A Comprehensive Guide to Personal Loan Eligibility In India
A personal loan can be a quick fix when you’re in urgent need of money for situations like a wedding, medical expenses, a vacation, or any unexpected expense. Many banks and financial institutions offer personal loans in India. While there may be slight variations, the general qualifications to get a personal loan are similar across all lenders.
Let’s look at some of them.
To borrow a lump sum without security, you need to fit certain criteria, and one of the important ones is your age. You should be at least 21 years of age, and not more than 60 to apply for a personal loan. Some lenders even expect you to be at least 24 years old to qualify.
If you are self-employed, the minimum age can be between 24 years and 28 years. But the maximum age for loan maturity is 65. Lenders want to ensure that you’ll be able to pay off the loan while you’re still employed so that they can mitigate their risk. If you’re self-employed, you won’t have an official retirement age so you’re eligibility would be slightly higher.
Whether you’re salaried or self-employed, you need to meet the minimum income criteria to be eligible for a personal loan. The monthly, as well as, annual earnings are looked at when considering a candidate for a loan. The limit might be higher for a self-employed individual as their income varies every month. Also, the minimum amount you need to earn might vary from one lender to another.
Employment or Business Stability
If you are a government employee, work for a PSU, or for a large and established private company you will find it easier to get a loan as your employment status is considered more secure. Professionals like doctors, accountants, and lawyers are also likely to be granted loan approval, as they earn a steady source of income.
If you are self-employed, you need to have been in your current business for at least 2 to 3 years and need to file your IT returns for the last 2 or 3 years.
Lenders need to minimise the risks that they could face in case you default on payments, so if you’ve got irregular earnings, it will be harder for you to receive a loan.
When you apply for a personal loan, banks check your credit rating and history. Credit checking agencies like CIBIL assign you a credit score and create credit reports which contain the history of all your past credit transactions.
If you have a good credit score, you’ll have a better chance of getting the loan approved. Especially since a personal loan is unsecured, your credit history and financial stability are important determinants, as they indicate your ability and willingness to keep up with your repayment schedule and EMI.
Many lenders also look at how long you have been living in your current place of residence. You need to have been residing at your current address for at least a year. For self-employed individuals, some lenders need the loan applicant to have been already dealing with the bank for at least a year, either as an account holder or as a borrower having taken a previous loan.
The loan applicant should provide documents as proof of age, identity, and address. These include your birth certificate, PAN card or voter ID, and utility bills (electricity, telephone, gas bill).
If you’re employed, you need to provide the past 3 months salary slips and bank statements as proof of income. You should provide proof of educational qualifications, especially if you’re a self-employed professional.
For self-employed, you need to provide the last two year’s IT returns, bank statements for the last 6 months, and proof of your business’ existence. You should also provide records of having been in that particular business for a minimum number of years.
These are the basic requirements, but there might be a lot more papers and records that you need to furnish. A personal loan is an unsecured loan, so the more proof you can provide to back up your earning and repayment capability, the better your chances of obtaining the loan.
How to Determine Eligibility
Before you make an online personal loan application, you might want to try out the tools available in many third party financial websites. These let you input various factors to check personal loan eligibility. This way, you’ll have a good idea of whether you qualify for a personal loan.
How to Use a Personal Loan Eligibility Calculator
The inputs you need to provide to calculate your personal loan eligibility vary across the websites of different lenders. You’ll be required to fill in your expected loan amount, interest rate and EMI, your monthly income, and loan tenure.
You’ll also be able to use eligibility calculator with sliders that let you increase or decrease your loan amount and tenure expectations, salary range and so on.
You could also check for any processing fees or prepayment penalties attached to the loan. You may have extra cash in hand at some point in the loan repayment tenure, and if that’s the case, you need to clear up a large chunk of your debt. But if you’ve got penalties for prepayment to deal with, you could end up losing more money. So look for these hidden costs when applying.
Once you provide all the details, you can find out whether you are eligible for a personal loan. If you are eligible, the eligibility calculator for personal loan will inform you of the loan amount you qualify for and the EMI you would have to pay.
Using the loan eligibility calculator will make it clear whether you can afford to keep up with the loan EMI payments. You can extend or shorten the tenure to adjust EMI payments, but keep in mind that the longer the tenure, the more you end up paying over time. This is because you’ll need to pay interest on the principal amount while repaying the debt. Also, there could be fluctuations in interest rates, and if the prices increase, you’ll end up spending a lot more. Repay your loan as quickly as possible to cut down on interest payment.
Personal loans can be convenient when you require quick funds that don’t need a collateral and will be disbursed quickly to your account. However, because it is an unsecured loan, it entails a higher rate of interest than other secured loans. Use this facility as needed and keep the tenure as short as possible so that you can save a sizeable chunk of your income.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog on photography.