When you apply for a Personal Loan, banks grade your eligibility based on several factors to determine whether you are eligible to pay off the Personal Loan. Knowing these factors can significantly improve your chances of getting a Personal Loan. It also lets you secure better Loan terms. Here are factors that affect Personal Loan eligibility:
Credit scores
Your credit score is an essential factor that banks check when assessing your eligibility. It represents your creditworthiness based on your past borrowing and repayment behaviour. A good credit score proves you are a responsible borrower, and it gets easier to apply for Personal Loan.
Monthly income
Your monthly income determines your eligibility, reflecting your ability to repay the Loan. Banks have a minimum income threshold. As a borrower, you need to have an income within this threshold. Moreover, if your income is higher, it improves your chances of approval and may allow you to be eligible for a larger Personal Loan amount.
Employment status
Your employment status and job stability provide insight into your financial security. Banks mostly trust applicants employed with the same company for longer. Salaried employees in full-time, permanent positions are typically seen as more financially stable. Banks require income tax returns or profit and loss sheets if you are a self-employed business owner.
Age
Your age is another crucial factor that affects your Personal Loan eligibility. Banks have a specific age range within which they are comfortable lending money. Banks prefer borrowers aged between 21 and 60. If you are younger than 21 or older than 60, some banks are reluctant to approve the Personal Loan application, as they may view you as a higher-risk borrower.
Loan amount
The amount you wish to borrow, and the Personal Loan tenure also significantly determine eligibility. If you apply for a larger Loan amount, banks assess your ability to repay it based on your income and other factors. Shorter Loan tenures mean higher EMIs, but you pay less interest. Longer tenures lower your EMI but increase the total interest. You can use a Personal Loan eligibility calculator to fix the amount.
Co-signer or collateral
While most Personal Loans are unsecured, some banks offer them with a co-signer or collateral to reduce their risk. If you have a trusted person who can co-sign the Loan or if you pledge an asset as collateral, it can improve your chances of approval. It is more accurate if you have a lower credit score or high debt levels.
Conclusion
Several factors come into play when determining Personal Loan eligibility, including your credit score, income, employment status, existing debts, and more. If you know these factors in advance, you can ensure they align with the bank requirements. Review your financial situation before applying and, if necessary, improve areas like your credit scores or debt-to-income ratio.
