How To Check if You are Eligible For a Personal Loan
July 13, 2023

Personal Loan

A Personal Loan offers an incredible option for accessing immediate funds without collateral. Whether it’s medical emergencies, dream weddings, long-awaited vacations, or home renovation projects, a Personal Loan helps you fund any expense.

What is Personal Loan Eligibility?

An applicant can Apply for a Personal Loan from any Bank or NBFC. Still, the lender will issue the loan if the applicant’s profile fulfils the Bank’s eligibility criteria. The main factors determining the eligibility criteria of the Bank include the following.

As the personal loan is issued for lifestyle needs, the HDFC Bank and ICICI Bank norms require that an applicant draw a salary of ₹ 30k or above, which is transferred monthly to the salary account. A net salary of ₹ 25k is the norm for NBFCs like Tata Capital or IDFC Bank. Individuals earning a salary of ₹ 75k or more are offered special discounts and benefits of HDFC Golden Edge Personal Loan.

It is mandatory to check if the employer is included in the Company Category List HDFC Bank, the leading personal loans lender, has a comprehensive list of categories A, B, C, and D. An applicant whose employer features in the A category has the eligibility to receive higher loan amounts with lower interest rate as compared to Cat C or D employees for whom the eligibility is calculated with restrictions.

An applicant’s Credit Score is viewed as a crucial factor in determining Eligibility for a Personal Loan. A credit score of 750 or more signifies that you are a responsible borrower who has timely repaid all past dues and will be granted a loan in the most suitable terms, such as a discount on the processing fees. At the same time, a delay in repayments or a settled loan track will negate Personal Loan Eligibility.

How is Personal Loan Eligibility Calculated?

The calculation for the Loan amount granted to an applicant is broadly judged by the applicant’s ability to repay the loan. After budgeting for all other monthly expenses, the customer must be comfortable paying the monthly instalment. Thus, individuals earning a higher salary can pay an increased EMI and are issued enhanced loan amounts.

Another significant factor is the repayment term banks permit applicants to repay the loan via EMI (equated monthly instalment) over 12 to 72 months.

Customers who require more significant sums can request a longer repayment term so that the EMI is affordable, as the interest on a personal loan is charged yearly. An applicant can use the Personal Loan EMI Calculator to arrive at a suitable EMI, which helps customers assess their eligibility by filling in the basic details:

  • The Loan amounts.
  • The interest rate.
  • The tenure.

The EMI Calculator will display the EMI if it is unsuitable, the applicant can change the inputs by entering a lesser loan amount or a longer tenure to arrive at a 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.

Tips to Improve Personal Loan Eligibility

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 keep enough balance in your account to clear your loan instalments. Having a credit score of 750 and above signifies that you are a responsible borrower who has timely repaid all past dues. As the lender’s risk is minimised, your approval chances are enhanced.

A credit score below 750 implies an unsatisfactory repayment track record. 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

Decrease your debt before Applying for a Personal Loan, enhancing your debt-to-income ratio. For example, you have a Car Loan, and an EMI of Rs 13000 monthly from your monthly income of Rs 25000 goes toward it.

In this case, your debt-to-income ratio would be calculated as (13,000)/25,000 = 0.52 = 52%, indicating that your liabilities surpass 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 since they indicate a lack of career stability, resulting 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.

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, judge the request based on the applicant’s profile and the property, but the main factor for approval of an unsecured personal loan is the eligibility criteria.

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