Factors That Impact Personal Loan Eligibility

Uncertainties are an inevitable aspect of life. Many of these unexpected situations come with a hefty price tag. No matter whether it is a sudden medical expense or home repair, there are several situations where one may need additional financial assistance. In such a situation, many people opt to apply for personal loans. There are several banks and Non-Banking Financial Institutions (NBFCs) that offer personal loans without any collateral or security. You can use the funds from the loan to meet almost any expense, without any restrictions. Common reasons to apply for a personal loan include:

• Debt Consolidation: One of the most common reasons to apply for personal loans is debt consolidation. It is an effective way to combine multiple debts, especially those with high interest rates into one manageable loan.

Personal loans typically have fixed interest rates and set repayment periods, which can make them a more predictable and affordable solution in comparison to revolving debt. By consolidating various debts into a single loan, you might be able to lower your overall interest rate, potentially saving money over time.

Moreover, simplifying numerous monthly payments into one can make budgeting easier and reduce the mental strain of tracking multiple due dates. Depending on your unique financial situation, a personal loan for debt consolidation could also help decrease your monthly payment, freeing up room in your budget.

• Home Repairs: Unexpected issues at home, such as plumbing problems, faulty wiring, or a damaged roof, often need immediate attention to prevent long-term damage and maintain a livable environment. While minor repairs might be covered by your savings or a credit card, major home improvements often come with higher costs. In these cases, opting for a personal loan can be an ideal option.

• Wedding Costs: Indian weddings come with a long list of expenses, right from venue bookings and catering to outfits and decorations. A personal loan can offer you the flexibility to cover all these costs without much hassle.

Regardless of your reason for seeking funding, check your personal loan eligibility before applying.

Personal Loan Eligibility: Multiple factors impact personal loan eligibility.

• Income: Individuals with a high income shall be eligible for a larger loan amount. They are also more likely to get a personal loan at low interest rates. Your income would be among the prime factors based on which your repayment capacity would be calculated. Therefore, the higher your income is, the better your personal loan eligibility.
• Source of Income: A steady monthly income would indicate that the borrower can pay their EMIs in time, which would also invariably improve their eligibility for personal loans. When it comes to salaried individuals, factors like who their employer is, how long they have been working with the present company, their total work experience, and more are taken into account. In case of self-employed people, their IT returns and P&L statements would be checked.
• Existing Debts: If you are already paying EMIs for certain old loans, then a part of your income would be dedicated to the same. This shall have a direct impact on your repayment capability and, hence, loan eligibility as well.
• The Credit Score: The CIBIL or credit score of an individual signify their creditworthiness. It would be a reflection of their history with previous loans or debts. A higher credit score implies higher personal loan eligibility, and even the odds of securing low interest rates.  Your credit scores may go down if you do not pay your credit card bills or EMIs on time. Hence, before applying for a personal loan, you need to check your credit scores and try to improve them if it’s low.
• Nature Of Employment: People employed by the government or public sector or by well-established private sector companies are considered to have stable jobs. Hence, they tend to have higher eligibility for a personal loan. These people are regarded as low-risk applicants by lenders.
• Age:  In addition to the requirement of the applicant being over the legal age for getting into financial contracts, age also affects loan eligibility. For instance, a young individual who has been working just for a couple of months would be considered a high-risk applicant, as there will not be a strong guarantee of their repayment capacity or capability. On the other hand, a person nearing retirement age is considered to have a smaller earning window, which would impact their eligibility for the loan.
• Geographical Location:  Diverse regions and areas across India tend to have varied rules and regulations in place. Therefore, the place where you live would play an important role in determining your personal loan eligibility, as well as the interest rates available to you for the loan.

Much like any other loan, the amount taken as a personal loan has to be repaid at an interest rate you agreed to pay to the lender. Therefore, in addition to eligibility, you also need to research the interest rate and tenure of such loans before applying for them.