Personal loans are unsecured kinds of lending provided by NBFCs and financial institutions subject to a number of conditions, such as income level, ability to repay, employment, and credit history. Borrowers can use this loan to suit their financial demands. However, lenders use a set of rigid standards to assess your eligibility for a personal loan before making a decision.
What Determines Whether You Qualify for a Personal Loan?
The five elements that influence your eligibility for a personal loan are listed below. These are what they are:
- Age
You must take into account your age, which is the primary factor affecting eligibility for personal loans, before applying for one. Age is a crucial aspect because it demonstrates to the lender your financial stability and income.
Your earning potential will be lesser if you are in your early twenties. Similarly, if you are older than 60 years old, your earning potential may decline once again. In ideal circumstances, financial institutions extend personal loans to people between the ages of 25 and 55.
- Monthly income
Your lender will assess if you have enough monthly income before approving the loan. They can determine if you can repay the loan within the allotted time by doing this. Your ability to repay debt is directly correlated to your income and constitutes a significant aspect of your financial profile.
Nonetheless, each lender has a different set of requirements for minimal income. The lender will determine your address and your company while determining your income. It will also reassure the lenders about your timeliness in making EMI payments on time if you have an additional source of income, such as renting out property.
- Credit history
Personal loans are unsecured loans, which means they don’t have any assets or security to back them up. Lenders use credit ratings as a result to determine your creditworthiness. The eligibility for personal loans is also impacted by these scores. The patterns of your prior EMI payments will be displayed in your credit score. As a result, you must concentrate on making all EMI payments on schedule and without any defaults. This will facilitate the approval of your personal loan.
- Work experience
Compared to someone who has recently started a job, borrowers with more work experience will have a more stable future financially. However, the minimal experience needed varies depending on the lender, your profession, and other important considerations.
For instance, those who are paid a salary typically need three to five years of work experience. Self-employed people need at least three years of work experience, whereas business owners need a minimum of five years of business-related experience.
- Tenure
Keep in mind that another crucial element affecting your eligibility for a personal loan is the length of the payback period. You are more likely to get approved for a personal loan at a lower interest rate if you choose a shorter loan term. Additionally, you must choose the loan amount based on your affordability.
A personal loan EMI calculator can be used, for instance, to calculate the EMI for a Rs. 2 lakh personal loan. Just the loan amount, interest rate, and tenure need to be entered.
When applying for a personal loan, it’s important to understand the top 5 factors that could affect your eligibility. These include credit score, income level, debt-to-income ratio, employment status, and amount of liquid assets you have available. Make sure you review these key points so you can increase your chances of being approved!
Improve Your Loan Chances! Understand How the Top 5 Factors Can Affect Your Eligibility for a Personal Loan.
