Eligibility Criteria For Personal Loans
While different lenders will have different eligibility criteria, here are some of the common ones:
- Age between 21 to 60-years (salaried individuals) and 65-years (self-employed individuals).
- Salaried individuals must be employed in public sector undertakings such as central, state and local bodies and select private limited companies. Also, there will be minimum salary criteria.
- Personal loans are also offered to self-employed individuals such as professionals and non-professionals. From doctors to business owners, this segment covers all non-salaried individuals. Of course, there will be individual income criteria for each segment also.
Importance of credit rating in determining personal loans
Cibil score is a three-digit score (ranging from 300 to 900) which shows the credit history of every individual. This data is shared between different lenders. This is the first data that lenders access to determine the repayment capacity of a borrower. You can read our module Types of Loans to learn more about Cibil score.
As with all the other loans, Cibil Score plays a very important role in determining the eligibility of a personal loan. A Cibil score of 750 and above is considered to be ideal. However, if all other criteria are met, the lender can decide to give out the loan with a rating lower than 750 as well. However, this is completely at the discretion of the lender.
What is FOIR?
You might come across this term while researching about personal loans. The full form of FOIR is ‘fixed obligation to income ratio’. It is a person’s expenditure as a percentage of his/her net income per month. This reflects the true disposable income of a person and is a clear indicator of the borrower’s repayment capacity.
To calculate FOIR, all the monthly obligations of a person are taken into account such as:
- Rent payments
- Credit card bills
- EMIs towards existing loan repayments
- Other debt obligations
- Recurring living expenses
A FOIR of 40% to 50% is preferred by lenders while assessing the personal loan application. What does it mean? It means that all the monthly obligations of a person should not exceed 50% of the person’s monthly income. For high net-worth individuals, the FOIR can go up to 70% as well.
How to improve your chances of getting a personal loan?
Yes, with a little bit of discipline, it is possible to increase your chances of obtaining a personal loan. Apart from maintaining a good FOIR, within 50% as mentioned above, here are a few other things you can do:
- Pay all your debt on time: By paying your credit card bills on time, and if possible in full, you can build up a good credit history for yourself. In case you have other loans, ensure that you never miss an EMI payment. These things can improve your Cibil score, which in turn will facilitate smoother processing of a personal loan application.
- Use lesser credit: Try not to use the maximum limit of your credit card. Using the maximum limit reflects that your income is not sufficient to finance your lifestyle. Lenders will always be wary of such borrowers.
- Submit the right documentation: Your loan executive will give you a list of documents required for the personal loan application. Ensuring that all the right documents are submitted, as per the list greatly increases the chance of obtaining the loan as well as faster processing of the application.