Personal loans are a popular financial tool that assists individuals in fulfilling their immediate financial needs, such as urgent funds required for marriage, medical expenses, or consolidating multiple debts into one.
The bank evaluates various factors like the amount required, interest rate, and the time to repay the amount depending upon your financial situation, credit history and policies.
Getting a personal loan can be challenging. However, you must qualify for the eligibility criteria for getting a personal loan. These Personal Loan Application requirements may vary for different banks and financial institutions, where the factors determining your Personal Loan Eligibility are common.
Here are the six common factors that decide your eligibility for getting approval for a Personal Loan application:
CIBIL Score
CIBIL score is a crucial factor in deciding your eligibility for a personal loan, your score shows your creditworthiness based on factors such as your credit history, how you manage your debts, the amount of money you owe, and the extent to which you use credit. A higher CIBIL score shows you are a low-risk borrower, increasing your chances of getting a personal loan. Banks in India generally prefer borrowers with a CIBIL score of 750 or higher. This score implies good credit management and timely debt repayment. You can improve your CIBIL score by paying EMIs on time, keeping credit utilisation low, and managing your debts responsibly. You can enhance your eligibility for a personal loan and boost the chance of loan approval from banks and financial institutions by having a higher CIBIL score.
Income
Banks and financial institutions evaluate your income to assess your ability to repay the loan. A higher income increases your chances of loan approval and enables you to qualify for a higher loan amount. You should provide accurate information about your income and submit the necessary supporting documents when applying for a personal loan.
Employment History
Your employment history is another crucial factor in deciding your eligibility. Banks and financial institutions examine the stability and duration of your employment to assess whether you have the means to repay the loan. Individuals with a consistent and stable employment history with reputable companies have a secure future, making it a favourable factor for banks. A consistent employment history shows a lower risk of default, which increases your chances of getting approved for a personal loan. You can prove your employment stability by providing accurate details related to your employment, including the duration of each job position.
Job Stability
Banks prefer borrowers who have been working with their current employer for a reasonable period, usually at least two years. Job stability shows financial stability and reduces the risk of sudden job loss or fluctuations in income, reassuring the banks and financial institutions that you are eligible for a personal loan and have the capability of timely repayments.
Age
Age is very important in deciding if you are eligible for a personal loan. To be eligible, you must be between 21 and 58 (which may vary for different banks). Due to their limited credit history, younger borrowers may need help to get higher loan amounts, while older borrowers may face limits due to factors such as retirement age. You should know these factors when applying for a personal loan to make a well-informed decision. Banks and financial institutions use your age to determine your capacity to repay the loan over time. They consider your income stability and the remaining working years before retirement before sanctioning the personal loan.
Debt-to-Income Ratio
Your Debt-to-Income (DTI) ratio is another crucial factor for deciding your Personal Loan Eligibility. It compares the total amount of your monthly debts to your monthly income. A lower DTI ratio indicates that you are in a better financial position and increases your chances of being eligible for a personal loan. Keep your DTI ratio around 40% to improve your chances of loan approval.
Wrapping up
For a personal loan in India, you should choose a reliable bank or financial institution that provides favourable terms and reasonable interest rates. Many banks in India, like ICICI Bank, Axis Bank, and many others, provide the most reliable options for personal loans with appealing features. These include a customer-centric approach, several loan options, simple application processes with fast approvals, and flexible repayment plans.
Before choosing a lender, you must always compare the terms, eligibility criteria, interest rates, and repayment options of different banks and financial institutions before finalising a personal loan that suits your financial needs and requirements.
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