One of the most popular types of loans in the market today is the personal loan. Personal loans come in handy when there are planned or unplanned expenses like vacations, weddings, or medical emergencies that go beyond your financial capabilities.
People require money for one too many reasons — especially with Covid-19 bringing the economy to a near standstill and in turn, adversely affecting the lives of many. This explains why in India, 77% of working individuals rely on personal loans to make ends meet. Taking a personal loan is considered to be a great option if you can comfortably make the repayments during the tenure of the loan.
That said, to qualify for a personal loan, you need to fulfill the eligibility conditions laid down by the lender. In this article, we are going to learn all about personal loan eligibility and how you can improve your chances of getting a personal loan.
What Makes Personal Loans Ideal?
Before we take a look at the personal loan eligibility and the benchmarks that you need to meet to get your personal loan application approved — let’s understand why personal loan has shot to fame and become a preferred option for many.
One of the primary reasons why personal loans are opted for is because they are unsecured loans. Unlike home loans or car loans, the borrowers need not provide any form of security or collateral to the lender to avail of the loan. As there are no collaterals required, the documentation required to apply for the personal loan is much lesser compared to any other type of loan.
Another key reason why people opt for a personal loan is that, once the borrower gets approved for a personal loan, they can use the fund for any purpose they deem fit. The lenders do not restrict or limit the end use of the funds secured via a personal loan. From paying off long-standing debts, car or house down payments, and outstanding credit card bills to funding a function or home renovation — there are a plethora of expenses that can be funded by using a personal loan.
Lastly, personal loan interest rates are fixed, they do not keep varying from time to time like credit card interest rates. This way, you will not only be paying a fixed amount every month but you will also be able to track your payments easily.
The working class of India shoulders a lot of responsibility and in most cases finds it hard to survive on their monthly salary, which happens to be just enough to meet their day-to-day expenses.
Struggling to meet their needs and with no additional savings, they find it difficult to cope whenever an unanticipated cost arises. In such cases, when they are unable to secure a personal loan from the bank, they are left with no choice but to approach money lenders who charge high-interest rates and impose unfavorable lending conditions.
Personal Loan Eligibility Explained
When you need a specific amount or fall short of funds, you can approach a financial entity to apply for a personal loan. While you can easily apply for personal loans online, for the loan amount to be sanctioned — you need to meet a set of eligibility criteria. Depending on certain limits and general requirements, personal loan criteria will differ from one lender to another.
Here are some of the basic criteria that you need to meet:
- You need to be between the age of 18 to 60 years.
- You should be an Indian citizen.
- You should have a work experience of at least 12 months.
- You should be working with your current employer for not less than 6 months.
- You should be drawing a monthly salary of INR 15,000 or more.
In addition to this, along with a duly filled application form, you also need to be able to furnish the below-mentioned documents to the lender:
- A recent passport-sized photograph.
- Salary slips and income proof.
- Address proof like driver’s license, Aadhar Card, Voter ID, passport.
- Identity proof like PAN card, Aadhar card, or government ID for those employed by the government.
Keeping a regular check on your credit score (a three-digit number ranging from 300 to 900, that indicates your creditworthiness) is also imperative to ensure that you are eligible for a personal loan.
How To Improve Your Chances of Getting a Personal Loan
Banks and financial institutions look at a range of factors to determine the creditworthiness of the borrower.
Here are 10 tips that will boost your chances of qualifying for a personal loan.
1. Check the lender’s eligibility criteria
Before you select a lender, ensure that you scan through all their requirements. Doing this will help you avoid the mishap of rejection for trivial reasons like age or income.
2. Track your fixed-obligation-to-income ratio (FOIR)
When you end up using a high percentage of your income to repay existing debts, this, in turn, reduces your creditworthiness for securing new loans. This could lower your chances of getting an approval for a loan or worse, the lenders may even charge you a high rate of interest to cover up for the added risk.
Always ensure that you are maintaining a FOIR of 40% to 50%. To increase your chances, you can consider paying off your liabilities and credit card bills.
3. Apply for the right loan amount
To get your loan application approved, you need to apply for the right amount. Before you head to apply for a loan, use a personal loan eligibility calculator to check on the amount that you are eligible for based on the income that you earn, your current liabilities, and other factors.
4. Avoid applying for too many loans at the same time
When a borrower is in need of emergency funds, they may end up applying for a loan from multiple lenders to increase their chances of getting their loan approved.
While this might give them the hope that they will get approval from at least a few of the lenders, this is certainly not the best way to go about it. Every loan application leads to a hard enquiry on your credit report and this will reduce your credit score eventually.
5. Improve your credit score
That brings us to our next point on improving your credit score. Lenders pay a lot of attention to your credit score while scanning your loan application. As mentioned earlier, as a part of the eligibility criteria for a personal loan, you need to ensure that you have a good credit score. A score of 750 or above is considered to be a good score.
The lesser the credit, the lower your chances are of getting a good deal on your loan application. Some of the best ways to improve and maintain a good credit score are — paying your EMIs and credit card bills on time, diversifying your credit portfolio, and reducing your DTI and credit utilization ratio.
6. Add your spouse or parents as co-borrowers
In most cases, there is a choice to include your spouse or parent as a co-applicant. This helps especially when your credit profile is not satisfactory or up to the mark. If your co-applicant’s income and credit score are high, then including them will up your chances of getting a loan as it will add to your repayment capabilities, fetching you a personal loan at a nominal rate.
7. Choose your lender carefully
Before you settle for a lender, it is best to do thorough research of all the available options in the market. Even though there might be a dire need for funds, avoid settling for the first lender that you come across.
In recent times, there has been a wide range of financial players that are flooding the market with favorable lending conditions. Do a stringent check to ensure that you do not miss out on the offers that are available.
8. Be sure to mention all of your income sources
When you are applying for a personal loan, you need to show that you are capable of repaying the loan amount. So instead of just providing your basic income details, make sure that you furnish information about any additional income that you are earning, such as rent. This will not only boost your chances of getting a loan sanctioned but you will also be eligible for a higher loan amount.
9. Opt for a longer loan tenure
When you choose a longer loan tenure, it will help in breaking down your EMIs into smaller installments and will reduce the financial burden on you to make timely repayments. This will not only reduce your FOIR but will also increase your chances of getting approval from the lenders.
10. Enquire about loan prepayment
In most cases, the borrowers are allowed to prepay their loans. While you may opt for a longer tenure, it is good to always check for an option to prepay your loan amount. There are a few charges to be able to opt for the prepayment of a loan but doing so will save you from the high rate of interest that you will otherwise have to bear.
Bottom Line
These tips will help in improving your eligibility and as a result, boost your chances of getting a personal loan sanctioned. It’s crucial to choose the right lender to ensure that you have a stress-free and seamless experience right from the loan application step to getting the loan approved and then receiving the funds.
