As the personal loan is an unsecured type of credit, the eligibility requirements are higher when compared to secured loans, which are backed by collateral or security. If you are looking to improve your eligibility for taking a personal loan, five of the most important factors that you should focus upon are discussed in this post.
Financial emergencies can occur at any time and no matter how good you are with planning your expenses, there are times when external financial support becomes necessary. While family and friends are go-to options during such emergencies, most of us know how financial matters can spoil relationships.
A simpler and more convenient alternative is taking a personal loan. It is an unsecured type of loan, which does not require you to pledge any collateral for availing the loan. Moreover, you are free to use the loan money just the way you want. But as lenders do not ask for any collateral, the eligibility requirements for this loan are higher than a secured loan such as a car loan or a home loan.
If you are planning to take a personal loan and worried about the eligibility, these are 5 of the most important factors that you should watch out for-
- Credit Score
There are credit bureaus like CIBIL that maintain the credit-related information of the individuals. Based on your past credit history, they calculate a three-digit credit score. Lenders now lay major emphasis on the credit score, especially in case of personal loans, to make sure that they only offer loans to creditworthy individuals.
The score ranges from 300 to 900. The higher your credit score, the better are your chances of getting a personal loan. Most lenders generally prefer giving loans to individuals with a score of 700 or above.
- Monthly Income
Lenders also want to make sure that you’d be able to repay the loan on time. As a result, your monthly income is also a critical consideration for them. In fact, the amount you’d be allowed to borrow would be calculated based on your income.
The lender would ensure that you’d be able to manage your monthly expenses as well as pay the loan EMIs on time with your monthly salary.
- Employment Stability
For lenders, salaried professionals with a solid employment history are far safer borrowers than someone who has just started working or keeps switching jobs. If you have been working at a reputed organisation for more than two years at a stretch, the lender will consider that you have a stable career and would repay the loan on time.
In the case of self-employed professionals, the lender will focus on things like years of experience and the annual turnover.
- Your Age
Age is not just a number when it comes to taking a personal loan. Lenders prefer giving loans to younger borrowers as they have more years of their professional lives left and have higher chances of repaying the loan on time.
In case of salaried professionals, the lenders prefer giving loans to borrowers aged between 25 to 60. For self-employed professionals, the maximum age of borrower can be up to 65.
- Existing Loans
Your current loans are also important for your personal loan eligibility. If you are already repaying a loan, the lender would like to make sure that you’d be able to repay the EMIs of the new personal loan as well. The lender can reject your personal loan application if it they reason to believe that you’d not be able to handle one more loan on top of your existing credit profile.
While the eligibility requirements of lenders can slightly vary, the factors discussed above are generally the same for every borrower. Before applying for a personal loan, make sure that you check their eligibility requirements to avoid getting your application rejected.