Personal Loans have become a go-to option for individuals facing diverse financial needs. Whether planned expenses like vacations and weddings or unforeseen emergencies, Personal Loans offer a lifeline to make an individual financially capable of fulfilling their financial needs and requirements. In India, 77% of working individuals avail themselves of the Personal Loan facility offered by several banks and NBFCs to navigate the financial challenges due to the economic downturn. This article will provide tips to help you increase your chances for Personal Loan approval.
Why Personal Loans Have Become a Go-To Option?
Personal Loans have become a go-to option for individuals for the following several reasons, making them a preferred financial solution.
- Unsecured Nature: Unlike home or car loans, Personal Loans do not require collateral, simplifying the application process and reducing documentation.
- Versatile Usage: Borrowers have the freedom to utilise Personal Loan funds for various purposes, from clearing debts and managing down payments to funding special events or home renovations.
- Fixed Interest Rates: Personal Loan interest rates remain constant, providing borrowers with predictable monthly payments and enhanced financial planning.
Understanding Personal Loan Eligibility
However, securing a Personal Loan requires meeting specific eligibility criteria set by the banks or financial institutions. The Personal Loan eligibility criteria may differ for salaried and self-employed individuals as per the policies of the banks or financial institutions.
Let us take a closer look at the eligibility requirements as set by leading banks for salaried and self-employed individuals for a smooth loan application process.
For salaried individuals
- Age: Between 20 and 58 years.
- Net Salary: Minimum monthly income of Rs 30,000.
- Work experience: A minimum of 2 years.
- Residence Stability: At least 1 year at the current residence.
Note: The minimum salary requirement may vary based on the customer’s profile, such as the type of employer or an existing relationship with the bank.
For salaried individuals
- Age: Minimum 28 years (self-employed) and 25 years (doctors), up to a maximum of 65 years.
- Turnover: Minimum Rs 40 lakh for non-professionals, Rs 15 lakh for professionals (as per audited financials).
- Profit After Tax: Minimum Rs 2 lakh for proprietorship firms and self-employed individuals, Rs 1 lakh for non-professionals (as per audited financials).
- Business Stability: Operating in the current business for at least 5 years, 3 years for doctors.
- Relationship with Bank: Minimum 1 year of a liability relationship (current or savings account) or loan relationship within the last 36 months, with a satisfactory repayment track.
In addition to these criteria, an applicant must submit specific documents, such as proof of identity, proof of residence, bank statements, salary slips or audited financials, depending on the applicant’s employment status.
Tips to Improve the Chances of Your Personal Loan Approval
Securing a Personal Loan is a significant financial decision, and understanding the factors influencing your eligibility is crucial. Personal Loans by the banks provide a seamless way to meet your financial needs, and maximising your eligibility enhances your chances of approval.
Let us explore the importance of checking Personal Loan eligibility, the factors that affect it, and practical tips to improve your eligibility:
1. Check the lender’s eligibility criteria
You should thoroughly review and align with the specific eligibility criteria set by your chosen bank. This step ensures a targeted approach, minimising the risk of unnecessary rejections based on factors like age or income.
2. Monitor Fixed-Obligation-to-Income Ratio (FOIR)
You should maintain a healthy FOIR between 40% and 50%. Lowering existing debts, paying off liabilities, and settling credit card bills positively impact your FOIR, signalling financial stability to lenders.
3. Apply for the Right Loan Amount
You should utilise the Personal Loan Eligibility Calculator on the websites of leading financial institutions like ICICI Bank to determine the optimal loan amount based on your income, liabilities, and other financial factors. Applying for the right amount enhances your chances of approval and aligns with your financial capacity.
4. Limit Loan Applications
You should avoid submitting multiple loan applications simultaneously. Each application affects your credit report, potentially lowering your credit score. A focused approach reduces the risk of rejection.
5. Improve Your Credit Score
You should aim for a credit score of 750 or above. Timely payments of EMIs and credit card bills, diversifying your credit portfolio, and reducing debt-to-income (DTI) and credit utilisation ratios contribute to a positive credit profile.
6. Include Co-Borrowers
You should strengthen your application by including a spouse or parent as a co-applicant, especially if their income and credit score are higher. This collaborative approach enhances repayment capabilities and increases approval prospects.
7. Choose banks or financial institutions wisely
You should conduct thorough research before selecting a bank or financial institution. You can explore Personal Loan options offered by different banks and other financial players, ensuring you don’t miss out on beneficial conditions.
8. Declare all income sources
You should provide comprehensive information about all income sources, including rent and additional earnings. This not only boosts eligibility but also increases the potential loan amount, showcasing a more accurate financial picture
9. Opt for Longer Loan Tenure:
You should choose a longer tenure strategically. This results in smaller EMIs, reducing the financial burden and improving the debt-to-income ratio.
10. Inquire about loan prepayment
You should investigate loan prepayment options and associated charges. While opting for a longer tenure, having the flexibility to prepay can save you from higher interest rates in the long run. Many reputed banks provide transparent information on prepayment terms.
11. Maintain Stability in Employment and Residence
Several banks or financial institutions often favour applicants with stable employment and residence histories. Consistent employment and residence stability for at least a year positively impact your application.
12. Showcase Responsible Financial Behaviour
You should demonstrate responsible financial behaviour by maintaining a positive bank account balance, promptly addressing overdrafts, and avoiding bounced cheques. This showcases your ability to manage finances effectively.
Wrapping up
Following these tips can improve your Personal Loan eligibility and increase your chances of approval. Whether applying through a leading bank or NBFC, strategic financial planning and responsible financial behaviour collectively contribute to a seamless and successful Personal Loan application process.