A personal loan is one of the most flexible options you have if you need extra cash. It can be an excellent way to consolidate other debt, buy a new car, or renovate your house. What’s great is that even when you don’t have a credit history, you can still get a personal loan as long as you have a steady income. But how do lenders determine your personal loan eligibility, and what steps do you need to take to get one? This blog will help you to answer all your questions. 

Factors on Which Lenders Calculate Your Personal Loan Eligibility

Credit Score

Your credit score is a key factor that lenders consider when determining whether to approve your loan and what interest rate to charge. A higher credit score indicates to lenders that you’re a lower-risk borrower, which could lead to a lower interest rate on your loan.

A good credit score is generally considered to be 700 or above. If your credit score is below this threshold, you may still be able to qualify for a personal loan, but you may have to pay a higher interest rate. While personal loans can help cover unexpected expenses, consider how they might impact your long-term financial stability and achievement of retirement goals before applying. These personal loans for low CIBIL score candidates may also have completely different eligibility criteria, and there are chances that only a few lenders offer them. 

Employment Status and Stability

Lenders want to see that you have a steady income stream coming in, so they’ll typically prefer borrowers who are employed full-time. If you’re self-employed or have an irregular income, you may still be able to qualify for a personal loan, but you may need to provide additional documentation to prove your income.

Your employment history is also important to lenders. They’ll want to see that you have a good track record of keeping a job, so frequent job changes or gaps in employment can hurt your chances of qualifying for a loan.

FOIR – Fixed Obligations to Income Ratio/Debt Ratio

The maximum EMI that most lenders and banks/NBFCs offer to a client under the FOIR Method ranges from 50-75% of their NTH income (salary). Banks might also examine previous loans as well as other credit card balances to determine Final Loan Eligibility. You can also compute (calculate) your eligibility using the eligibility calculators available on many websites.

The FOIR formula is as follows:

FOIR = (Total Existing Obligations/Net Monthly Salary) * 100

Credit Mix and Credit Length

Your credit mix is the variety of types of credit you have. Several credit cards, a mortgage, and an auto loan, for instance, could be included in a combination. Lenders can tell that you can appropriately manage a variety of debts if you have a varied mix of credit types.

Your credit length is the amount of time you’ve been using credit. The longer you’ve been using credit responsibly, the more likely it is that you’ll repay a loan on time. Lenders will also look at your payment history to see if you’ve made on-time payments in the past.

Too Many Ongoing Personal Loans

One of the most important factors that lenders take into consideration is the number of outstanding personal loans that a borrower has. If a borrower has too many ongoing personal loans, it can signal to the lender that the borrower is in financial distress and may not be able to repay the new loan. Exploring “Small Business Ideas” with high-profit margins can improve your chances of securing Personal Loan Eligibility. This can lead to the lender denying the loan or offering a lower amount than what was originally requested.

There are a few things borrowers can do to avoid this issue. First, they should try to pay off as many outstanding loans as possible before applying for a new one. Second, they should make sure to shop around for lenders who are willing to work with borrowers who have multiple loans.

Age

Most lenders expect you to be between the ages of 21 and 55. If you are at least 21 years old and have no credit history, you can still qualify for a personal loan from a Fintech lender.

Assets and Collateral

Your assets are everything that you own outright and have equity in. This can apply to things like your house, your car, your investments, and even your savings accounts. Your chances of getting a loan approved and receiving a reduced interest rate increase as your asset base increases.

Collateral is something that you put up as security for the loan. This could be your home or another asset that the lender can seize if you default on the loan. The more collateral you have, the less risk involved for the lender and the more likely you are to be approved for a loan.

Repayment History

Your repayment history contains details about how you managed previous debts and whether you made payments on time or not. Check your Personal Loan eligibility instantly with an Online EMI Calculator to see if your desired monthly payment aligns with loan offers. This data is used by lenders to analyze your creditworthiness as a borrower and determine whether you have a good chance of repaying your personal loan.

Having a good repayment history will give lenders confidence that you are a responsible borrower and that you are likely to repay your loan on time. This can help you to get approved for a personal loan with more favourable terms and conditions.

On the other hand, if you have a poor repayment history, it may signal to lenders that they should be wary of lending to you.

Final Thoughts

Personal loans are an excellent way to obtain the funds you require quickly and easily. However, how do lenders determine your eligibility for a personal loan? We hope our blog has helped you find an answer to this question, especially if you are looking for a personal loan soon.

It can seem like a scary process when you are looking to get a personal loan. But if you know where to go, it can actually be quite easy to get a quick credit loan and have the money you need to get the things you want without all the stress that usually comes with it.