How to Determine Your Loan Eligibility for Personal Loans

Knowing whether you qualify for a personal loan before submitting your application can help you avoid complications such as rejections or high interest rates.

When determining personal loan eligibility, lenders look at several factors, including your creditworthiness, financial stability, location, income and age. Understanding these factors can not only help get an idea of your eligibility but also inform you about the steps you can take to improve your chances of loan approval.

In this article, we’ll cover the importance of understanding personal loan eligibility, the key factors that determine it, and how to check your eligibility for a personal loan.

Why Is it Important to Determine Your Eligibility for a Personal Loan?

By understanding your loan eligibility beforehand, you can avoid applying for loans for which you are unlikely to qualify, reducing the risk of rejection. This is particularly important because loan applications typically result in hard inquiries on your credit report. Too many hard inquiries in a short period can lower your credit score, making it harder to get approved in the future.

Lenders often provide favourable terms, such as lower interest rates and higher loan amounts, to eligible applicants with a strong credit history. Knowing your personal loan eligibility beforehand can help you make informed decisions about the amount and repayment terms that best suit your profile.

Moreover, understanding the loan requirements allows you to prepare all the necessary documents, such as identity proof, address proof, bank statements and income proof. Being organised helps streamline the personal loan application and approval process, making it hassle-free and quicker.

Key Factors That Affect Personal Loan Eligibility

From your age and credit score to income and employment history, several factors affect personal loan eligibility. Let’s look at these factors in detail:

• Age:
• Most lenders have specific age requirements for loan eligibility, with a minimum age of 22 and a maximum age limit of 65. You need to meet the minimum age requirement at the time of your application, and you should not exceed the maximum age limit by the time the loan matures.
• Credit Score: Your credit score reflects how reliable you are as a borrower. High credit scores, ideally of 750 and above, are favoured by lenders as they indicate a lower risk of default.
• Income: Your income level is considered to assess your ability to repay the loan. Higher income levels indicate a greater capacity to handle the monthly payments. The minimum monthly salary should be at least INR 25,000 for residents of Delhi/Mumbai, and INR 20,000 for other cities. Lenders will have different criteria around minimum yearly income for self employed applicants.

• Debt-to-Income (DTI) Ratio: This ratio compares your monthly debt payments to your monthly income. Lenders prefer a lower DTI ratio, ideally 50% or below, as it indicates you have sufficient income left over to cover your loan payments.
• Employment History: A consistent employment record can improve your chances of approval as it demonstrates income reliability and stability. Applicants should have at least 1 year of work experience with a minimum of 6 months at their current job.

How to Check Your Personal Loan Eligibility?

Most lenders mention the eligibility criteria on their websites. However, a personal loan eligibility calculator goes a step further and gives you an estimate of the maximum loan amount you may qualify for.

Reputed lending institutions such as SMFG India Credit offer online personal loan eligibility calculators, without any cost.

Let’s see a step-by-step guide to use this calculator:

1. Choose your employment status: Start by choosing whether you are salaried or self-employed.
2. Enter your age: Specify your age to help tailor the loan options available to you.
3. Input your net monthly income: Adjust the slider to indicate your net monthly income (after tax deductions). If you’re self-employed, select your yearly profit after taxes.
4. Set your monthly financial obligations: Adjust the slider to set your monthly financial obligations.
5. Choose the interest rate: Adjust the slider to select the rate of interest that applies to your loan.
6. Determine the loan tenure: Finally, adjust the slider to set your desired loan tenure.

The amount of personal loan you may be eligible for will be displayed on the right side of the screen.

Note: The figures provided through a Personal Loan Eligibility Calculator are for informational purposes only. The actual loan amount, interest rate, and tenure might vary depending on various factors and the lender’s policy at the time of loan application.

Conclusion

Determining your personal loan eligibility is essential for a successful application process. By considering factors such as your credit score, employment history, and income, you can improve your chances of approval with favourable interest rates. Tools such as a personal loan eligibility calculator can give you a clearer insight into your eligibility and help you prepare in advance.

If you find that you are ineligible for a personal loan today, it’s important to identify the factors that are affecting your eligibility. Once identified, take the necessary steps to address them – whether it’s improving your credit score, reducing existing debt, or increasing your savings. By focusing on strengthening the relevant aspects, you can enhance your chances of approval when applying for a loan in the future.

*T&C apply. Please note that final approval, loan terms, and disbursement process may vary based on lender policies and borrower’s eligibility.