Personal loans are unsecured loans that can be used for any personal financial requirement, such as debt consolidation, home renovation, or medical expenses. These loans are prevalent in India due to their flexibility, ease of application, and quick disbursal.
While credit score is an essential factor that lenders consider while approving a personal loan, it’s not the only factor. Here are five other things that can affect your personal loan eligibility apart from your credit score.
- Employment status and income
Your employment status and income are crucial factors that lenders consider when assessing your loan eligibility. Lenders prefer borrowers who have stable jobs with regular incomes. Lenders will also consider the debt-to-income ratio, which is the percentage of your income that goes towards paying off debts. A high debt-to-income ratio indicates a higher risk of defaulting on the loan.
- Existing debt
If you have existing debt, it can impact your personal loan eligibility. Lenders prefer borrowers with a lower debt-to-income ratio, meaning you have more disposable income to repay the loan. Suppose you have multiple loans or credit cards. In that case, your debt-to-income ratio may be higher, making getting approved for a personal loan challenging. In such cases, you may need to pay off some of your existing debt before applying for a personal loan.
- Credit utilization ratio
Credit utilization ratio refers to the percentage of your credit limit that you are using. Lenders prefer borrowers with a lower credit utilization ratio, indicating that you are not overly reliant on credit. If you have a high value of credit utilization ratio, it can impact your credit score and make it challenging to get approved for a personal loan. In such cases, you may need to pay off some of your credit card debt to improve your credit utilization ratio.
- Loan amount and tenure
The loan amount and tenure also play a vital role in determining your personal loan eligibility. Lenders prefer borrowers with a reasonable loan amount and tenure, meaning you can repay the loan comfortably. If you apply for a high loan amount or a long tenure, it can indicate a higher risk of defaulting on the loan, making it challenging to get approved.
- Relationship with the lender
Your relationship with the lender can also affect your personal loan eligibility. If you have a good credit history with the lender and have maintained a positive relationship, they may be more willing to approve your loan application. Similarly, if you have a long-standing account with the lender or are a high-net worth individual, you may have better chances of getting approved for a personal loan.
Conclusion
While credit score is an essential factor that lenders consider when approving a personal loan, it’s not the only factor. If you are planning to apply for a personal loan, it is essential to assess your eligibility based on these factors to increase your chances of approval. Doing so can ensure you get the financial assistance you need to achieve your goals.