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Factors that affect your personal loan eligibility

Eligibility for a personal loan is determined by a number of factors. Lenders consider these parameters to assess the risk associated with lending money. This helps them determine the likelihood that you will repay the loan on time. If you learn more about them, you can check whether you are eligible for a specific personal loan offer.

Here are some key factors that can affect your eligibility for a personal loan.

Credit score

The most significant factor affecting personal loan eligibility is your credit score. A credit score is a numerical representation of your creditworthiness. It is derived from an analysis of your repayment history and credit profile. It is calculated by four authorized credit bureaus in India. Lenders generally check the credit score issued by TransUnion CIBIL.

A CIBIL score ranges between 300 and 900. A higher score means better credit decisions. Most lenders prefer borrowers with scores above 750 because they consider them to be less risky. Credit score affects loan approval and terms offered.

Income level

Income reflects the borrower’s ability to repay the loan. Minimum income requirements may vary from lender to lender. A good income assures the lender that you can pay all the EMIs in addition to your regular expenses. A high income may qualify for a higher loan amount. It can also help you get a lower interest rate because it reduces the risk to the lender.

Employment history

Stable employment ensures continuous income for the lender. This will increase your ability to repay the loan. Lenders usually look for a consistent work history, often requiring you to have been employed by the same company for at least 6 months to a year. If you are self-employed, lenders consider the stability and profitability of your business.

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debt to income ratio (DTI)

Your DTI ratio is a financial metric that compares your monthly gross income to your monthly debt payments. Lenders use this ratio to assess your ability to manage your new loan and repay your existing debts. A lower DTI ratio is preferred – generally lenders look for a DTI below 30-40%.

Age

Your age can also affect your eligibility for a personal loan. The minimum age limit is usually set at 18 to 21 years. The maximum age limit is usually set around 60 to 65 years. This range represents the typical working age when you are most likely to have a stable income.

Credit history

A comprehensive look at your past credit history affects your eligibility. This includes your repayment history, length of credit history and credit mix. The frequency of your applications for new credit is also taken into account. A good credit history can positively affect your eligibility for a personal loan.

Minor

While personal loans are usually unsecured, the offer of security can sometimes affect eligibility. This is especially true if your credit score or income does not meet the lender’s requirements. Offering collateral such as a savings account, real estate or other assets can help. It can help you get easy approval or a better interest rate.

Purpose of the loan

The intended use of the loan may affect eligibility. Lenders may be more willing to approve loans for purposes that add financial value. These include home remodeling and debt consolidation. Loans to finance holidays or other expenses may not be approved as easily.

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Co-signatory

Having a co-signer can improve your chances of getting a personal loan. Consider this option if you have a bad credit score or insufficient income. The co-signer acts as a guarantor and lends you his creditworthiness. This reduces the perceived risk to the lender.

Existing banking relationship

An existing relationship with the bank could lead to faster approval of personal loans. If you already have an account or other products with a lender, they can easily access your risk profile. As a reward for your loyalty, they can also offer you better loan terms. This usually results in you easily getting a suitable loan offer.

Before applying for a personal loan, check the various offers available. Compare interest rates and terms to find the deal that best suits your needs. You can do this easily with online financial marketplaces like Bajaj Markets. Here you can choose from 15+ personal loan providers as per your eligibility and needs. Click here start.

Understanding these factors can help you improve your loan eligibility. Improve your credit score, increase income streams, stabilize employment and effectively manage debt. Also choose the right lender whose offer matches your financial situation. Do not forget that the purpose of the loan also plays a crucial role in the success of the loan application. Each factor is considered differently by different lenders. However, in general, meeting the discussed criteria makes it possible to obtain the required loan under favorable conditions.

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