A Personal Loan comes as a great respite at times of financial crisis. Whether an unforeseen medical expenditure or you need a quick influx of cash to fund your next vacation, a Personal Loan can help you meet a host of planned and unplanned expenses.
However, like all loans, Personal Loans also have eligibility requirements. Fulfilling those requirements can grant you quick and hassle-free Personal Loans.
And if you rank high on those parameters, you may also land loans on the most favourable terms.
What Factors Affect Personal Loan Approvals?
While different lenders have different criteria, some common factors affect your eligibility.
Your credit score is a barometer that lenders use to gauge your creditworthiness. The three-digit number reflects your financial history and repayment habits. A good credit score establishes you as a trustworthy borrower, likely to make regular repayments without default.
The credit score holds even more significance in a Personal Loan since it is unsecured. So, lenders naturally prefer borrowers with good scores as it lessens their risk.
But what is a good score? The general Personal Loan eligibility CIBIL score is 750 and above. Such scores show that your repayment history is devoid of default and improves your chance of getting a loan instantly.
But what if you have a credit score below 700? A rating below 700 is categorised as high-risk by lenders. And while you may be able to get Personal Loans at lower rates, you are most likely to be offered steep interest rates.
So always check your credit score before applying for a Personal Loan and take steps to improve your score if you find it on the lower side.
Your ability to repay is closely tied to your income. So, lenders place high importance on your source of income.
You must mention all sources of income and not just your salary in your application, such as income from rent, investments, or other projects. Such secondary revenues strengthen your application and improve the chance of getting approved.
Lenders also consider the cost of living in your city while evaluating your income. For instance, income requirements for a Personal Loan in Delhi (a metro city) would be higher than in non-metro cities.
Lenders may be reluctant to loan you money if you already have multiple existing financial commitments, such as a home loan or education loan, as they affect your repayment capacity. Consider prepaying some of your debt, including the credit card bills, before applying for a new Personal Loan.
As a rule of thumb, your total EMIs (of all loans combined) must not exceed 30-40% of your monthly income. This way, you will have sufficient income to cover your necessities after paying the EMI.
Even for high-income individuals, maintaining the debt-equity ratio below 60% is advisable.
Also, refrain from making multiple loan applications simultaneously. It will lead to too many hard inquiries hitting your credit report, and as a result, lenders may view you as a credit-hungry customer and reject your application.
Work Experience and Stability
Your work experience also impacts your eligibility for Personal Loans. Applicants with a stable employment record have a better chance of getting quick loans than those with multiple job changes or employment gaps.
The organisation you’re working with also makes an impression on your lender.
For instance, employment in a reputed private or public organisation with a steady income boosts the lender’s confidence in your application. On the other hand, a job with small organisations or start-ups may project you as a risky applicant.
Age is another crucial consideration for lenders as it helps them estimate your earning potential or financial stability. Applicants between the ages of 23 to 58 are considered ideal.
A person below 23 may not have the required stability, and the earning potential may decrease after 58.
These are the five common eligibility factors that you should be aware of while applying for a Personal Loan in Delhi. Understanding them maximizes your chance of loan approval. Also, remember that eligibility criteria vary among lenders. So, it is best to check and find the lender that best suits you instead of making multiple applications to numerous lenders.