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How to get approval for Personal Loan?

Getting approval for a personal loan is not usually difficult. There are certain eligibility criteria by banks which a person has to follow. Applying for a personal loan is easy and can be done online also and it doesn’t take much time to get approval for the same if a person has a clean credit history.

Home Loan vs Personal Loan

Few factors that affect the eligibility for a personal loan includes – your loan repayment history, credit score, company in which you are employed, your monthly income, age among others. Also, it is important to compare interest rates of different banks before applying for the loan as different banks offer different interest rates depending on your eligibility.

Monthly Income

Whether a person will get loan or not, a lot depends on the monthly income that you are earning. Depending on your salary or monthly income banks would decide how much personal loan they are likely to approve. Also, banks would look into if you have any other loan. Depending on your income and your credit history banks will decide on the interest they will charge and the amount that will be sanctioned. Higher the income higher will be the chances of getting more loan amount. If you are able to show additional source of income like rent from a flat or earnings from other freelance work or business, among others lenders will be assured of timely repayment of dues and it would be easier to get it sanctioned.

Organisation

It matters a lot in which company you work for, as lenders determine your eligibility by your work experience, and present employment terms, and accordingly gauge your job stability. If you are working for a A-listed company banks may offer your lower interest rates and higher amount of loan. Sometimes if it is your salary account banks have special deals for Corporates.

Whereas if you work in a not so reputed company or in an unstable company banks will be cautious to offer you personal loan and are likely to charge higher interest rates as lending to such employees will be risker. If the organisation for which you work delays salary or is in financial crisis this will impact your ability to pay EMI. The lender may even deny sanctioning loan if the organisation you are working with is not stable.

Age

Age is another important factor that helps to determine your repayment capability and financial stability. If you are in your early 20s and have just get employed, your job stability will be less and so will be your income, but you will have a higher chance of repaying the loan as there will be lot of time to repay it.

If you are in your early thirties or mid-forties it will be easier to get a loan as you are likely to have a stable income as well as age will be on your side for repaying the loan. However, if your age is above 50 or more it will be difficult to get loans as you will have less time to repay the loan. Also, financial stability starts shrinking as you age.

Credit Score

A personal loan is an unsecured form of borrowing and no co-lateral is required for the same. So, credit score of a person plays a very vital role when you apply for a loan. Lenders don’t have a co-lateral to fall back on if a person fails to repay the loan. So, a clean credit history is very important. Usually, a credit score of above 750 is required for getting loan approved faster and easily and for getting the loan at a lower interest.

Existing Debt

If you have any existing debt lenders will take that into account and will see the amount of money left in your hands after servicing interest payments for the existing loan. Banks may deny loan if there are too much debt or financial liabilities. Unlike a home loan interest rates for a personal loan varies for each borrower and may fluctuate between 12% to 24% depending on the borrower’s eligibility criteria.

Conclusion

Try to avoid taking a personal loan, unless really needed as interest rates are usually very high.