of getting a personal loan because lenders consider such applicants to be more financially disciplined and resultantly, are less likely to default.
Moreover, many lenders set lower personal loan interest rates for applicants having higher credit scores. Having said that, there are also some lenders that offer personal loans to applicants with lower or no credit scores but then they charge higher interest rates. Therefore, applicants should regularly check their credit scores and take corrective steps to keep it as high as possible.
Prospective personal loan borrowers having no or low credit scores can build/improve their credit scores by responsibly using lifetime free Step UP Credit Card – a secured credit card issued by SBM Bank (India) Ltd. with Paisabazaar as co-branded partner.
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2. Employment Type and Employer Reputation
Among salaried and self-employed applicants, income certainty is higher in case of salary individuals. This is also the reason why lenders offer personal loans to salaried applicants at lower interest rates. Also, among salaried applicants, lenders prefer offering personal loans to government employees, followed by reputed corporates and MNCs. In case of self-employed applicants, professionals like CAs, doctors, architects, etc. have higher chances of getting personal loans at lower interest rates.
For many lenders, salaried applicants should have at least 1 year of total working experience to be eligible for a personal loan. In case of self-employed individuals, their business should run for at least 2 years.
3. Age
Lenders usually offer personal loans to applicants in the age group of 18 years to 65 years. Many public sector banks also offer personal loans to pensioners, based on their pension income.
4. Minimum Income
Your income reflects your ability to repay loans. Higher income indicates higher capacity to repay your loan on time, which further implies lower risk for lenders. For salaried professionals, the minimum salary requirement set by most lenders is Rs. 15,000 or above. Note that lenders prefer individuals with minimum salary of Rs 25,000. In case of self-employed individuals, lenders usually require gross annual income of Rs. 2 lakh or more. Note that some lenders have not publicly disclosed the minimum salary or monthly income (in case of self-employed professionals/non-professionals) requirements for their personal loan applicants.
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5. Work/Business Experience
Many lenders specify that salaried individuals need to have a minimum total work experience of 2 years with a minimum of 6 months in the current organisation in order to qualify for a personal loan. In the case of self-employed individuals and professionals, they usually need to have been in the current business for a minimum of 2 years in order to be eligible for an unsecured personal loan.
6. Repayment Capacity
Lenders usually approve personal loans of those whose EMI/NMI ratio (also known as FOIR) is below 50% to 55%, which may vary across lenders. This implies that your total credit card and existing loan EMI obligations, including that of the new loan, should not be more than 50% of your total income.
Before applying for a personal loan, use Paisabazaar’s Personal loan EMI calculator to find your optimum EMIs based on your repayment capacity while ensuring your total EMI obligations, including that of the proposed loan, does not exceed 50% of your monthly income.