Personal loans are unsecured forms of credit offered by NBFCs and financial institutions based on various conditional factors including income level, repayment capacity, occupation and credit history. This loan allows borrowers to meet their financial needs. However, there are strict eligibility criteria specific to personal loans from lenders through which they determine your credit eligibility.
Factors affecting your eligibility for a personal loan
Here are the five factors that affect your eligibility for a personal loan. They are the following:
If you are in your early twenties, your earning potential will be lower. Likewise, if your age exceeds 60, your earning capacity may decrease further. Ideally, financial institutions offer personal loans to people between the ages of 25 and 55.
● Monthly income
Before issuing the loan, your lender will determine whether you have sufficient monthly income or not. This way they will have an idea if you can repay the loan within the mentioned time. Your repayment capacity has a direct relationship with your income and is an important part of your financial profile.
However, the conditions regarding the minimum income criteria differ from one lender to another. When assessing your income, the lender will determine your residence and organization. Additionally, if you have a secondary source of income such as rent or land rental, this will reassure lenders that you are on time to pay EMIs on time.
● credit history
Personal loans are unsecured loans, which means that they are free from any collateral or asset guarantees. As a result, lenders use credit scores to find out your creditworthiness. These scores also affect eligibility for personal loans. Your credit score will show patterns of your previous EMI payments. Therefore, you should focus on paying EMI amounts on time without any defaults. This will make your personal loan approval process easier.
● Professional experience
Borrowers with more work experience will have a financially secure future compared to someone who is just entering the field of work. However, the minimum experience required differs depending on the lender, your profession and other necessary factors.
For example, salaried people generally need 3 to 5 years of work experience. Entrepreneurs must have at least five years of business experience and freelancers must have at least 3 years of professional experience.
Remember that the repayment term is also another important factor that affects personal loan eligibility. If you choose a shorter term for your personal loan, you will likely get loan approval at a lower interest rate. Moreover, you should select the loan amount according to your financial capability.
Documents required for a personal loan
Here is the list of documents you will need when applying for a personal loan:
- Identity Proof (includes PAN Card, Passport, Aadhaar Card, Voter ID Card and Driving License)
- Proof of Address (includes Voter ID Card, Aadhaar, Driving License)
- Bank statement for the last three months
- Job ID
- Payslip for the last three months
Benefits of a personal loan
The advantages of a personal loan are:
● Quick approval
The processing of a personal loan is much faster than that of a home loan. If someone has a good credit rating, they will get loan approval within a day or two.
● Without warranty
Personal loans are unsecured loans, so they do not require any collateral. All it needs are proper documents and a healthy credit score from the applicant.
The personal loan amount can be used for various activities such as a visit, purchase of a machine, medical treatment, renovation of a house, marriage, education of children, etc.
● Builds credit score
It’s a great option to boost your credit score. As soon as you start paying EMIs within the mentioned time frame, your credit score will improve.
● Easy to use
Anyone with a decent credit history and a credit score of 750 or higher is considered perfect for lending a personal loan.
● Minimum documentation
The documentation involved in a personal loan is minimal. However, the type of documents required here must be genuine.
A personal loan helps you meet your financial needs without taking any collateral. Before opting for a personal loan, you must check the eligibility criteria for the personal loan in addition to its necessary terms.