If loans were cricketers, personal loan would be an all-rounder. With no limitation on end use as it is for home loan, car loan and education loans, they can help meet most expenses. They can serve as “wedding loans” and can also help meet expenses from medical emergencies, vacations, start-ups and small businesses, and home renovation. And yes, they also help you buy your objects of desire like home theatre, gaming console, and home gym equipment. 

What is a personal loan? 

If you type “need personal loan” or “best personal loans” on your mobile or other devices, you will come across a myriad of personal loan offers. You can apply online or visit branches of loan providers. 

What determines personal loan eligibility?

Banks and financial institutions provide personal loans after a personal loan eligibility check. This involves scrutiny of factors like borrower’s income, employer’s reputation, place of residence, existing loans and loan repayment history reflecting in credit score. In case of self-employed, the nature of the business and its financials hold the key. 
A defining feature of personal loan is the absence of any collateral like a home, gold or securities that helps process the loan faster.

What to check for in personal loan eligibility?

Before you set out for the best personal loan interest rates, do a personal loan eligibility check yourself. Take the help of websites and mobile apps of loan providers. Consider crucial factors determining loan eligibility.

How to Find Out Personal Loan Eligibility for Salaried? 

Income Loan providers seek evidence of income stability for smooth loan repayment over loan’s typical term of 1-5 years. The required minimum monthly income tends to be ₹20,000-25,000. Typically, higher the income, higher the personal loan offered, and lower the personal loan interest rate.

Work life A minimum work life of 1-3 years is typically sought with remaining work life being important too. The younger you are, more likely you will get a higher personal loan amount with a longer loan term. 

Age Typically, personal loans are available to individuals in the age bracket of 21-65 years. 

Place of residence and home ownership Location of residence and home ownership also influence loan eligibility. 

Outstanding loan More the outstanding loans, lower the amount of personal loan offered. In case of credit facilities like credit cards, usage of 30% or less, is viewed favourably. Moreover, timely repayment of such loans tends to have a good impact on your eligibility too.

Credit score Higher the credit score, which reflects loan repayment history, better the access to easy personal loan. A healthy repayment history ensures a good credit score and healthy credit report. Ideally a credit score of 750 and above from CIBIL, is considered to be a good score for a loan, although institutions do provide loans to those with lower credit scores. 

How much personal loan will you get?

While seeking a personal loan, a borrower is confronted with questions such as: “How much personal loan can I get if my salary is Rs 15,000?”, “How much loan can I get on Rs 50,000 salary?” or “How to get a Rs 50,000 loan?”. To get the answer, understand how loan providers arrive at the figure.

Personal loan providers use what is called “Debt to Income Ratio” or “Fixed Obligations to Income Ratio” (FOIR). This is the portion of your gross pay or take-home pay used to meet fixed obligations like loan EMIs, rent, committed investments, among others. Lower the fixed obligations, greater the eligibility for higher loan amounts. 

A fixed obligation to income ratio of 35% or less is considered appropriate by most loan providers. Higher loan obligations lead to lower loan amounts offered and even application rejection. Ensure that after the personal loan EMI, you will have enough headroom for emergencies and saving for future needs. 

A personal is more than a handy financial tool and the key is to understand eligibility requirements well to successfully get a good and favourable loan.