2020 has been a tough year for most of us, both mentally as well as financially. As the COVID-19 pandemic continues to wreak havoc in the world around us, it is only natural that some of us might be undergoing a cash crunch scenario. If you, too, have been undergoing a cash crunch scenario, and you are considering taking a personal loan, then this article is for you.
In today’s article, we will share with you everything you need to know about how lenders check your eligibility for personal loans in India. Let’s get started.
What Is a Personal Loan?
Before we dive into the technicalities of how lenders check your eligibility for a personal loan, let us quickly understand the meaning of a personal loan.
In simple terms, a personal loan can be understood as a financial instrument wherein you, as the borrower, can avail a certain amount (generally between ₹10,000 to ₹500,000) at a low-interest rate and along with a flexible repayment plan.
Today, getting a personal loan in India has become much easier thanks to the many lenders who specialize in this domain. But despite this, there are some factors that every lender considers before approving your loan application.
How to Get Approved for a Personal Loan in India?
No matter which lender you choose for a personal loan, you will be first categorized on the basis of your employment. You will either be classified as a salaried employee, or you will be classified as a self-employed professional. Depending on which category you arrive at, your eligibility for the loan will be different.
Eligibility criteria for personal loans in India vary depending on the fact that if you are a salaried professional or a self-employed one. If you are a salaried employee, the following factors are taken into consideration while approving your loan application.
- Age: For salaried employees in India, the minimum age required to apply for a personal loan is 21 years. Along with this, it is also important to note that some banks and NBFCs have a minimum age barrier of 23 when it comes to applying for a personal loan.
- Monthly Income: In India, the monthly income for salaried employees who wish to apply for a personal loan varies between ₹13,500 to ₹18,000 depending on the bank or NBFC you choose as your lender. Along with this, depending on the type of organization you work for, that is either a government organization or a private institution, the minimum monthly income requirement may vary. Generally, it has been observed that the minimum monthly income requirement for government professionals is less as compared to those employed in the private sector.
- Total Work Experience: The third factor that is taken into account is your work experience. Most banks prefer to approve personal loans for professionals who have work experience of 2 to 3 years or more. However, this does not mean that a fresher can’t get a personal loan. In case you have just started working, and you need a personal loan, you can still get approved; however, the other factors will be given more priority and will arrive at a higher margin.
- Credit Score: Last but not least, when you apply for a personal loan as a salaried employee, your credit score is taken into account by the lender. If you want to get approved for your personal loan quickly, then you need to make sure that your credit score is in the range of 750 to 800, as it indicates that you have high creditworthiness.
Self Employed Professionals
The second category for lenders is self-employed professionals. As I mentioned earlier, the eligibility criteria for personal loans in India vary widely between salaried and self-employed professionals.
If you are a self-employed professional, and you are applying for a personal loan, the following factors are taken into account.
- Age: If you are a self-employed professional and you are applying for a personal loan, you need to be 25 and above to get approved. The minimum age to apply as a self-employed professional varies between lenders but is generally in the range of 25 to 30.
- Business Stability: You need to be in business for the last 5 years at a minimum to get approved for a personal loan.
- Minimum Profit After Tax: As a self-employed professional, your MPAT or minimum profit after tax is given heavy consideration when you apply for a personal loan. The reason behind this being, the amount left with you after tax is the amount you actually earn, and in order to get approved, this amount needs to be ₹2 Lakhs per year and above.
- Credit Score: A lot of us might be of the opinion that credit score is given equal weightage by a lender both for a salaried as well as a self-employed professional, but this is only partially accurate. In the case of a self-employed professional, since the income is irregular, the only way lenders have to determine if the borrower is creditworthy or not is through their credit scores. On the other hand, in the case of salaried professionals, the monthly income can be used as a yardstick to determine their creditworthiness. Thus if you are self-employed and you want your personal loan application to get approved, make sure that you have a high credit score across both Experian as well as CIBIL.
- Be an Account Holder: If you are a self-employed professional and you are applying at a bank for a personal loan, then it is a prerequisite that you hold an active account with them for at least one year. While this criteria do not apply at most banks and NBFCs, some of the most recognized banks have this policy in place.
If you want a personal loan in India, make sure:
- You have and maintain a high credit score as it will make it easier for lenders to assess your personal loan application and consecutively approve it.
- Have a regular income as it displays that you can be trusted to pay back your loan and not orchestrate a default for the lender.
- Be 23 years of age if you are salaried and 25 years of age if you are self-employed.
- Have continuous work experience of 2 to 3 years if you are a salaried professional and 5 years in business if you are self-employed.
Getting a personal loan in India of 2020 has become easier than ever before. If you are applying for a personal loan, just make sure that you follow all the pointers and eligibility criteria listed here, and you will be good to go. All the best.
Author Bio: Surya Patra is a qualified webmaster by profession and Marathon Runner/Cyclist by passion with more than 6+ years of expertise in the financial domain. Surya is also an entrepreneur, enthusiastic in storytelling, content writing, and digital marketing professional.