Personal Loan Eligibility

Banks and lenders consider a lot of factors before considering someone as an eligible candidate for their personal loans. They take a whole host of factors into consideration and decide a personal loan eligibility based on a combination of the variations of these factors. Every individual person has a different level of eligibility, because the combinations of all the factors are different for different people. For example, a person with a high level of income who lives in a rented house in Bangalore is less eligible than a person with moderate income who lives on owned land in Mumbai.

Factors affecting personal loan eligibility:

Many factors affect applicants’ eligibility when it comes to personal loan. Banks prefer to consider people eligible on the basis of their ability to repay the loan, and their financial standing. Some of the factors that affect a person’s eligibility are:

• City of residence. It’s far easier to get a loan sanctioned in a metro city like Bangalore, Chennai, Mumbai or Delhi than it is in other cities.

• Income. Your level of income dictates how much you will be able to pay back as EMIs, this directly affects the total loan amount that can be sanctioned. Hence, the higher your income, the greater your eligibility. Keep in mind that if you are currently paying off an EMI on another loan, your eligibility will be lower.

• Your age. If you’re too young, you’re a risky candidate as young salaried people shift jobs often to exploit opportunities, but there’s a chance that one job shift might fail, and leave you unemployed.

• Type of employment. Salaried individuals and salaried professionals stand a better chance to get loans sanctioned on better terms than other self-employed applicants. This is because salaried people get regular incomes on fixed dates and can have EMIs due deducted directly from their salary accounts. Self-employed people must rely on market conditions and the demand for their products in order to earn an income. This is an inconsistent income that may sometimes not even be enough to meet the EMI payment requirement.

• Employment status. There is an inherent sense of security in applicants who’ve stayed with a company for a long time, as they will probably stay there for longer. It takes a while for young salaried people to find a comfortable job that takes care of all their needs – once you find that stable job, you’ll be all the more eligible for a personal loan.

• Residence type. Applicants who live in a residence that’s owned by them are more likely to get a loan approved, and on better terms. This is because the bank will have a set location to find them in case they default, and because there’s no part of their income being spent on rent. People living in rented houses must pay an amount of their salary as rent, lowering the disposable income left over to pay EMIs. Also, it’s easier for a person living in a rented place to abscond in case they feel they cannot keep up with EMI payments.

• Duration of residence in application location. How long you’ve been living and working in the location from which you’re applying for a loan has a huge impact on your eligibility. The longer you’ve been living in a certain place, the higher are the chances of getting a personal loan approved on your terms. Banks will give more preference to applicants who’ve lived in the city for longer, and have established a life there.

How does CIBIL score affect your Personal Loan Eligibility?

Banks and lenders look into your CIBIL credit report while reviewing your application for a personal loan. A CIBIL score that’s over 700 will merely enable you to be eligible (some banks require a minimum score of 750), but a score above 800, and closer to 900 will increase the lender’s confidence in your ability to repay your loan.

Your previous loan and credit card repayment history will also play an important role in instilling confidence in the lender that you can and will repay your personal loan. This is what your CIBIL score and rating is based on.

Your CIBIL credit report also contains details of the types of loans you’ve taken in the past. A ratio that shows you’ve taken more secured loans than unsecured loans works in your favour.

In the past, if you’ve been unable to repay your loan and have arranged for a settlement with the bank, or have defaulted on your loan and absconded, lenders will consider this to be a negative mark and will reduce your loan eligibility.

How can you increase your Personal Loan Eligibility?

• Maintain a clean credit history. Ensure that you always clear your debt, on time and on the terms you’ve agreed on with the lender. This increases your CIBIL score, and eligibility.
• Lower EMIs on existing loans. A large factor that affects your eligibility is whether you already have a loan on your name for which you’re making EMI payments. It’s advised to take loans for longer tenures, as the EMIs paid monthly will be lower, thus showing that you have more funds to pay back your personal loan with.
• Prepayment. Paying off your existing loans before taking a new one is highly advised. A lump sum prepayment will settle your existing loan, increasing your eligibility for a personal loan.
• Maintain a good mix of secured and unsecured loans. Secured loans are looked at more favourably.
• Don’t over-leverage yourself. Applying for too many loans and paying off 2-3 EMIs every month can take its toll on your financial (and mental) health, and no bank will allow you to over-leverage yourself by adding one more EMI to the mix.