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

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 to fund any expense. When determining your eligibility for this loan, the lender primarily considers your credit score and monthly income as they hold significant importance.

How is Personal Loan Eligibility Calculated?

A Personal Loan does not need any collateral since it is unsecured. However, when evaluating applicants’ eligibility, lenders consider factors such as age, credibility, income, and other criteria. Also, these factors play a crucial role in the lenders’ determination to approve or reject a loan application.

To simplify the process for borrowers, most lenders provide an Online Personal Loan Calculator, enabling them to assess their eligibility. By just filling in the basic details within seconds, you can find out the loan amount you are eligible for. For instance.

  • Enter your net monthly income after deducting all mandatory expenses.
  • Enter the city you reside in or the PIN code.
  • From the dropdown menu, choose the employer type such as Government, Private Entity, LLP, PSU, etc.
  • In the last tab, enter the desired loan amount.

After determining your loan eligibility, you can also calculate the estimated EMI for the loan amount.

Features of Loan Eligibility Calculator

Here are some of the features of a loan eligibility calculator.

  • It Helps in Budget Planning

This calculator simplifies creating a monthly budget by providing an estimated EMI amount.

  • It Helps Prevent Loan Rejection

With the help of a loan eligibility calculator, you can know the credit amount you are qualified for. This calculator derives the result based on your income and liabilities.

  • It Enables the Comparison of Multiple Lenders

This loan eligibility calculator can assist you in checking your eligibility with numerous lenders. Thus, you will have clarity on the lenders providing you with a loan and the associated interest rate. Afterwards, you can evaluate the lenders and choose based on what suits you best.

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 your capacity to repay the new debt. To boost your Loan eligibility, consider working on the following areas.

  • Maintain a High Credit Score

Your credit score is viewed by lenders as a crucial factor in determining your eligibility, providing a concise summary of your previous credit history. Having a credit score of 750 or more signifies that you are a responsible borrower who has timely repaid all the past dues. As the lender’s risk is minimized, your chances of approval 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

Before applying for a personal loan, ensure to decrease your current outstanding debt, as doing so will enhance your debt-to-income ratio. For example, you have a Car Loan, and an EMI of 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 such as performance incentives, bonuses, variable pay, passive income from investments, and more to boost your payment.

All these factors can significantly enhance your eligibility for a Personal Loan. By presenting the lender with evidence of your multiple income sources and primary monthly income, you instil confidence in them regarding your capacity to repay the loan.

  • Avoid Multiple Loan Applications

During the 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 it indicates 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 minimize job hopping as much as possible.

Conclusion

When going for a Personal Loan, carefully review the entire loan agreement, including its terms and conditions. This will help you in preventing any future inconvenience.


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