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July 13, 2023
A Personal Loan provides an excellent option for accessing immediate funds without requiring collateral. Whether it’s for medical emergencies, dream weddings, long-awaited holidays, or home renovation projects, a Personal Loan helps you finance any expense.
An applicant can apply for a personal loan from any bank or NBFC. However, the lender will approve the loan only if the applicant’s profile meets the bank’s eligibility criteria. The primary factors influencing the bank’s eligibility requirements are as follows.
As personal loans are issued for lifestyle needs, HDFC Bank and ICICI Bank norms require that an applicant draw a salary of ₹30,000 or above, which is transferred monthly to the salary account. Applicants earning a higher income are offered larger sums, up to ₹40 lakhs, with special processing and discounted rates, such as the benefits of the HDFC Golden Edge Personal loan.
Customers with a lower income and a net salary of ₹ 25k and above are eligible to apply for a personal loan with NBFCs (Non-Banking Finance Companies) that process a personal loan with a net salary of ₹ 25k and above. Prominent NBFCs include Tata Capital, Capital First, Fullerton and IDFC Bank.
Leading Banks, such as HDFC Bank, ICICI Bank, and Axis Bank, prefer to fund applicants who are employed with approved companies.
HDFC Bank, the leading personal loan lender, has initiated a comprehensive list of approved companies, categorised into five categories: Super A, CAT A, B, C, and D. Super A, CAT A, and B are the preferred categories for sourcing personal loans. It is mandatory to verify if your employer is listed in the approved companies list to process a personal loan from HDFC Bank.
An applicant whose employer is in the A category is eligible to receive higher loan amounts with a lower interest rate compared to Cat C or D employees, for whom eligibility is calculated with restrictions.
ICICI Bank and Axis Bank have their lists of approved companies. If your employer does not feature on the approved list, this can be mitigated by having a salary of above ₹50,000 and a salary account with the Bank.
An applicant’s Credit Score is considered a key factor in determining eligibility for a Personal Loan. A CIBIL score of 750 points or above indicates responsible borrowing, showing timely repayment of all previous dues, which can lead to favourable loan terms and a reduced processing fee.
Applicants with a lower CIBIL score and a history of delayed repayments or a settled loan track may be required to settle for a higher interest rate or may be declared ineligible for a personal loan.
The calculation for the Loan amount granted to an applicant is broadly judged by the applicant’s ability to repay the loan. The customer must be comfortable paying the monthly instalment after budgeting for their monthly expenses, including the EMI paid for current loans and credit card dues.
Applicants with higher incomes have surplus funds available after covering their mandatory monthly expenses. Thus, individuals earning a higher salary can pay an increased EMI and are issued enhanced loan amounts.
The tenure for repayment of your personal loan.
Another critical factor is the repayment period allowed by banks for applicants to repay the loan through EMI (Equated Monthly Instalment), ranging from 12 to 72 months. Applicants with higher incomes can afford to repay their loans in a shorter timeframe with a higher monthly EMI. Conversely, customers earning lower salaries, who need larger sums, can request a longer repayment term to make the EMI more affordable.
Use an EMI calculator to check personal loan eligibility.
The Loan amounts: The Loan amount issued as a personal loan ranges from ₹1 lakh to ₹40 lakhs. Apply for a loan amount that is commensurate with your income and can be repaid without causing undue stress to your finances.
The Personal Loan EMI Calculator helps applicants determine a suitable EMI, enabling them to assess their eligibility for a personal loan amount. After entering the above details, the EMI Calculator will display the EMI. If it is unsuitable, the applicant can then change the inputs by entering a lower loan amount or a longer tenure to arrive at a more convenient instalment. An EMI Calculator is handy as it helps plan a monthly budget by estimating the EMI and determining the credit amount an applicant is eligible for.
Numerous factors are considered when determining your Eligibility for a Personal Loan, but it mainly assesses your past debt management and capacity to repay the new debt. To boost your Loan eligibility, consider working on the following areas.
Maintain a Good Credit Score
Pay all credit card bills on time and maintain a sufficient balance in your account to cover your loan instalments. Having a credit score of 750 or above indicates that you are a responsible borrower who has consistently repaid all past-due amounts. As the lender’s risk is minimised, your approval chances are enhanced.
A credit score below 750 indicates an unsatisfactory repayment history. As a result, the lender classifies you as a high-risk candidate, potentially leading to higher interest rates or even outright rejection of your application.
Reduce Your Debt-To-Income Ratio
Reduce your debt before applying for a Personal Loan, as this will improve your debt-to-income ratio. For example, you have a Car Loan, and an EMI of Rs 13,000 per month from your monthly income of Rs 25,000 goes toward it.
In this case, your debt-to-income ratio would be calculated as (13,000)/25,000 = 0.52, which equals 52%, indicating that your liabilities exceed your income. In this scenario, to boost your Eligibility for a Personal Loan, consider either increasing your income to bridge the gap or paying off your current debts, thereby reducing your debt-to-income ratio to a desirable range of 20% to 35%.
Include all Sources of Income
Lenders need to understand your repayment intentions. A higher income significantly improves the chances of loan approval. You can show evidence of other income sources to boost your payment, such as performance incentives, bonuses, variable pay, passive income from investments, and more.
All these factors can significantly enhance your Eligibility for a Personal Loan. Presenting the lender with evidence of your multiple income sources and primary monthly income instils confidence regarding your capacity to repay the loan.
Avoid Multiple Loan Applications
During the Personal Loan Application Process, the lender reviews your credit report to assess your creditworthiness. If you have applied for Personal Loans from various lenders, they will seek access to your credit report.
Such inquiries are considered hard inquiries and are documented in your credit report. Hence, submitting multiple loan applications simultaneously has a minor impact, as it may portray you as excessively credit-hungry.
Avoid Frequent Job Changes
Along with various other factors, an applicant’s employment history and stability play a significant role in lenders’ evaluation of their Personal Loan Eligibility. Frequent job changes can make lenders hesitant to provide personal loans, as they indicate a lack of career stability and result in increased credit risk.
Thus, it is advisable for individuals planning to apply for a Personal Loan shortly to minimise job hopping as much as possible.
Apply with a financial co-applicant.
A co-applicant with a good CIBIL score and income will add stability to your personal loan eligibility. Further, if your income falls short of the required loan amount, including a financial co-applicant can improve your eligibility. According to HDFC Bank’s personal loan eligibility criteria, the co-applicant must be either the spouse or a blood relative, and their profile must meet the requirements outlined in the HDFC Bank personal loan policy.
The co-applicant’s income is combined with the applicant’s income to ensure it covers the required loan amount. The EMI is the responsibility of the principal applicant and will be deducted from the salary account.
In conclusion, the lender will judge your eligibility criteria before sanctioning the loan amount. Although the essential eligibility criteria for a personal loan are similar to those of most Banks and NBFCs, each lender has an individual policy.
It is not necessary that if an applicant faces rejection from one lender, no other lender will grant a loan unless the applicant’s credit record has a settled loan track, there are undue delays in repayment of the loan, or there is an EMI Bounce.
Secure lenders, such as mortgage lenders, assess the request based on the applicant’s profile and the property; however, the main factor for approving an unsecured Personal Loan is the Eligibility Criteria.
What are the primary factors affecting your eligibility criteria for a personal loan?
The major factors influencing the personal loan eligibility criteria include:
Do the eligibility criteria for a personal loan vary from Bank to Bank?
The basic criteria for most lenders are similar, but Banks' policies can differ according to:
Does age factor into eligibility for a personal loan?
An applicant must be at least 23 years of age with at least one year of work experience to apply for a personal loan. The loan amount will be initially lower, and applicants nearing the maximum age will be allotted loan amounts based on the EMI payable, up to 60 years of age.
Will a family member's CIBIL default affect my Personal loan eligibility criteria?
If the CIBIL score of the spouse or parents, in the case of an unmarried applicant, shows a derogatory remark, it will affect the eligibility of the primary applicant.
Will a credit card outstanding affect my personal loan eligibility?
Your existing credit lines, including credit card balances, are taken into account in the eligibility calculations. If the outstanding dues exhaust your eligibility, your loan request can be rejected.
Will my employment status influence my loan prospects?
The type of organisation you work for will significantly influence your eligibility for a personal loan. If you are employed by a government organisation or a company listed on the Bank's approved list, your loan application will be processed more smoothly by most lenders. Applicants employed by a private limited company, partnership, or proprietorship will have a restricted choice of lenders.
What is a personal loan eligibility calculator?
A personal loan eligibility calculator combines the applicant's profile details and financial aspects. Some banks, such as Axis Bank, use an individual scorecard to assess the applicant's eligibility, whereas the credit team at HDFC Bank will decide on the personal loan request after compiling the required information.
