Everything You Need to Know About The Personal Loan Eligibility

Personal loans are easy to get when you understand eligibility criteria. This comprehensive guide will help you unravel the complexities of personal loan eligibility and empower you to make informed decisions. From types of personal loans in India to major eligibility criteria surely this guide will help! 

Types of Personal Loans in India You Can Get

Personal loans in India come in two primary forms: secured and unsecured. Knowing the difference between these two is crucial, as it will determine the kind of loan you should apply for. 

Secured personal loans:

• Require collateral, such as property, gold, or other valuable assets.
• Offer low interest rates due to reduced risk for lenders.
• Example: Ramesh needs Rs 5 Lakh for home renovations and offers his property as collateral to secure a loan with a lower interest rate.

Unsecured personal loans:

• Do not require collateral.
• Carry higher interest rates due to increased risk for lenders.
• Example: Priya needs Rs 1 Lakh for her wedding expenses and opts for an unsecured loan since she doesn’t have any collateral to offer.

Primary Personal Loan Criteria

It’s essential to familiarize yourself with the loan criteria to better understand how to check eligibility for personal loan applications. Lenders consider various factors to determine your eligibility for a personal loan. 

Age requirements:

• Most lenders require borrowers to be between 21 and 60 years old
• Younger applicants may need a co-applicant or guarantor.

Income and employment stability:

• Steady income and stable employment history make you a more attractive borrower
• Lenders may require proof of income and employment details.

Credit score and history:

• A good CIBIL score (usually above 750) increases the chances of loan approval.
• Past repayment behavior and credit utilization are also considered.

Existing debts and liabilities:

• High debt-to-income ratio can negatively impact your eligibility
• Lenders prefer borrowers with manageable existing debts.

Relationship with the lender:

Existing customers may receive preferential treatment, such as lower interest rates or faster loan processing. 

How to Meet Personal Loan Eligibility Requirements?

If you’re wondering, “can I get a personal loan?”, there are steps you can take to improve your eligibility and increase your chances of approval.

Maintaining a healthy credit score:

• Pay bills on time and avoid late payments
• Keep credit card balances low and don’t max out your credit limit.

Reducing existing debts:

• Priorities paying off high-interest debts first
• Consider debt consolidation to simplify repayments.

Choosing a longer repayment tenure:

• Longer tenures result in smaller monthly instalments, making the loan more manageable
• However, this may lead to higher overall interest payments.

Opting for a co-applicant or guarantor:

• A creditworthy co-applicant or guarantor can improve your loan eligibility
• Be aware that they will be responsible for the loan if you default on payments.

Ensuring stable employment:

• Lenders prefer borrowers with a steady job history and reliable income
• Avoid frequently changing jobs or having significant gaps in employment.

Also Read: Personal Loan Mistakes to Avoid

Documentation Required for Personal Loan Application: Gathering the Essentials

To process your personal loan application, lenders require specific documents to verify your identity, address, income, and employment.

Identity proof:

PAN card, Aadhaar card, passport, or driver’s licence

Address proof:

Utility bills, rental agreement, or bank statements with the address.

Income documents:

Salary slips, Form 16, or income tax returns.

Bank statements:

Past six months’ bank statements showing salary credits and financial transactions.

Final Word

By familiarizing yourself with the types of personal loans, major eligibility criteria, ways to improve your eligibility, and the required documentation, you can enhance your chances of loan approval. Remember to do thorough research on various loan providers and their eligibility criteria while keeping in mind your financial situation and requirements.

Frequently Asked Questions (FAQs) 

What is the minimum credit score required for a personal loan?

While the minimum credit score required may vary across lenders, a CIBIL score of 750 or higher is generally considered favorable for securing a personal loan. However, some lenders may approve loans for applicants with lower scores, but often at higher interest rates.

Can I get a personal loan if I have a low credit score?

Yes, you may still be able to get a personal loan with a low credit score. However, you may face higher interest rates and more stringent terms. You could also consider opting for a secured loan or having a creditworthy co-applicant or guarantor to improve your chances of approval.

How does my employment status affect personal loan eligibility?

Lenders prefer applicants with stable employment and a steady income, as this indicates a lower risk of defaulting on loan repayments. Frequently changing jobs or having significant gaps in employment history may negatively impact your eligibility for a personal loan.

Can self-employed individuals apply for a personal loan?

Yes, self-employed individuals can apply for personal loans. Lenders typically require proof of stable income, such as income tax returns or bank statements, to establish your repayment capacity. Keep in mind that eligibility criteria may differ for self-employed applicants compared to salaried individuals.

How can I improve my personal loan eligibility?

To improve your personal loan eligibility, consider maintaining a healthy credit score, reducing existing debts, opting for a longer repayment tenure, adding a co-applicant or guarantor, and ensuring stable employment. These factors can help demonstrate your creditworthiness to potential lenders.