A personal loan is a type of financing solution that helps meet the immediate capital requirements of an individual. The funds obtained from personal loans do not have any restrictions on their end use. Whether you need money for higher education, weddings, vacations, or medical expenses, taking a personal loan is a great option to meet short-term financial needs.

When a person borrows money from the lender, they need to pay back the loan amount in the repayment schedule. However, before offering a personal loan, eligibility criteria must be fulfilled by the borrower. It is observed that non-banking financial companies (NBFCs) have lenient eligibility criteria for personal loans as these institutions cater to a wide group of customers.

Factors Affecting Personal Loan Eligibility

Income Range

Individuals in high-income brackets can avail of a large sum of money with personal loans. Also, a higher income range may help you get an affordable interest rate. This is because income is directly proportional to the repayment capacity of any individual. So, if you earn a good amount of money from your income sources, you can bag a better deal from the lender.

Source of Income

A stable source of income is preferred for taking a personal loan. An individual getting regular payments from a certain income source can easily qualify for the eligibility criteria for a personal loan. It signifies that the individual will not default on the monthly payment schedule. Salaried individuals, self-employed persons, and business owners can disclose their sources of income with some key documents to secure a personal loan. Documents such as salary slips, income tax returns, and profit and loss statements (for business owners) are accepted by various financial institutions.

Debt Profile

The debt profile ratio, which is calculated by dividing the total debt by total assets, is an important consideration in checking the eligibility criteria of an individual. One must disclose any existing debt to the lender to maintain transparency and to evaluate their repayment capacity. For an existing fixed debt repayment, personal loan eligibility is impacted.

Credit Score

The credit score is a key financial parameter when applying for a personal loan. It tells the creditworthiness of an individual. People with higher credit scores are most likely to get personal loans with favourable terms because of their timely payment track records. Some of the factors that affect the credit score of a person include, delayed or non-payment of monthly instalments, credit mix, new credit, and credit history. Maintaining a healthy credit score is recommended for qualifying the personal loan eligibility criteria.

Employment

Lenders prefer low-risk applicants for personal loans. Salaried persons working in the government sector or private sector, established businesspersons, and self-employed individuals with solid credit scores are some of the borrower profiles that get personal loans easily. 

Before applying for a personal loan, you must check out the above-mentioned eligibility criteria. It helps you understand the loan application process and the likelihood of loan approval. Some of the best institutions accept loan applications from people from different walks of life.