Banks and NBFCs take a risk when they give approval to someone who is getting a personal loan. There is no guarantee, after all, that the loan will be repaid by the borrower. So it is obvious that they would want to do everything they can to reduce the amount of risk they are taking.
This means they would want to look for certain factors in the applicant’s profile, to ensure that he is a creditworthy individual. Having these factors in your profile ensures a quick and easy approval on getting a personal loan.
Here are some of them:
The credit score is a 3 digit number, to represent the creditworthiness of an individual. It is assigned by the credit bureaus, primarily based on the study of a person’s credit history. It is usually assigned between 300 and 900, with 900 being the highest, and 300 being poor.
A credit score of 700 of higher assures the lender that you are creditworthy. This means that you have so far been responsible for your loans are credit cards, and you are likely to not default on a future loan. This also improves the chances of getting a personal loan.
A credit report is like a report card of your credit history so far. It includes your credit score, and a detailed history of your loan and credit cards so far. So whenever you fail to repay your loan in time, or you miss your EMIs, or you settle your debt, it leaves a negative remark on your credit report.
What lenders look for is the lack of any negative remarks such as “settled” or “late or missed EMI payment” on your credit report. This helps you in getting a personal loan and reassures them when approving your loan application.
To repay any debt, you need a source of income. However, just having a source of income is not enough in getting a personal loan. They need to be sure that you have had this source of income for a while, and that you will continue to have it for the foreseeable future.
This is why lenders usually ask for pay slips for at least 3 to 6 months. This helps them ascertain that you have had a stable source of income and that you will continue to have it.
The debt to income ratio helps lenders ascertain the borrower’s ability to manage monthly payment. In simple words, it represents the amount of debt you hold, with respect to your income every month.
Let’s take a simple example: If you earn ₹50,000 a month, you can easily pay a personal loan EMI of ₹10,000 a month. However, it becomes harder to pay if you already have a car loan or home loan EMI of ₹15,000 running.
Thus, lenders look for a debt to income ratio of less than 50%. This means that if your total income is ₹50,000, you should have less than ₹25,000 in all the EMIs combined. If your debt to income ratio is more than 50%, then the lenders assume that it would be difficult for you to repay your loan. This makes it a risky investment for them.
Lenders consider your years of employment and the number of years you’ve been associated with your current company. Applicants who have a non-consistent employment history and have changed their jobs frequently are considered a huge risk for lenders.
However, this also does not mean that you need to be associated with a company for long for getting a personal loan. The lender would only check if you’ve been in the same field for a consistent period and whether your employment has been stable.
The process of getting a personal loan is more difficult for self-employed individuals. Which is why they need to give more information to establish a history of reliable income.
When you apply for a personal loan online, you should keep in mind that these factors will help strengthen your application. They will also increase the chances of getting a personal loan.