9 Factors Lenders Consider to Determine Your Personal Loan Eligibility

Everyone needs credit at some time or the other, and one of the most common forms of credit people take is unsecured loans. An unsecured loan can be in the form of a personal loan or a personal line of credit.

The popularity of unsecured personal loans doesn’t come as a surprise. These loans are easy to qualify for, and they can fulfil any financial obligation while giving you the freedom to use the money in any way you want.

Since a personal loan is an unsecured loan, the interest rate is usually higher than the other secured loans. But, you can still get a personal loan at favourable terms if you have income stability and a good credit profile.
Let’s have a look at some of the factors, lenders consider to .

1. Credit Score
Credit score/CIBIL score is a numeric representation of your credit profile and repayment history. It ranges from 300 to 900. A score of 750+ is considered a good score to get personal loan approvals. The higher your credit score, the better are your chances of getting a personal loan at better loan terms.

2. Repayment History
Lenders look at your repayment history very closely. Your repayment history is an indication of how responsible you are with your debt repayments. Have you been servicing your loans diligently? Were you late? Did you default? This information on your credit report helps lenders evaluate your credit management behaviour and then decide whether it’s safe to lend money to you or not. If you have instances of late payments or default, you can severely jeopardize your chances of getting a loan.

3. Debt to Income Ratio
Even if your income is high, but if a major chunk of your income is used to service your existing debts, lenders are apprehensive about your repayment capacity and hence may reject the loan. Because lenders see you as a debt-burdened borrower who does not have the bandwidth to take on more debt. It is also referred to as fixed obligation to income ratio (FOIR) .

4. Credit Mix
Your credit mix is yet another factor lenders take into consideration while approving your loan. Your credit portfolio should be a balanced mix of secured and unsecured loans. If your credit portfolio leans largely or exclusively towards credit cards, you may be considered a risky borrower.

5. Credit History Length
The average credit age of all your open or recently opened credit accounts plays an important factor in your personal loan approval process. The longer you’ve had credit, the better are your chances of getting a personal loan.

6. Age
Most lenders have age eligibility criteria of 23 to 55 years. Fintech lenders may be a bit flexible with the age limit.

7. Income
The income you earn every month is another factor that influences your personal loan eligibility and also the amount approved. The income eligibility will differ from lender to lender. Generally, most private banks have minimum income eligibility of ₹ 20,000. But a fintech lender can offer you a personal loan even if your income is less than ₹ 20,000.

8. Employment Experience
Your employment experience is the time period you’ve been employed. Many lenders expect applicants to have at least 1 to 2 years of work experience. But, now with the evolution of fintech lenders, you can get a loan even with an employer experience of even 6 months.
If you show employment stability by being with the same employer for long, it improves your creditworthiness. And if your employer is a big MNC, your chances of getting a personal loan are even better.

9. Documents
The lenders expect you to provide proof of the information you provide in your loan application to minimize the risks involved. Documents required are identity proof, residence proof, and income proof.

Lenders consider the above-mentioned personal loan eligibility factors before approving your personal loan. Keep all the points in mind to improve your chances of getting the loan at favourable loan terms. Lenders, especially the banks, also consider the length of relationship between the bank and the applicant. If you have maintained a good relationship with your bank by maintaining a healthy account balance, you can get approved for a higher amount at a lower interest rate.

Guest post conducted by Shiva Nanda from MoneyTap.

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