Factors Affecting Personal Loan Eligibility
Faced rejection on your personal loan application? You are not alone! Banks and non-banking financial companies (NBFCs) receive numerous personal loan applications every day and reject quite a few that fail to meet the parameters for approval. Facing rejections is a concern. Not knowing the reasons for rejections is a bigger concern. Let’s discuss the reasons for a smooth ride ahead.
Parameters on Which Personal Loan Applications are Evaluated
A personal loan is an unsecured loan that banks and NBFCs offer to salaried as well as self-employed to fulfil their various goals such as education, wedding, travel, medical emergency, etc. As lenders don’t receive any collateral in exchange for the loan, credit risk remains higher. That calls for scrutinising the borrowers’ profiles.
Lenders decide personal loan eligibility based on factors such as income, credit score, debt- to-income ratio, overall stay in the organisation, etc. Let’s discuss the role of all these in personal loan applications.
Credit Score
Whenever a personal loan application comes to the lender’s desk, the first thing it does is pull your credit history showing your credit score and repayment behaviour. A credit score of 750 and above is considered good for a personal loan application approval. A credit score of less than 700 will likely lead to rejections.
Income
Your income decides how much of a loan you can pay through equated monthly instalments (EMIs) for tenures ranging up to five years. The higher the income, the higher the loan amount you can get and vice versa. Higher incomes instill confidence among lenders about your repayment capability, resulting in increased loan disbursals. This is how personal loan eligibility as per salary is ascertained.
Debt to Income Ratio
Debt to income ratio represents the ratio of loan payment and income. Ideally, personal loan EMIs and other debts (if any) must not constitute more than 30% of your income. However, someone earning a greater monthly income of say INR 1 lakh and above can be allowed a personal loan with a higher debt-to-income ratio.
Professional Status
Your professional longevity decides your personal loan eligibility too. The longer you stay in your profession, the more the chances for smooth loan approval. Before disbursing personal loans, lenders make sure you have an overall work experience of two-three years, with a minimum of one year in the current organisation.
The Reputation of the Company You Work with
The company you work with decides your personal loan eligibility to a great extent. Working with a well-known organisation boosts the scope for hassle-free loan approval, that too, at attractive interest rates. Whereas if you are working with a less-known company, lenders will be reluctant to offer you a personal loan. These companies may not be financially stable, which could result in delayed salary payments, creating doubts over your loan repayment capability.
Residence
Lenders mark borrowers’ profiles as positive or negative based on their locations. People living in locations free of any violence or criminal activity will see a faster personal loan approval compared to those living in locations fraught with issues such as fraud, anti-social elements, etc.
Conclusion
Do evaluate yourself based on these factors before submitting a personal loan application form to reduce the scope for rejections. A loan rejection not only keeps you away from fulfilling your dreams but also reduces your credit score. For more insights on finance, economy, sports, health, beauty and women empowerment, visit zarooribaathai.in.
