4 eligibility criteria to boost your chances of obtaining a personal loan

Personal loan is one of the most preferred loan options for those in need of quick funds. However, its unsecured nature leads lenders to take a cautious approach when evaluating loan applications. This can result in rejection of personal loan applications.

Here are some of the crucial factors that lenders take into account when assessing eligibility for a personal loan:

Credit profile: The credit score is one of the first filters that lenders consider when evaluating a personal loan application. As a general rule, applicants with a credit score of 750 and above tend to have a higher chance of obtaining loan approval, as they are considered to be more disciplined and, therefore, have a lower credit risk for lenders. Some lenders also offer preferential interest rates to personal loan applicants with higher credit scores. Those with a bad credit score are either rejected or subjected to higher interest rates to offset the higher credit risk to the lender.

Make sure you build and maintain a strong credit score to increase personal loan eligibility. Follow healthy credit practices such as timely repayment of IMEs and credit card bills, restrict credit utilization rate to less than 30%, monitor secured or co-signed loan accounts, avoid multiple apply for a loan or credit card in a short period of time and maintain a healthy credit mix to build and maintain a strong credit rating.

Get in the habit of reviewing your credit report at regular intervals, ideally at least once every three months. This will give you plenty of time to make corrective efforts, if necessary, to improve your credit score. It will also allow you to spot incorrect information or clerical errors reducing your credit score and report them to the relevant office or lender for rectification. A corrected credit report will automatically increase your credit score. You can get a free credit report every year from each of the credit bureaus. Alternatively, you can also grab free credit reports along with their free monthly updates from online financial markets.

Existing customer relationship with banks and NBFCs: Many banks and NBFCs offer personal loans, with interest rates ranging from 10-24% per annum. Many lenders also offer pre-approved personal loans at preferential interest rates to existing customers. Existing relationships can take a variety of forms, including fixed / recurring current, savings, salary or deposit accounts, existing loans, or credit cards.

Those seeking a personal loan should first contact the bank and / or NBFCs with whom they share an existing banking and / or loan relationship. The interest rate and other loan features they offer can be used as a benchmark to compare the interest rates offered by other lenders. Also visit online financial marketplaces to compare personal loans offered by other lenders based on your credit score, income, employer profile, job profile, etc.

Affordability EMI: As with all types of loans, lenders consider the repayment capacity of a personal loan applicant when assessing loan applications. Lenders typically require monthly loan repayment obligations (including the EMI for the new loan) to be less than 50% of monthly net income. Those with higher repayment obligations are generally less likely to get personal loan approval. These applicants should opt for a longer tenure, as this would reduce the IME expense and, therefore, increase the affordability of the IME and the eligibility for the loan.

Job profile: Another eligibility criterion that lenders consider before approving personal loan applications is the applicant’s job profile. Some lenders also take the job profile into account when setting interest rates.

Generally, lenders tend to prefer salaried employee loans over non-salaried employees due to the higher income certainty of the former. Among the salaried candidates for personal credit, those who work for the public sector or for reputable companies are preferred to the others. In the case of non-salaried applicants, professionals such as chartered accountants and physicians tend to be more likely to obtain approval for their personal loan applications.

(By Gaurav Aggarwal, Director and Head of Unsecured Loans, Paisabazaar.com)