Personal loan eligibility is determined by a variety of factors. Lenders consider these parameters to assess the risk associated with lending money. This helps them determine the likelihood of you repaying the loan on time. Learning more about these could help you check if you are eligible for a specific personal loan offer.
Here are some key factors that can affect your eligibility for a personal loan.
Credit Score
The most significant factor affecting personal loan eligibility is your credit score. A credit score is a numerical representation of your creditworthiness. It is derived from an analysis of your repayment history and credit profile. It is calculated by the four authorised credit bureaus in India. Lenders generally check the credit score issued by TransUnion CIBIL.
The CIBIL score ranges between 300 and 900. A higher score indicates better credit decisions. Most lenders prefer borrowers with scores above 750, considering them less risky. Credit scores influence the approval of the loan and the terms offered.
Income Level
Income reflects a borrower’s capacity to repay the loan. The minimum income requirements can differ from one lender to another. A good income assures the lender that you can pay all the EMIs alongside your regular expenses. Having a high income may qualify you for a higher loan amount. It may also help you get a lower interest rate as it decreases the risk for the lender.
Employment History
Stable employment reassures the lender of continuous income streams. This enhances your loan repayment capacity. Lenders usually look for a steady job history, often requiring you to be employed with the same company for at least 6 months to a year. If self-employed, lenders consider the stability and profitability of your business.
Debt-to-Income Ratio (DTI)
Your DTI ratio is a financial metric that compares your monthly gross income to your monthly debt payments. Lenders use this ratio to assess your ability to manage your new loan and repay existing debts. A lower DTI ratio is preferable — generally, lenders look for a DTI of less than 30-40%.
Age
Your age can also impact your personal loan eligibility. The minimum age requirement is typically set at 18 to 21 years. Meanwhile, the maximum age limit is usually set around 60 to 65 years. This range represents the typical working age when you are most likely to have a stable income.
Credit History
A comprehensive view of past credit history influences your eligibility. This includes your repayment history, length of credit history, and credit mix. Even the frequency of your applications for a new credit is considered. Having a good credit history can positively impact your personal loan eligibility.
Collateral
While personal loans are typically unsecured, offering collateral can sometimes influence eligibility. This is especially the case if your credit score or income does not meet the lender’s requirements. Offering collateral like a savings account, real estate, or other assets might help. It can help you get easy approval or a more favourable interest rate.
Purpose of the Loan
The intended use of the loan can affect eligibility. Lenders may be more willing to approve loans for purposes that add financial value. These include home renovations and debt consolidation. Loans for funding vacations or other expenses may not be approved as easily.
Co-signer
Having a co-signer may improve your chances of obtaining a personal loan. Consider this option if you have a poor credit score or insufficient income. The co-signer acts as a guarantor and lends their creditworthiness to you. This reduces the perceived risk for the lender.
Existing Banking Relationship
An existing relationship with a bank could lead to faster personal loan approvals. If you already have an account or other products with a lender, they can easily access your risk profile. Also, as a reward for your loyalty, they may offer better loan terms. This typically results in you getting a suitable loan offer easily.
Before applying for a personal loan, check the various offers available. Compare the interest rates and tenures to find an offer that best suits your needs. You can do this easily with the help of online financial marketplaces like Bajaj Markets. Here you can select from 15+ personal loan providers, as per your eligibility and needs. Click here to get started.
Understanding these factors can help you improve your loan eligibility. Improve your credit score, increase income sources, stabilise employment, and manage debts effectively. Also, choose the right lender whose offer aligns with your financial situation. Remember, the loan purpose also plays a crucial role in the success of a loan application. Each factor is weighed differently by various lenders. But generally, meeting the discussed criteria enables you to get the required loan at favourable terms.