Your minimum eligibility for a personal loan

The eligibility criteria for personal loans are slightly different from those of other loans.

Every person feels the need for extra money at some point in time. Whether to pay for an emergency medical treatment, or to finance children’s education or even to make a last payment on one’s home, one requires personal loans to tide over a temporary shortfall in funds.

But getting a personal loan is not as simple as it appears. Though banks and financial institutions may get in touch with you to extend personal loans to you, it is when you actually apply for the loan that you realise that the process is not an easy one. The interest rate charged on personal loans is often higher than that of other loans, the scrutiny process is longer and there are several eligibility factors to consider.

Be aware of the following personal loan eligibility criteria:

Age. Lending institutions are normally agreeable to sanctioning personal loans to salaried individuals who are between 21 to 50 years of age. Since these are unsecured loans, businesspersons are normally not favoured candidates for personal loans. Yet, many lending institutions extend personal loans to self-employed individuals with a regular income as well.

Income profile. Your monthly income is a large factor that decides whether the personal loan is sanctioned or not. This is because one does not pledge any securities for this kind of loan, hence one’s income is the only source of repayment. If your income is erratic or if you have been laid off from your place of work, your loan request will be rejected.

Spending patterns. You must submit bank statements showing that your income is deposited every month. The lending institution asks for copies of your bank statements for another reason – they examine your spending patterns, how much money is left over in your account at the end of the month and how quickly you spend your income. All of these help the lender gauge whether a personal loan should be extended to you or not.

Credit score. A major factor in determining your personal loan eligibility is your credit score. This is where your past borrowings and your repayment patterns will either make or break the loan application process. If you have taken loans in the past that are still unpaid, or if you have defaulted on previous loans, it means that you are still either repaying them or will have to make bulk repayments in the immediate future. Such applicants are termed as a ‘credit risk’ by lenders, who deduce that their repayment capacity is low.

Employer reputation. Since personal loans are unsecured loan products, a lot is at stake for the lending institution. This explains why interest rates on personal loans are higher than on other loans. The lender also studies the applicant’s employer profile. If the employer is a reputed company, the applicant’s personal loan eligibility goes up since the employer is less likely to default on salary payments. If the employer is a small firm, you might need to furnish additional documents and securities to avail of the personal loan.