Personal Loan Eligibility

Do you want a personal loan? Wondering whether or not you are eligible for one? Well, you will know at the end of this guidance.

A personal loan is a sum of money you can borrow from a financial institution, such as banks, credit unions, or non-banking financial companies (NBFCs). The key difference with personal loans is — unlike loans that are specifically intended for acquiring a home, a car, an education, or else — you can use the loan amount for any of your needs. Whether you need to consolidate debt, fund vacation, cover medical expenses, or even buy a phone or gadget; the lender cares nothing about it. You have all the freedom to use the loan amount.

However, to get a personal loan, just like all the other types of loans, you need to meet certain eligibility criteria that the lender sets. Although these criteria may differ among lenders, certain requirements are generally expected to be fulfilled to qualify for a personal loan. And in this comprehensive guide, you will discover everything you need to know about personal loan eligibility criteria — What are the eligibility factors for a personal loan? How it’s calculated? And how to improve it?! Let’s dive in.

Personal Loan Eligibility Criteria of Top Banks & Nbfcs in India

Different banks and NBFCs may have specific eligibility factors for personal loans. It’s important to research and understand the requirements of each lender. To provide insight, here are some prevalent eligibility factors commonly observed among top banks and NBFCs in India:

Factors Affecting Personal Loan Eligibility

To expedite the loan approval process, it is imperative that borrowers possess a thorough understanding of their eligibility for a personal loan and the factors that affect it. By doing so, borrowers can diligently fulfil the requirements for loan approval and enhance their chances of securing the desired loan amount within the desired timeframe. However, while personal loan eligibility criteria can vary among lenders, there are certain requirements that you must meet in general to get approved for a loan. Here are some common factors affecting Personal loan application criteria.

CIBIL Score

CIBIL Score is a 3-digit numeric summary of your credit history, rating and report. It spans a range from 300 to 900, with a higher score indicating a more favourable credit rating. The closer your score is to 900, the stronger your creditworthiness is perceived to be. However, to be considered in good standing, a CIBIL Score of 750 and above is generally deemed satisfactory by lenders.

Age

Lenders carefully verify your age when submitting identity proofs such as your Aadhaar Card, PAN Card, etc. However, it is important to note that the acceptable age range can differ among various lenders. Generally, most lenders stipulate that applicants must be a minimum of 21 years old and not surpass a specific age limit, typically around 60 years, at the time of loan maturity.

Profession

Your profession holds significant importance for lenders when assessing loan applications. In this regard, you must be a salaried or self-employed individual to qualify for the loan. Notably, suppose you are a government employee or any other high-profile designation you are holding. In that case, it becomes substantial weightage in the eyes of lenders during the evaluation of loan applications.

Income

Lenders scrutinise an applicant’s income to gauge their repayment capacity. As a general guideline, a stable and consistent source of income is typically favoured by lenders. This can encompass various types of income, such as salaried income, self-employment income, or income from other sources. Ideally, most lenders prefer a minimum monthly income of Rs. 15,000 for employed individuals and an annual income of Rs. 15 lakh for self-employed individuals.

Debt-To-Income Ratio

Lenders take into account your current debt obligations in relation to your income when assessing your loan application. A lower debt-to-income ratio signifies a stronger ability to manage additional loan repayments. It demonstrates a more favourable financial position and enhances your prospects of securing the loan.

Employment/Business Stability

Lenders hold a preference for borrowers who have stable employment or business history. Salaried individuals are typically expected to have a minimum work experience of 2-3 years, showcasing stability in their professional journey. On the other hand, self-employed individuals are often required to demonstrate a certain number of years in business, indicating the longevity and sustainability of their entrepreneurial pursuits.

How to Check Your Personal Loan Eligibility

Prior to applying for a personal loan, it is prudent to assess your eligibility with multiple lenders. In order to determine your eligibility for a personal loan, it is essential to consider various factors, including your age, work experience, monthly income, liabilities, and credit score. While loan approval requirements may vary among lenders, certain aspects exhibit consistent patterns across diverse banks and financial institutions in India. By meticulously assessing these factors, you can acquire a comprehensive understanding of your personal loan qualification and thus make well-informed decisions when seeking a personal loan.

However, there are multiple ways that you can determine your eligibility for Personal Loan. One of the most prominent approaches is to avail third-party Personal Loan Eligibility Calculator or visit the official website of your chosen lender to assess your eligibility.

Personal Loan Eligibility Calculator

Once you have decided on the lender you intend to approach, it is recommended to choose the lender’s Personal Loan Eligibility Calculator. Subsequently, you just need to input the following details into the designated tabs of the calculator:

• Enter your net monthly income after all the mandatory deductions.
• Enter your city of residence or the PIN code.
• Choose your employer types, such as Government or Private Entity, LLP, PSU, etc.
• Finally, enter your desired loan amount in the last tab of the Personal Loan eligibility calculator.

After determining your loan eligibility, you can even calculate the possible EMI payable that you would need to pay against the loan amount.

Tips to Improve Personal Loan Eligibility

If your eligibility falls short, there are some actionable steps you can take to improve your chances of loan approval. Consider the following tips to enhance your personal loan qualification:

Cibil Score

Let pay bills and existing loans on time, and reduce credit card utilisation. When you take on any debt, the lender passes your financial information to the credit information bureaus in your country. These companies compile your debt-related data and rank it between 300 to 900. Lenders generally consider a credit score of 750 and above favourable. And ultimately,  having a robust credit score serves as an indication of your responsible repayment behaviour and significantly increases the likelihood of securing loan approval, often accompanied by lower interest rates.

Affix Co-applicant

Adding your folks — such as your spouse, parents, children, or else — as a co-borrower in your personal loan application can also help to enhance your eligibility for a personal loan. Nevertheless, not all banks are currently permitted co-borrowers for personal loans. However, if possible, having a co-borrower can improve your personal loan eligibility and increase the likelihood of loan approval. Because in such cases, lenders assess the credit scores and repayment capacity of both applicants, strengthening your overall Personal loan qualification.

Avoid Multiple Loan Applications

Yes, you should refrain yourself from submitting multiple loan applications, as doing so can harm your credit score and diminish your chances of getting the loan. In fact, when you apply for a loan, the lender will check your credit report and credit score from one or more of the credit bureaus. This is called a hard inquiry, and too many hard inquiries in a short period of time can raise concerns among lenders, as it indicates that you are credit-hungry and may have difficulty repaying your debts.

Reduce Your Debt-To-Income Ratio

The debt-to-income (DTI) ratio illustrates how much of your monthly income goes towards paying your debts. A higher DTI means you have fewer funds to repay the loan, potentially leading lenders to reject your loan application. So it is advisable to maintain a DTI below 25% for optimal financial health. Typically, one can reduce his/her DTI ratio by either increasing their income or reducing their debts.

Present All Your Income Sources

To boost your Personal loan qualification, you should disclose all your income sources in addition to your monthly salary. This may encompass various passive incomes such as investments, rental properties, side businesses, income-generating hobbies, and so on. By presenting a comprehensive picture of your income sources, lenders become more confident about your ability to repay the loan, ultimately enriching your personal loan eligibility criteria.