Everyone experiences financial emergencies. The first thing anyone seeks during such times is to raise the required funds quickly. Applying for a personal loan may be the ideal way to meet financial obligations or cater to non-emergencies, such as a holiday, travel, shopping and other personal requirements.
An essential characteristic of personal loans is that applicants are not required to pledge their assets as collateral against the loan amount. So, lending institutions check the applicant’s eligibility to ensure the loan money is not at risk.
Income is one of the most significant measures of repayment capacity. The monthly income requirements to qualify for a personal loan may vary based on the applicant’s city. Loan applicants based out of Delhi and Mumbai must achieve a minimum salary of Rs. 25,000, while applicants residing in other locations should have a minimum salary of Rs. 20,000.
For self-employed individuals, lending institutions consider the minimum annual turnover and yearly profit after taxes for evaluation, according to the nature of the profession or domain of work. The lending institutions ensure the applicants have a sufficient surplus after the EMI payments. If the spread is less, lenders assume the applicant may default.
Personal loan eligibility improves if the applicant shows additional sources of income, such as the spouse’s salary. The lenders are assured the applicant has multiple income sources to tap into. It is for the same reason that joint loans have gained widespread popularity.
Combining the applicant’s and co-applicant’s salaries presents a more extensive income base to afford a higher loan or get attractive personal loan interest rates from the lender. Several other aspects other than income affect the eligibility for a personal loan. Here is a deep dive into all the other factors besides salary that applicants must pay attention to ensure a quick personal loan approval.
Factors that Determine Personal Loan Approval Besides Salary
1. Credit score
A credit score represents a quantitative summary of an applicant’s past borrowing record. The score gives an insight into everything there is to know about the applicant’s debt history.
There may be cases where loan applicants with massive salaries have below-average credit scores, which results in the loan application getting rejected. Usually, a credit score of more than 750 is considered ideal to qualify for a personal loan.
Applicants should check their credit score to ensure it stays above the minimum threshold. It is recommended to check the score twice a year. If the applicant or their employer checks the credit score, it is referred to as a soft inquiry.
However, if multiple lending institutions check an individual’s credit score due to loan enquiries, it is considered a hard inquiry and may hamper the score.
2. Employment Details
Employment details such as work experience play a crucial role in the loan approval process. Applicants with longer work experience present a stable source of income, giving more confidence to the lenders in their repayment ability.
On the other hand, a short or tentative work experience might raise a red flag about the applicant’s repaying capacity. Lending institutions also look at the applicant’s duration with their current employer.
Applicants must have a minimum work experience of one year and an employment period of at least six months with their current employer to qualify for a personal loan.
3. Tenure
Applicants can opt for a short-term or long-term loan based on their requirements. Lending institutions may have a higher probability of approving loans of short tenure.
Additionally, the personal loan interest rates for a short-term loan may be commonly lower than loans taken out for a more extended duration. So, individuals seeking a personal loan must prefer a shorter loan tenure. However, applicants must decide the loan term carefully based on their incoming cash flows and estimated future expenses.
4. Age
Applicant’s age might indicate their financial stability. Lenders typically prefer individuals within the usual employment age. Most lending institutions have an age constraint of 21 to 60 years to qualify for the loan.
Conclusion
A quick personal loans is an easily available solution to immediate liquidity requirements. Applicants should provide all the relevant documents that enhance their chances of qualifying for a personal loan.
The most crucial factor lending institutions seek to evaluate is the applicant’s repaying capacity. A high credit score, an apt age, a reasonable loan amount with respect to salary, a stable source of income and a justified tenure are some factors that help with quick personal loan approval.