Applying for a personal loan is usually fast and easy, as it is a collateral-free financing solution. You can apply for one online within minutes. However, lenders grant the loan based on certain criteria to ensure that you don’t default on repayment. Generally, a good rule of thumb to follow is to meet the lender’s eligibility criteria.
While that is sound advice, it isn’t enough on its own. To help you understand how to put forth the best application, here are the five factors that affect your eligibility for a personal loan. Getting them right can help you access funds quickly and fulfil your financial needs with ease.
Your age
Age is an important criterion, as it gives lenders insight into your financial stability and earning ability. If you are in your early 20s, you may not have the required financial stability, but you have enough time to earn and repay. Similarly, after 20 to 25 years of employment, the earning window is smaller, and so, the chances of rejection are higher. Therefore, most lenders require you to be within the ages of 23 and 55 to apply.
Your work experience and job stability
Lenders determine eligibility by your work experience and current employment terms to gauge if your income is steady or not. Job stability translates to a regular stream of income, and so, lenders also look into the organisation you work with. If the company you work with has a history of delayed salary payments or is not financially sound, then the lender may choose to deny the application. This is because these factors ultimately affect your ability to repay your personal loan EMIs.
Your monthly income
Your income is a vital part of your financial profile, as it is directly linked to your ability to repay the loan. Depending on the city you live in and the lender you’ve opted for, the minimum requirement varies, and so you must check this amount beforehand. It may also be beneficial for you to showcase additional sources of income. This can range from passive sources like leased out property or to more active sources like a business. This can add to your income and assure lenders of timely repayment of your dues.
Your CIBIL score
Since a personal loan is an unsecured form of borrowing, your CIBIL score plays a crucial role in your application. This score is the chief metric by which lenders can judge your creditworthiness. It is doubly important because lenders have no collateral to fall back on. Therefore, you should maintain a high credit score to prove that you have a good repayment track record and experience with managing debt. Usually, a CIBIL score of 750 and above is considered ideal for fast personal loan approval.
Your existing debt and debt-to-income ratio
The segmentation of your income is an important element in your financial profile. Lenders are less likely to lend to you if you already have too many financial obligations. This is where your debt-to-income ratio comes into play. You can calculate this by simply dividing your total debt payment by your income. It is important to keep this value below 50%, as a higher percentage poses a greater risk of defaulting on payments.