The collateral free nature of personal loans increases the credit risk of banks and NBFCs. This leads lenders to be very cautious while evaluating personal loan applications. Lenders usually assess the personal loan eligibility of their applicants after factoring in their age, monthly income, job profile and credit profiles. Here are some of the factors that lenders take into consideration while evaluating the personal loan eligibility of their loan applicants.
Credit Score
While assessing the personal loan applications, lenders fetch the credit scores of their applicants to determine their creditworthiness. Applicants having credit scores of 700 and above usually have higher chances of availing personal loans. Such applicants are more likely to avail personal loans at lower interest rates. Applicants having lower credit scores may face loan rejections or are offered personal loans at higher interest rates.
The first step to increase the chances of personal loan approval is to fetch credit reports from credit bureaus at periodic intervals and keep track of their credit scores. Consumers can either fetch their credit report directly from the credit bureaus or they can visit online financial marketplaces like Paisabazaar to fetch their credit reports Fetching and reviewing the credit reports at regular intervals helps you identify any errors or incorrect details present in the credit report. It also helps in identifying any fraudulent credit activities made in the name of the loan applicant. Such issues can be reported immediately to the concerned lenders or credit bureaus for rectification. Rectified credit reports may increase their credit scores and thereby, increase their chances of availing personal loans at lower interest rates.
Job profile and Employer Profile
Lenders consider the job profile of their applicants while assessing their personal loan applications. They usually prefer loan applications made by salaried applicants due to their higher income certainty. Among the salaried applicants, government and public sector employees are preferred by the lenders due to their higher job stability, followed by the employees of MNCs and reputed private sector companies. Among self-employed individuals, professionals including doctors, CAs and architects have higher chances of getting their personal loans approved. Applicants whose job profiles and employer profiles are not included in the list of approved employer or occupation profiles of the lender have very low chances of personal loan approval.
Job Stability and Business Vintage
Lenders usually approve the personal loan applications of individuals having a stable source of income. Therefore, self-employed individuals with a business vintage of 3 years and above usually have higher chances of getting their personal loans approved. In case of salaried individuals, lenders usually approve the personal loan applications of applicants having a minimum work experience of 1 year to 3 years, with an experience of 6 months to 1 year in the current organization. Note that, applicants making frequent job switches increase the credit risk of the lenders and, hence have higher chances to get their personal loan applications rejected.
Repayment Capacity of the Applicant
Lenders usually prefer applicants having EMI/NMI ratio of less than 50-55% after including their existing EMIs and the EMIs of the proposed loan. Applicants exceeding this limit have lower chances of personal loan approval. Such applicants should opt for longer tenure as that would reduce their EMI obligations of their proposed personal loan applicants and thereby, reduce their EMI/NMI ratio within the aforementioned limit.
Applicant’s Existing Relationship with the Lender
Many lenders prefer to lend personal loan to their existing customers. Some lenders also offer pre-approved personal loans to their select existing customers at preferential interest rates. Therefore, prospective personal loan applicants should first approach the banks and NBFCs with whom they already have deposits or have availed loan or credit card. Then, they should visit online financial marketplaces like Paisabazaar.com to check and compare the personal loan options offered by other lenders.
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