Tanya Khanna is a salaried employee at a reputable organisation. She has been working from home since the COVID outbreak. The onus of household expenses fell on her within a few months of lockdown as her husband lost his job. However, recently, due to some unexpected expenses, she is finding it difficult to manage the household spending and is frequently using her savings and investments to meet the family's needs. Therefore, to relieve Tanya of the additional financial strain, her husband recommended availing of a personal loan. Tanya, on the other hand, is only aware of the advantages and eligibility for a personal loan; she is completely unfamiliar with the factors that influence her
personal loan eligibility. If you too can relate to Tanya, then this article is for you. Here’s all you need to know about the top five factors that affect personal loan eligibility.
Factors That Affect Personal Loan Eligibility
1: Your Age
When applying for a personal loan, the most important eligibility condition is that you fit in the age bracket set by the lender. Age is a crucial consideration because it provides lenders with information about your financial stability and earning potential. You may not have the necessary financial stability if you have just graduated and are in your early twenties. Similarly, if your age is above 60 years or you are nearing your retirement, your earning potential gets decreased during this period. In most cases, the financial institutions consider applicants whose age is between 25 years and 55 years. The age factor differs from one lender to another.
Also read: 5 Brilliant Ways to Avail a Personal Loan with a Low Credit Score 2: Your Monthly Income
Your ability to repay the loan is closely tied to your income. Your income is an important aspect of your financial profile. However, the minimum income requirement varies from lender to lender. While evaluating your income, your lender considers the city you live in and the company you work with. Although the lender considers the primary source of income, having an additional income from passive sources such as renting out your property or leasing land can be beneficial. Having a secondary source of income may reassure lenders that you will
pay your EMIs on time.
3: Your Credit History
Personal loans are unsecured forms of credit. They are not backed by any asset or security. Therefore, lenders use credit metrics to determine your creditworthiness. Your
credit history reflects your past EMI payment patterns. Therefore, you should timely pay your EMIs and avoid defaulting on your loan repayment. Doing so will positively impact the factors that affect
personal loan approval.
Also Read: Availing Personal Loans Just Became Super Easy with Digital Lending 4: Debt to Income Ratio
Suppose you are working with an esteemed organisation and that too on a very high salary package, but most of your income is going into EMI payments. This factor will have an impact on your personal loan eligibility. Here the lender determines your debt to income ratio by dividing all your existing loans by your total income. If your debt to income ratio is on a higher side, your lender may reject your loan application or may charge a higher interest rate on your personal loan. Usually, it is advisable to keep the debt to income value below 50%. Having a higher percentage of this factor increases the risk of payment defaults.
5: Your Job Stability
While sanctioning a
personal loan, your lender looks into your total work experience and your current employment status. If you are working with a well-known organisation and have a regular flow of income, your lender considers you a borrower with job stability. If your employer has a history of late salary payments or if they are not financially solid, the lender may decide to reject your application. This is because these factors have an impact on your personal loan repayment capability.
Also Read: Top-Up Loans and How Can They Help You To Conclude
When you apply for a personal loan, these are the five factors that reflect your financial profile. Lenders usually consider this factor while deciding your eligibility for a personal loan and interest rate. Therefore, it is a good idea to verify the requirements of your preferred lender ahead of time so that you can get an affordable
personal loan interest rate.
