A personal loan is an instant and most viable option to deal with a financial crunch. It has become the favourite financial tool for most borrowers to meet unexpected needs, such as medical emergencies, unplanned trips, education expenses, marriage, accidental mishaps, etc. Further, a personal loan is an unsecured loan, which means that you don’t have to keep any collateral with the lender to obtain this loan.
Personal Loan Eligibility Criteria
To get a personal loan, you have to satisfy the eligibility criteria provided by every lender, in the absence of which the loan may get rejected. Following are some crucial factors that the lender considers while assessing the eligibility of the applicant for a personal loan.
- Credit Score – Credit score of the borrower plays a significant role in determining personal loan eligibility. It usually ranges from 300 to 900. A credit score which is greater than 750, is considered healthy and can make you eligible for the best offers in terms of the loan amount as well as interest rates.
- Age – Lending institutions provide personal loans to borrowers in the age group of 21 to 60 years.
- Income – Your monthly income is an essential element of your financial profile and helps in assessing your ability to repay the loan on time. The minimum income requirements differ from lender to lender, depending on the city you live in and the lender you have shortlisted. The income stability also plays an important role, which is why lenders insist on salary slips (or income proofs for self-employed / business owners) and the latest bank statements as a part of the documentation.
- Employer’s Reputation – Both salaried employees and self-employed professionals are eligible to avail a personal loan. However, to be assured of timely payments, lenders prefer the employees working with renowned organizations for a personal loan because of their steady income and job stability.
- Existing Monthly Obligations: It will determine eligibility as well as the maximum loan amount that can be provided. The lender will calculate your ability to repay the loan by taking into account the income you earn versus your monthly obligations. These would include credit card payments and EMI payments of other loans.
How to Check Personal Loan Eligibility?
Are you thinking to avail a personal loan but don’t know if you are eligible for it? A personal loan eligibility calculator is a useful financial tool that can help you ascertain your eligibility for a personal loan. It computes the loan amount as well as the monthly EMIs of your personal loan and is super flexible to use. This calculator gives reliable results based on relevant information, such as income, age, existing monthly obligations, location, and more.
Ascertaining your eligibility using a personal loan eligibility calculator is extremely simple. All you require to do is submit relevant details, such as your city, age, monthly expenses, and income. After that, the calculator will tell you the personal loan amount you will be able to acquire. However, this should only be used as a reference – actual eligibility is often decided upon a lot of other parameters which vary between lenders.
How to Improve your Personal Loan Eligibility?
If your lender is offering you a lower loan amount or a higher rate of interest, here are a few ways to improve your eligibility.
1. Build a strong credit score: A low credit score can lead to outright rejection of your application. Lenders may accept applications of borrowers whose credit scores are between low to medium but may charge higher interest rates. So, it is advisable to wait and improve it before applying for the loan with the concerned lender, so that you can prove your creditworthiness.
2. Pay off existing debts: A debt-to-income ratio of 50% is considered ideal if you have a single loan. And, in case you have taken multiple loans, the combined EMIs should not exceed 50% of your income. If the debt-to-income ratio is more than 50%, the lender might hesitate to disburse you the loan. So, before you apply for a personal loan, you must pay off your previous debts or reduce the number of debts so that your debt-to-income ratio is below 50%.
3. Avoid applying for multiple loans simultaneously: Sending out numerous applications can indicate multiple rejections. Every rejection can adversely affect your credit score. So, to enhance your personal loan eligibility, it is better to carefully evaluate your eligibility against the lender’s criteria before applying. Also, you must apply with only one lender at a time and wait for its decision.
The above pointers can be useful for improving your eligibility for a personal loan. Once you meet the eligibility criteria, submit all the necessary documents to complete the application process.