How do banks calculate personal loan eligibility in India?

Personal loans effectively meet your financial needs, whether funding a major purchase, consolidating debt, or covering unexpected expenses. However, you need to be eligible before you can take out a personal loan. Banks in India use a variety of criteria to assess your eligibility for a personal loan. Let’s take a closer look at how banks in India calculate personal loan eligibility.

  • Credit score

Your credit score is one of the most vital factors banks consider when determining your eligibility for a personal loan. Your credit score is a three-digit number that reflects your creditworthiness based on your credit history. If you have a good credit score, it means you have a history of timely repayments, and banks are more likely to approve your loan application. On the other hand, if you have a poor credit score, banks may reject your application or charge you a higher interest rate to compensate for the higher risk.

  • Age

Another crucial factor banks consider when assessing personal loan eligibility is age. If you are younger than 21, you may not have a steady income source, and if you are older than 60, banks may consider you a high-risk borrower due to your age. Generally, banks prefer to lend to individuals between 21 and 60 years old. Again, this criterion varies across lenders.

  • Income

Your income is an essential factor in determining your personal loan eligibility. Banks need to know whether you have a steady income source that can cover the loan repayment. Your income can be from a salary, business, or another source. Banks typically require that your income is at least Rs. 25,000 per month for you to be eligible for a personal loan. The higher your income, the better your chances of getting approved for a loan.

  • Employment stability

Lenders also consider your employment stability when determining your eligibility for a personal loan. They are more likely to approve your loan application if you have a stable job and have been employed for at least 1-2 years.

  • Existing loans and debt-to-income ratio

Your existing loans and debt-to-income ratio are also crucial factors that banks consider when determining your personal loan eligibility. Lenders typically require that your debt-to-income ratio is no more than 50% to be eligible for a personal loan. You may have difficulty repaying your loan if you have too many existing loans or a high debt-to-income ratio.

  • Relationship with the bank

Finally, your relationship with the lender can influence your personal loan eligibility. Suppose you have a good relationship with the bank, such as a long-standing account or a good credit history. In that case, it may increase your chances of loan approval. In contrast, a poor relationship, such as late payments or defaults, may decrease your loan eligibility.


Lenders use a combination of these factors to assess your creditworthiness and determine your personal loan eligibility. It’s also important to compare personal loan options from different lenders to find the best interest rates and repayment terms that suit your financial needs.

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