It is not wise to take a personal loan without prior knowledge. It is best to understand the required criteria before applying. Loan rejection not only delays your plans but also impacts your credit score. Banks and fintech companies check some important factors before approving a loan. Knowing these factors can help you improve your financial condition and get a loan at better terms.
Salary
Lenders (banks or fintech companies) want to ensure that your income remains stable so that you can repay the loan. Higher income level increases your chances of getting the loan approved. Working in the same company for 1-2 years is also beneficial for you. Self-employed individuals must provide proof of income, such as financial reports or tax returns.
credit score
Your credit score plays an important role in getting a loan. A score of 750 or above is considered good. This shows that you have repaid your previous loans on time. If you have defaulted on payments, delayed payments, or made multiple loan applications, approval may be difficult. Check your scores regularly and correct any errors in your report.
Current debts and liabilities
Before giving a loan, banks consider your debt-to-income ratio (DTI), which shows how much of your monthly income is already going towards EMIs. If more than 40% of your income is going towards EMIs, your chances of getting a new loan go down. Paying off old loans early or consolidating loans can improve your eligibility.
Age and repayment capacity
Younger applicants, who have several years of income ahead of them, are considered less risky. However, if you don’t have a good financial record, applying too young may be detrimental. Most banks consider the age limit of 21 to 60 years as ideal. The loan tenure is usually fixed till your retirement age.
Employer and Profile
Where you work is also important. If you work for a well-known or stable company, your loan application may get approved quickly. Banks consider people with professional degrees or working in regulated professions (like doctors, engineers and CAs) to be more trustworthy.
