Personal loan in India is one of the popular credit options if you need immediate funds. It requires minimal documentation and no security. Proceeds are disbursed immediately in case of an instant personal loan, which is a form of pre-approved loan available based on your credit score and past repayment history. In case of regular personal loan, funds may be disbursed within 2-7 days. The disbursed funds can be used for any purpose like funding your medical expenses, vacation abroad, child’s higher education or home renovation. However, the unsecured feature of a personal loan usually makes lenders practice caution when assessing your loan application.
Check out some of the crucial personal loan eligibility criteria that lenders factor in while reviewing your application:
- Credit score
If your credit score is on the higher end i.e., 750 and above, then you are looked upon as credible by lenders and hence, hold higher chances of personal loan approval. Having a higher credit score also makes you eligible to avail the loan at a preferential personal loan interest rate. On the other hand, applying for personal loan with a lower credit score of below 750 often may mean outright rejection or availability of loan at a higher personal loan interest rate to compensate for the involvement of higher credit default risk.
As the need for a personal loan is usually immediate, reviewing your credit score just before the application submission is of no help. Instead, you must develop the habit to review your credit report periodically. Doing this renders you with adequate time to take right steps to ameliorate your score. Adopting healthy credit behaviors like timely repayment of credit card dues and EMIs, containing CUR (Credit Utilization Ratio) under 30 percent, closely monitoring co-signed or guaranteed loans, avoiding multiple credit applications within a short time span etc., can help maintain or enhance your credit score.
Periodical review also assists to detect wrong data or errors in your credit report. You can further report such discrepancies to the concerned bureau or lender for correction. A corrected report can automatically increase your score and boost your personal loan eligibility chances.
- EMI repayment potential
Like other loans, personal loan lenders too factor in your repayment capacity while assessing your application. Lenders generally require your monthly loan repayment obligations, which includes your new personal loan EMI to be under 50-60 percent of your monthly income. Failure to meet the set limit generally means lower personal loan approval chances. As longer repayment tenures result in lower EMIs, if you surpass the 50-60% limit then you must choose a longer repayment tenure to increase your repayment capacity. Doing this reduces your EMI burden.
- Employment profile
Lenders factor in your employment profile while approving your application. Also, few lenders consider this aspect to set your personal loan interest rate. Generally, lenders prefer lending salaried to the non-salaried owing to higher income certainty of the salaried. Among the salaried group, if you work with the public sector or reputed corporates then you are given higher preference than others are. Likewise, among the non-salaried group, professionals like chartered accountants and doctors have higher chances of availing personal loan approvals.
- Existing relation with the lenders
Nowadays most lenders provide instant personal loan, a kind of pre-approved loan at preferential rate of interest if you are an existing customer. You can have such relations in the form of savings, current, salary, recurring/fixed deposit, any loan, or credit card accounts. Thus, if you are looking for a personal loan, you must start your search by first contacting your financial institution with whom you share an existing lending or banking relation. The personal loan interest rates offered by these financial institutions can be set as a benchmark to strike loan comparison with other lenders.
Conclusion
As credit evaluation procedure and risk appetite of the lenders can differ drastically, your personal loan eligibility and offered interest rate may even vary widely across lenders. Thus, ensure to approach as many financial institutions as possible to avail the best offer before you hit on the personal loan apply button. One of the prudent ways of doing so is by visiting the online lending markets to fetch different personal loan offers available based on your income, credit score, employer’s profile etc. Routing for this method of comparison eliminates the risk of any negative impact on your credit score.
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