Personal Loan Eligibility: Check documents needed and other important factors
22 November, 2024 | 11:01 IST
A personal loan could be helpful in meeting a range of financial needs like unexpected expenses, large purchases, home renovation or even a vacation. With the advent of quick loan apps and digital lending platforms access to personal loans have become quite easy these days. You can apply for a personal loan through a complete digital process and even get the money in your bank account within a few hours.
The lenders, both the banks and non-banking financial companies, take into account several factors before approval of a personal loan application. The personal loan eligibility criteria may vary depending on the terms and conditions of the lender.
Before delving deep into the personal loan eligibility, let’s take a look at how personal loans work and other key details.
A personal loan is a type of borrowing which financial institutions offer to individuals for fulfilling expenses for a range of purposes. These expenses are not specific in nature and can range from funding urgent needs such as paying for medical treatment to spending on leisure activities like international vacations. These types of loans are generally unsecured in nature and do not require any collateral or security.
In the era of digital banking, personal loans can be availed quickly. Some banks even offer pre-approved personal loans to customers instantly. On the other hand, some financial institutions can take up to 2-4 hours to process your personal loan, depending on the amount of money you need and other factors such as your creditworthiness.
Getting a personal loan is fairly easy provided you have your documents in order and have a good credit score. Many lenders offer you the facility to apply for a personal loan via the official app and through the bank’s website.
You can easily apply for a personal loan through digital platforms like Moneycontrol in a completely paperless process. The Moneycontrol app provides access to multiple personal loan offers from its lending partners. You can apply for the loans in a 100% paperless process. The interest rates for the loans start at as low as 12% per annum.
Here are the key eligibility considerations for both salaried and self-employed applicants:
Income and repayment capacity: One of the first aspects lenders examine is the applicant’s income level. Lenders usually look for a steady income to gauge the applicant’s ability to handle monthly loan payments. For salaried applicants, a minimum income of Rs 15,000 to Rs 25,000 per month is often required and it may be higher for self-employed individuals. The exact income criteria can vary based on the lender and the loan amount you are applying for.
Credit score: The credit score is a crucial component of personal loan eligibility. Lenders generally look for a score of 700 or above. A credit score of 750 and above is considered ideal by majority of lenders.
Age requirements: Age criteria differ for salaried and self-employed applicants. Salaried individuals are usually eligible between the ages of 18 and 60, while self-employed applicants in the age groups of 21 to 65 years can apply for personal loans.
Occupation and job stability: Job stability is another important factor for salaried applicants, with most lenders looking for at least one year of stable employment and experience. For self-employed applicants, a minimum of three years in business is generally necessary.
Employer’s profile: The applicant’s employer or business background can also influence loan eligibility. Lenders may give preference to applicants working for reputed organisations.
To successfully apply for a personal loan, keep these documents handy:
Identity proof: A PAN card or Aadhaar card is usually required to verify your identity.
Address proof: Documents like recent utility bills (electricity or water bill) or Aadhaar card can serve as proof of address.
Income proof: Salary slips or income tax returns (for self-employed individuals) help show your financial ability to repay the loan.
Bank statements: Many lenders also ask for your bank statements from the past three to six months to assess your financial stability and spending habits.
How to improve personal loan eligibility
High credit score: A credit score of 700 or above and ideally above 750 makes you a more appealing candidate for lenders. You can improve your credit score by ensuring timely payment of credit card bills and loan EMIs.
Consider a co-applicant: Adding a co-applicant, such as spouse or parent, can improve eligibility if the lender allows joint applications. With a co-applicant, lenders take into account the combined credit scores and income levels.
Maintain steady employment: Job stability is crucial for lenders when assessing loan applications. Frequent job changes can signal instability, which may deter lenders from approving a loan. If you’re planning to apply for a loan, it’s beneficial to show a consistent work history.
Limit multiple loan applications: Each loan application triggers a hard inquiry on your credit report, which can lower your credit score temporarily. Applying to multiple lenders within a short period may make you appear credit-hungry, which can reduce approval chances.
Manage existing debt responsibly: Lenders look at your existing debt-to-income ratio when evaluating your ability to handle additional loans. Keeping your debt under control by making timely repayments and avoiding unnecessary borrowing can help present a healthier financial profile to potential lenders.
In conclusion, before applying for a personal loan, make sure it’s truly the right option for your financial needs. Using a personal loan calculator can give you a clear idea of the monthly payments and total costs, helping you plan repayment better. It’s advisable to carefully evaluate multiple loan options and choose the best one before finalising an offer.
Summary
Personal loans offer quick funds without the need of collateral. However, carefully reviewing the eligibility criteria can help you be loan-ready and shortlist the best personal loan options.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
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