Want a personal loan? Here are 5 things lenders check first

Representative image

It is generally advisable to know the parameters before taking a personal loan blindly. If the loan is rejected, not only does it delay your plans but also hurts your credit score. Banks and fintechs charge some parameters before sanctioning a loan. Being aware of the parameters helps you plan better, improve your profile, and negotiate the terms.

Income and stability of employment

Lenders also want assurance that you have a steady income to pay them back. The more you earn, the better your chances. Job stability—having been with the same company for at least a year or two—also works in your favour. Self-employed individuals are usually asked to supply stable business income in the form of financial reports or tax returns.

Credit score and history

Your credit history is one of the most significant determiners of loanability. 750 and above is usually fine. This tells the lender that you have managed previous loans well. Defaults, late payment, or too many applications within a brief time may reduce your chances. Monitoring your score and correcting mistakes in your report can do wonders.

Current debts and liabilities

Before approving a loan, lenders check your debt-to-income ratio—the share of your monthly income already committed to EMIs. If more than 40–50 percent of your income goes into servicing existing loans or credit cards, new lenders may hesitate. Prepaying some existing debt or consolidating loans can improve your eligibility.

Age and repayment capacity

Younger applicants with more years of earning left are generally held to be lower risk. But being too young, without the established track record, can be self-defeating too. For most banks, 21 to 60 years old is fine. Tenure for the loan is typically equated with your retirement age for repayment ability purposes.

Employer and profile

Where you work can also play a role. Being employed by a reputable organization, especially those in sectors that are seen as stable, has more pull for your application. Similarly, candidates holding professional degrees or working in regulated professions might be qualified for less stringent approvals.

The bottom line

Eligibility for a personal loan is determined by a combination of income, credit score, liabilities, and job stability. You can increase your chances of being approved and qualify for loans at lower interest rates by being more financially responsible and careful planning.

FAQs

Q1. Can you get a personal loan if you have a low credit rating?

You can, but you may be offered a smaller amount against a higher rate of interest. You should try to build up your rating first.

Q2. Are all banks equally eligibility-based?

No. While underlying factors like credit score and income are applicable anywhere, each lender has its own cut-offs and may even give varying weights to factors.

Q3. Is it likely that applying to several lenders at once will increase my chances?

Not necessarily. Excessive applications within a time period can negatively affect your credit score. It is better to verify eligibility online in advance and then apply selectively.