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How Do Finance Companies Evaluate Your Personal Loan Eligibility?

by janeausten
Personal Loan Eligibility

Are you looking to consolidate debt or meet a huge expense? If yes, availing a Personal Loan is your answer. However, these loans are different from traditional loans as they are non-collateral and unsecured. 

Most financial institutions have stringent Personal Loan eligibility criteria to pick the right applicants. But don’t worry: we’ll walk you through the requirements of financial companies so that you can get your application selected without worrying about refusal!

Eligibility criteria of financial institutions for a Personal Loan

Many factors differ based on the lending institution, but we’ve personalised some factors that have a common ground for all lending institutions. These factors are most important to determine your eligibility. 

1. Your Credit score

This tells financial institutions whether you’re worthy of a Personal or Marriage Loan. Ensure you have a credit score above 750 to get your loan application sanctioned quickly.

2. Your Employment status

Another crucial parameter financial institutions keep an eye on to determine whether you can repay the loan on time is a stable income. Salaried employees with a minimum of 6 months to 2 years of work experience from private, multi-national, and government companies are eligible for Personal Loans. For self-employed individuals, a minimum work experience of 2 years in fields such as business, accounting, company secretaries, doctors, architects, etc. is suitable for getting a loan.

3. Your Employer profile

After going through your employment status, financial institutions screen your company or institution ratings. If you’re from a top-rated employment background, you have a higher chance of getting a loan. But don’t worry if you’re working for an unpublicised or unspecified employer, you still have a chance to get through!

4. Your Monthly Income

This factor doesn’t just determine whether you qualify for a Personal Loan but also decides the loan amount a financial institution gives you. Different financial institutions have their criteria for availing loans based on income. So ensure your income ranges between ₹20,000- 25,000 or more. 

5. Your Current financial status

This aspect gives financial institutions a clear idea of how you meet monthly expenses. Also, it helps determine the debt-to-income ratio that suggests whether you can repay the loan without delays. So the lower the debt-to-income ratio, the higher your loan limit. 

6. Your Past repayments

Even though you have a qualifying status of your loan profile, financial institutions tend to check how your debt repayments in the past. Therefore, if you’ve been a defaulter, it severely impacts your loan application and reduces the chances of getting selected. 

7. Your Age

Many financial institutions like Poonawalla Fincorp keep their loan eligibility age range between 22 years to 58 years. This age criteria also applies to individuals who wish to avail of Marriage Loan.  

Some other factors include checking your Personal Loan eligibility using the EMI calculator so that the loan fits into your monthly income to avoid delays in loan repayments.

Interest rates for a Personal Loan

The interest rate is the percentage of the loan principal charged by financial institutions to access the loan amount. Financial institutions evaluate the factors above and provide risk-based pricing to identify interest rates. 

Individuals with high risks over past credits won’t be eligible for the loan and even if they do manage to get a loan, they will do so at a higher interest rate than those with a good credit history. However, these interest rates average between 10- 28%. But impacts of inflation, current credit demand, and various economic factors can sway these figures.

Ways to improve your Personal Loan eligibility

If you intend to enhance your chances of having your Personal Loan application approved, try considering these factors before applying!

Check and improve your credit score before you apply.

Try paying your current debts and bills on time and not overusing your credit cards. 

• Don’t over apply for loans.

This affects your credit score, which will have too many inquiries and doesn’t leave a good impression on the financial institution you are applying to.

• Go to the right financial institution.

Get your homework done before applying for a loan. For example, compare various loans and interest rates to cross-check with the financial institution.

• Keep an eye on your debt-to-income ratio

You should not spend more than 40% of your income paying EMI. Keep it lower so the financial institution doesn’t find you incapable of repaying the loan.

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