Various financial and personal criteria are assessed when a lender is verifying a borrower’s creditworthiness. These factors help the lender evaluate your repayment ability and the possible risk associated with lending. Individuals can improve their chances of approval and prepare in advance by knowing the core aspects of personal loan eligibility criteria. This article explains the important factors that lenders consider before sanctioning a personal loan.
Credit Score and History of the Borrower
One of the critical indicators of loan eligibility is an individual’s credit score.
- To get a personal loan, a credit score above 750 is generally considered favourable by most lenders.
- The credit profile improves when one has a consistent history of timely repayments on loans and credit cards.
- Late payments, defaulting on a loan, or heavy borrowing may negatively impact one’s credit score.
Your past borrowing is assessed by lenders with the help of your credit reports.
Stable Employment
Lenders check your monthly income to confirm whether the repayment of the loan from you is feasible without any financial burden.
- A salaried person must show proof of a steady income through salary slips or bank statements.
- In case you are self-employed, you may need to provide your income tax returns or audited financials.
- If you are employed at a reputable organisation, you may be considered a secure applicant.
If your income is high and consistent, it may improve your capacity to take on and repay the loan.
Debt-to-Income Ratio
The debt-to-income ratio compares the total monthly debt obligations of a borrower to their monthly income.
- A favourable repayment capacity is indicated by a lower debt-to-income ratio.
- If a major portion of your income is aligned towards other EMI payments, your chances of getting approved for the loan may decrease.
You can meet the lender’s acceptable levels by maintaining a balanced debt-to-income ratio.
Work Experience of the Borrower
Loan terms and conditions may be different for salaried and self-employed borrowers.
- Lenders may consider salaried individuals who have been at their current job for at least 6-12 months.
- In the case of self-employed applicants, they may be required to show stable business operations over an extended period.
Your job profile helps lenders assess the stability and reliability of your income.
Borrower’s Age
Another personal loan eligibility criterion is the applicant’s age. A borrower’s loan tenure and repayment capacity are determined by their age.
- Lenders may prefer to provide a loan to individuals who are between 21 and 60 years of age.
- Longer tenures may be given to younger applicants, while providing shorter tenures to older applicants.
Loan terms are decided based on the borrower’s age, income, and job.
Stability of Current Residence
Residential stability is assessed by analysing whether a borrower stays at the same address for an extended period.
- Your credit profile can be enhanced by owning a house (even under EMI).
- While renting may not affect eligibility, frequent address changes may concern the lender.
A lender may prefer borrowers who have a stable residential history. This is because lending funds to individuals whose current residence is stable is considered to be potentially less risky.
Existing Loan Repayments
Your repayment capacity can be affected if you already have ongoing loans.
- The loan amount you are eligible for may be reduced if your current EMIs are high.
- Borrowers may improve their eligibility by clearing small debts before applying for a personal loan.
Before deciding on the loan amount, lenders take your income into account.
Past Relationship With the Lender
Lenders may consider your past dealings with them or other lenders, along with your repayment history. Having a savings account, a salary account, or an existing loan can support your loan application. A well-maintained bank account can also strengthen your overall profile.
Accurate Documents
Make sure that you submit all the necessary documents like the Aadhaar card, PAN card, income proof, and address proof. Also, ensure that the information provided is accurate. Incorrect information may lead to a delay or unfavourable loan terms.
Conclusion
A borrower can make informed borrowing decisions after understanding the factors that affect their personal loan eligibility. Some of the notable factors are your credit history, income, age, employment type, and existing debt obligations. Borrowers must review these factors carefully before getting a personal loan. Additionally, make sure all the required documents are in order and your current debts are managed. Reviewing all these factors may increase the chances of loan approval and allow the borrower to attain favourable loan terms.
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