A personal loan is a short-term unsecured loan used to meet personal financial needs of borrowers. Since it’s an unsecured loan, you do not have to provide any security or asset to guarantee the amount you borrow. A personal loan can be used for handling emergency medical bills, funding a child’s education, a wedding, travel, home renovation expenses, gadget purchases or debt consolidation. There is no limit on how the borrower can use the money, making it an attractive loan option for all.
A personal loan is one of the easiest loan options available to individuals. Compared to other secured loans like home loans, car loans, loan against property, availing a personal loan is quick and hassle-free. Here, in this guide, let’s take a look at the eligibility requirements of personal loans in India.
What is the eligibility criteria for personal loans?
The personal loan eligibility criteria vary from one lender to another, and also depends on several other factors like income drawn by the borrower, residential location of the borrower and more.
The general eligibility conditions are:
*Note that the actual eligibility requirements vary from one lender to another. For the specific eligibility criteria, contact the personal loan banking officer of your preferred lender.
What are the factors that influence personal loan eligibility?
While it’s true that personal loans are readily available, there are specific eligibility requirements for borrowers. Let’s take a look at the factors that impact personal loan eligibility:
The income you earn plays a crucial role in determining whether your personal loan application is approved or not. The higher your income, the higher are your chances of securing a personal loan at attractive interest rates. This is because your income levels are used to determine the repayment capacity, and applicants with higher income levels are considered as low-risk.
Also, note that some banks offer personal loans only for salaried employees, while others provide personal loans for both salaried and self-employed professionals.
Credit Score and Credit History
Credit scores are another major factor that determines home loan eligibility. All lenders check the credit score and credit history of the loan applicant before approving the loan amount. Generally, most lenders determine the amount you can borrow, the interest rate and loan tenure based on your credit ratings. Higher the credit score, higher are your chances of securing the loan.
If you have a good credit score, then you can not only avail personal loans quickly but also enjoy lower interest rates. So, if you have a poor credit rating, then work on improving your credit score, before applying for a personal loan to improve your eligibility chances.
Age of the Borrower
Generally, most lenders offer personal loans to individuals in the working years – from 21 to 60 years (or 55 years). The younger you are, the higher the chances of loan eligibility. Most lenders do not offer personal loans to retirees or people who are about to retire within the next few years, as they do not have a steady income to repay the loan amount.
Before offering personal loans, most lenders in India consider the geographical location of the borrower. The place of residence of the borrower plays a crucial role in determining personal loan approval. For instance, most banks in India offer personal loans readily to residents of metros and semi-urban areas, compared to borrowers residing in rural locations.
Other Loans and Debts
If you have already availed other loans like home loans, car loans, then your debt-to-income ratio is likely to be higher, which reduces your chances of securing a personal loan. Most lenders calculate your debt-to-income (DTI) ratio before approving your personal loan application. Higher the DTI, lower are your chances of securing a personal loan. So, make sure to reduce your other loan burdens to improve your chances of loan eligibility.
While these are the significant factors, lenders can also consider other factors like homeownership, experience in the current job to determine personal loan eligibility. So, make sure to research the lender online, before you submit your loan application, to reduce chances of rejection.
What is the minimum salary limit for personal loan approval?
The minimum salary requirement varies from one lender to another. Also, it varies based on your city of residence. For instance, the minimum salary requirement for a person residing in a Tier-I metro like Mumbai, Chennai, Bengaluru or Delhi may be Rs. 25,000 per month. Whereas the minimum salary limit for a person living in a Tier-II city like Indore, Coimbatore or Ernakulam may be a bit lower, say Rs. 20,000 per month. The minimum salary requirement is higher in cities as lenders factor in the high cost of living in cities, which lowers the repayment capacity of the borrower.
The minimum salary limit varies from one city to another. You can check the exact amount by visiting the personal loan webpage or contacting the loan officer of your preferred lender.
What are the minimum and maximum age limits to avail a personal loan?
Again the exact entry and cut-off limits vary from one lender to another. Generally, most banks offer personal loans to individuals who fall within the earning period – say from 21 years to 55 years (or 60 years). Also, note that some banks offer personal loans tailored explicitly for retirees.
The general rule of thumb is that the younger you are, the higher are your chances of securing a personal loan. This is because you have more working years, thereby helping you to repay the loan quickly.
What are the documents required for personal loans?
All borrowers must provide certain documents to the lender for personal loan approval. The general list of documents include:
- Duly-filled loan application with recent passport size photographs
- Cheques/DD for the processing fee
- Identity and Age-proof – This can include a copy of the PAN card, passport, Aadhaar or driving license
- Address proof – This can include a copy of the PAN card, passport, Aadhaar, driving license, home rental agreement, electricity bill, water bill or landline telephone bill
- Income proof
- For salaried individuals – Salary slip and bank account statements
- For self-employed professionals – Business profit/loss statements, proof of business ownership and bank account statements
- IT returns/Form 16
Note that you may have to provide other KYC documents as required by your lender.
How can you check personal loan eligibility?
Before you apply for a personal loan, it’s highly recommended that you check your eligibility. Most banks offer online personal loan eligibility calculators that show you how much loan amount you can borrow. Here’s how to check personal loan eligibility using an online calculator.
- Open the personal loan eligibility calculator
- Enter your date of birth, city of residence, monthly income, current loan EMIs and monthly expenses
- Once you input the required fields, the tool will show you the amount you are eligible for along with the EMI you will have to pay every month.
You can then apply for a personal loan with your preferred lender for the same amount.