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Deepshikha | May 16, 2022 | Views 49790

How do Lenders determine your Personal Loan eligibility?

How do Lenders determine your Personal Loan eligibility?

A personal loan is a loan that can be utilised for almost anything. There is no pre-determined objective for which the loan is accepted, and the borrower is free to spend the cash for whatever purpose they see fit.

Furthermore, the lenders do not require any type of collateral or security. A personal loan is an unsecured loan that does not require the lender to mortgage any assets in exchange for the loan.

Because no asset is mortgaged in this situation, the lender’s risk is significant. Because the danger is larger, the interest rate on personal loans is higher as well. However, just because interest rates are higher doesn’t mean the lender will lend to everyone.

Lenders prefer to lend only to persons who will be able to repay the loan in the future. The lender checks a variety of items to guarantee that the individual receiving the loan is creditworthy and can repay the loan in the future.

Points checked by lenders before approving a Personal Loan

Income

The lender’s first consideration is your income level. The higher your salary, the more likely you are to qualify for a loan. Different lenders have various income requirements. New age lending start-ups accept income of up to Rs.18,000 per month, although other banks require an income of up to Rs.25,000 per month.

The lender’s first consideration is your income level. The higher your salary, the more likely you are to qualify for a loan. Different lenders have various income requirements. New age lending start-ups accept income of up to Rs.18,000 per month, although other banks require an income of up to Rs.25,000 per month.

Type of Income – Salaried or Business

The type of income a person earns has an impact on loan eligibility. Salaried income is the safest type of income, whereas company income is deemed riskier. As a result, the likelihood of the money being repaid is higher in the event of a salaried job, and lenders prefer these types of candidates.

Qualification

All personal loan applications require you to state your qualifications. This is because highly qualified people have an easier time earning and repaying money than less qualified ones. As a result, the greater the qualification, the more loan eligibility there is.

Credit Score

One of the most essential factors in determining personal loan eligibility and amount is the credit score. A credit score is a number that indicates how you’ve used credit in the past and how your credit health is currently.

Credit scores range from 300 to 850 and are based on a variety of factors such as current outstanding loans, credit cards, and previous payback history. A credit score of 600 is normally enough to qualify for a personal loan.

Employment Experience

In the case of salaried employment, your previous work experience is also taken into account. Most lenders want at least 1-2 years of experience, however, newer lenders may be ready to lend with as little as 6 months of expertise.

Working for a single business over an extended length of time enhances your creditworthiness, and working for a reputable company is even better.

Periodicity of income, Monthly savings and Recurring expenses

Lenders will also look at the period after which you receive income, as well as your recurrent expenses such as other loan EMIs, to assess how much you can save each month and repay the personal loan EMI.

If you have a large monthly savings account, you will be deemed a risky borrower by most lenders.

Age

Most lenders are willing to lend to people between the ages of 21 and 60, whereas banks are willing to lend to people between the ages of 23 and 55. If a borrower does not fall into this category, most lenders will not be willing to lend money to them.

You may have witnessed instances where a lender is willing to provide you with a pre-approved loan. A pre-approved loan does not guarantee that the lender will not do any more checks. In most situations of pre-approved loans, the lender already has access to some of your financial information, such as bank statements and credit card histories, and has judged your creditworthiness and authorised your loan based on that information.

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