Top Personal Loan Eligibility Factors to Beware About!
5 min read
A personal loan is one of the preferred credit options for those in immediate fund need. Personal loans require minimal documentation, come with instant disbursal, and have zero security or collateral requirement with no restriction of end usage of funds. However, the unsecured characteristic of personal loans requires lenders to exercise great caution when assessing an application for a personal loan. Apart from mitigating the emergency linked expenditures, you can also refinance your high-interest credit or even consolidate your multiple loans with low-rate personal loans. You can also fill up a one-pager form of a digital personal loan lender to avail of instant cash accessibility according to your requirement.
Different lenders or banks or financial institutions have different terms & conditions, which affect the amount you require repaying. Thus, before you apply for a personal loan, you must conduct in-depth research of various options available to be aware of a suitable deal. Note that the minimum CIBIL score for personal loan is usually 750. However, few lenders like NBFCs may approve your personal loan even if your CIBIL score is below 750. But the loans approved by NBFCs are usually at a higher rate of interest, which overall increases your personal loan cost. Thus, it is recommended that you must always conduct a CIBIL score check periodically to know where you financially stand in terms of your credit behaviour. In case of a low credit score, take necessary measures to improve your credit score and keep conducting a CIBIL score check every month till your score reaches a higher level. Remember that checking your credit score just before submitting your personal loan application is of zero help if your score is low, as improving your credit score takes a good amount of time, and the need for a personal loan is often immediate. Thus, in such cases, you will have no option except to approach NBFCs or digital lenders to avail the loan proceeds at the higher personal loan interest rate.
Here are four important factors that lenders consider when evaluating your personal loan eligibility:
Credit score
It is one of the pivotal filters that lenders factor in to evaluate your application for a personal loan. Those individuals with a credit score of 750 & more are considered credible and have enhanced chances to avail of personal loan approval at a lower interest rate and processing charges. As those with a credit score of lower than 750 are considered as the ones with no credit discipline, lenders may reject your loan application or provide you with a loan at a higher or greater interest rate to compensate for the involvement of higher credit risk.
As requirements for a personal loan may come up anytime in case of financial emergencies, you must conduct a regular CIBIL score check and not check your score right before your personal loan application as nothing much can be done if it is low. Conducting a regular CIBIL score check helps you take the right steps to improve your score. Adopting good credit practices is the only way to improve your score. These practices include timely due repayments in full, maintaining below 30 percent CUR, monitoring your guaranteed or co-signed credits to ensure their timely repayments, avoiding multiple credit applications within a short span of time etc.
Also, conducting a regular CIBIL score check can allow you to identify incorrect dates or any clerical mistakes in your credit report. Knowing such mistakes or errors in time helps you to timely approach the respective lenders or credit bureaus for correction. A rectified credit report can instantly enhance your score as well as your eligibility for a personal loan.
EMI repayment capacity
Like other loans, lenders of personal loans too consider your repayment capacity to evaluate your application. Generally, lenders require your monthly repayment obligation, including your new and existing loan EMIs to be within sixty percent of your NMI/GMI. Those exceeding this set limit usually have lesser chances of personal loan approval. As opting for longer tenures lead to lower loan EMIs, if you exceed this mark of sixty percent, by any chance, select longer loan tenures to enhance your repayment by reducing your month-on-month EMIs.
Employment profile
Lenders usually consider your employment profile when evaluating your application for a personal loan. Also, many set your interest rates on personal loans based on your employment profile. Lenders prefer salaried over non-salaried individuals due to their enhanced income certainty. Amongst salaried, reputed corporate employees or PSU employees are highly preferred than the rest. Similarly, amongst the non-salaried groups, experts like doctors, chartered accountants have higher personal loan approval chances.
Existing relationship with financial institutions
Many lenders offer pre-approved personal loans at preferential interest rates to their existing customers. These relationships may be in the form of current, savings, fixed, recurring, or salary accounts. It may even be in the form of credit cards or loan accounts. Thus, if you consider opting for a personal loan, begin your search by approaching the financial institutions or banks with whom you have an existing relationship. The rate of interest offered by them can be used as a benchmark to compare the interest rates offered by other lenders. To know the offer of other lenders, consider visiting online financial marketplaces. Such marketplaces help you compare amongst all the lenders that are willing to offer your personal loans based upon your credit score, income, repayment capacity etc.
Listed below are simple ways to improve your eligibility for a personal loan
∙ Repay your credit card bills & loan EMIs by the due date in full. Being disciplined with your debt repayments improves your credit score and increases your chances to avail of personal loan approval.
∙ Lower your already existing debts to pull down your outstanding credit burden. When lenders come to know that you have sufficient surplus income after mitigating your mandatory monthly expenses, they may approve your personal loan without giving it a second thought.
∙ Keep your credit utilization ratio or CUR below the 30 percent mark as it improves your score, which overall improves your personal loan eligibility chances.
