What are the Eligibility Criteria for a Personal Loan?

Last month, on 20th March, I had applied for a personal loan of ₹5 lakh via My Mudra with an interest rate of 10.99%. At the time of application, my CIBIL score was a healthy 780. Based on my own experience of the process, I would like to list the most important eligibility criteria one needs to remember:

 

• Age: 21-60 years
• Employment Status: Salaried or self-employed.
• Minimum Income: ₹15,000-₹25,000/month (depending on the lender)
• Credit Score: 700+ (improved score enhances approval likelihood)
• Work Experience: 1 - 2 years (salaried) / 2 - 3 years (self-employed)
• Debt-to-Income Ratio: EMIs should be below 40 - 50% of income
• Documents Required: ID documents, address documents, income documents, and bank statements.

 

Note: Eligibility requirements may vary based on the lender and NBFCs, so do cross-check particular requirements before applying.

 

Personal loans are a very popular financial product that gives individuals the chance to borrow funds for all sorts of different reasons. The reasons can be anything from, although are not limited to, medical conditions that need to be addressed immediately, funding for educational endeavors, travel costs for business or personal purposes, or home repairs and improvements. To qualify for personal loans effectively, applicants need to meet some qualifying criteria that have been set by lenders in the market. These certain criteria are meant to make sure that the borrower has the financial capacity to repay the borrowed funds within the specified time period. These processes also tend to reduce the risk taken by lenders when they lend money to borrowers. The following is a clear and thorough description of the different requirements that need to be met in order to have personal loans:

 

 

1. Age Criteria

Most lenders also have some age requirements that potential applicants should meet in order to qualify for personal loans. Generally:

 

• Minimum Age Requirement: All applicants must be at least 21 years old.
  
  

• Maximum Age: In general, the maximum age limit set for salaried individuals is around 60 years, while for self-employed individuals, the maximum age limit is typically 65 years. The policy is designed to make sure that the borrowers are in their productive working years and have a stable source of income to maintain their borrowing needs.

 

2. Employment Status

It has a pivotal role in establishing and deciding on one's qualification:

 

• Salaried Applicants: The candidate should be working with a private company, public sector enterprise, or government organization. He/she must have a good job history, which typically demands at least two years of total work experience and one year with the current employer.
  
  

• Self-Employed Individuals: Self-employed individuals need to submit proof of the stability of their business, typically having at least two years of business history, commonly known as business vintage.

 

3. Income Requirements

Income is quite likely the most important consideration in determining repayment capacity:

 

• Minimum Income: Salaried customers must be able to achieve a minimum level of monthly income, which will differ between banks. For instance, a bank has set the requirement such that one must possess a minimum net monthly income of ₹25,000, which must be achieved in order to qualify for their services.
  
  

• Self-Employed Income: Self-employed individuals must define a regular and stable income and the extent of profitability that shows the success of business activities.

 

4. Credit Score

A positive credit history is very much required while seeking loan approval.

 

• Minimum Credit Score: The lenders usually demand a credit score of at least 650-720. The higher the score, the greater the chances of approval and improved interest rates can be extended.
  
  

• Repayment History: A good repayment history with no history of defaults on any previous loans or credit cards is highly valuable and convenient in the long run.

 

5. Existing Liabilities

Lenders evaluate the applicant's existing financial obligations:

 

• Debt-to-Income Ratio: Applicants should have a manageable debt-to-income ratio, ensuring they can handle additional loan repayments.
  
  

• Other EMIs: If the applicant has ongoing EMIs for other loans, it may impact the loan amount they qualify for.

 

6. Residency and Address Stability

Applicants must provide proof of residence and demonstrate stability:

 

• Permanent Address: A stable residential address is often required.
  
  

• Duration of Stay: Some lenders may require applicants to have lived at their current address for a minimum period.

 

7. Documentation Requirements

Applicants must submit specific documents to verify their eligibility:

 

• Identity Proof: Aadhaar card, PAN card, passport, or voter ID.
  
  

• Address Proof: Utility bills, rental agreement, or property documents.
  
  

• Income Proof: Salary slips, bank statements, or income tax returns.
  
  

• Employment Proof: Offer letter, employment certificate, or business registration documents.

 

8. Loan Amount and Tenure

Eligibility criteria may vary based on the loan amount and tenure:

 

• Maximum Loan Amount: The loan amount depends on the applicant's income and repayment capacity.
  
  

• Tenure: Lenders offer flexible tenures, typically ranging from 12 to 60 months.

 

9. Geographic Location

Some lenders consider the applicant's location:

 

• Urban vs. Rural: Applicants from urban areas may have different eligibility criteria compared to those from rural areas.

 

10. Relationship with the Bank

Existing customers of a bank may enjoy relaxed eligibility criteria:

 

• Pre-Approved Loans: Banks often offer pre-approved loans to their customers based on their account history.
  
  

• Special Offers: Loyal customers may receive preferential interest rates and terms.

 

Improving Eligibility

If an applicant does not meet the criteria, they can take steps to improve their eligibility:

 

• Enhance Credit Score: Regularly pay off debts and avoid defaults.
  
  

• Increase Income: Seek additional income sources or promotions.
  
  

• Reduce Liabilities: Pay off existing loans to lower the debt-to-income ratio.

 

Personal loan eligibility criteria could differ considerably from one lender to another, and therefore, it would be best for prospective borrowers to thoroughly examine the particular requirements that the bank or institution they are to approach is mandating. The use of tools like personal loan eligibility calculators could go a long way in helping the applicants determine their eligibility level online with ease. Thoroughly working through the process of learning and following these requirements will enable prospective borrowers to improve the chances of easily accessing a personal loan, thereby enabling them to achieve their preferred financial objectives better and more efficiently.