A personal loan is a multi-purpose loan that you can use for financing a variety of expenses incurred such as in weddings, education, travel, medical treatment, etc. Since it is an unsecured loan and the banks do not hold the borrower’s collateral, there is a rigorous procedure of checks and verifications. The personal loan eligibility criteria consist of a number of different factors. These are explained below in detail.
Eligibility criteria for a personal loan
The following are some key eligibility criteria considered by most of the lenders before accepting the loan application:
- Age: Most banks offer loans to individuals falling in the age range between 18 years to 65 years. This may differ based on the internal rules of different financial institutions.
- Credit score: The credit score or CIBIL score represents your previous repayment history and ranges from 300 to 900. The higher your score is, the higher is your chance of getting a loan approved. Usually, the minimum credit score required is 750.
- Minimum income: for salaried individuals, the monthly income is considered for this criterion whereas for self-employed people, the annual income is considered. The amount may vary in different banks.
- Minimum work experience: Many banks specify that prospective lenders should have a minimum work experience of two years with employment tenure of at least six months in their current employing organization. For self-employed individuals, their business should have been in successful operation for at least two years.
Additional Read: How to Choose the Best Personal Loan for Different Needs?
How to check eligibility for personal loan
To ensure that you meet the requirements for personal loan eligibility, the aforementioned factors are important. The following are the documents required to establish your credentials for a loan.
- Photo identity proof
- Proof of residence
- Bank statements of the previous 3-6 months
- Income proof
- PAN card.
Self-employed individuals require the following documents in addition to the ones mentioned above:
- Office address proof
- Proof of successful operation of the business.
The following methods describe how to check eligibility for a personal loan:
1. Fixed Obligations to Income Ratio (FOIR) method:- The FOIR method considers your total monthly fixed expenses on rent, EMIs, credit card dues, etc. The loan amount eligibility is calculated based on these expenses with respect to your total monthly income. If your FOIR exceeds 50% of your net monthly income then the bank may reduce your loan amount, increase tenure or even reject the application.
2. Net Monthly Income (NMI) or Multiplier method:- under this method, banks apply a multiplier ranging from 9 to 27 to your NMI and calculate the amount. If the loan amount applied for exceeds this amount, then the application may be rejected.
Additional Read: How can your employer affect your personal loan eligibility?
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