When it comes to seeking a personal loan, salary is undoubtedly one of the prime factors lenders look at. It provides them with an immediate insight into your repayment capability. But, what if you don’t have a conventional salary or are seeking additional loans? Many assume their chances become slim, but that’s not entirely accurate. While your earnings are crucial, they aren’t the only metric. Dive in with us as we uncover the key factors, besides salary, that play a critical role in personal loan approvals.
Factors that Determine Personal Loan Approval Besides Salary
1. Credit Score and History:
Your credit score is like a report card of your financial behaviour when you’re looking for a personal loan online. A high score generally suggests you have managed past loans and credit cards responsibly. On the other hand, a lower score can indicate some hiccups along the way.
- CIBIL Score: An essential determinant, the CIBIL score is a three-digit number that showcases your creditworthiness. A score above 750 is generally deemed excellent.
- Repayment History: Have you been timely with your past loan EMIs or credit card bills? Regular delays can dent your chances of approval.
2. Existing Debt:
Your current debt levels convey a lot to potential lenders about your financial health and discipline.
- Debt-to-Income Ratio: If a significant chunk of your income, say 50%, is already going towards other loan EMIs, lenders might reconsider their decision. It’s crucial to maintain a healthy ratio.
- Credit Utilisation Ratio: For those using credit cards, how much of your limit do you use? A high utilisation might suggest dependency on credit, making you a riskier prospect.
3. Stability of Employment and Industry
The consistency of your employment and the industry you belong to play pivotal roles in determining personal loan approval. Lenders often seek assurance that borrowers have a stable source of income, ensuring that the loan will be repaid without hitches. Here’s how this factor weighs in:
- Employment Duration: If you’ve been employed with the same employer or within the same industry for a substantial period, it demonstrates reliability and stability. Jumping jobs too frequently might be seen as erratic, causing potential lenders to view your profile with more caution.
- Recession-Proof Industries: Being part of an industry that’s less vulnerable to economic downturns can be advantageous. For instance, sectors like healthcare, utilities, and education are often seen as more stable compared to more volatile sectors like tourism or luxury goods.
- Nature of Employment: Permanent and full-time employees might be favoured over those on contract or freelancers. This is because permanent roles are often perceived to offer more security in terms of steady income.
4. Purpose of the Loan:
Why you need the loan can significantly influence the decision-making process.
- Emergencies: Medical emergencies or urgent home repairs are generally seen as valid reasons, leading to quicker approvals.
- Debt Consolidation: Using one loan to pay off others – this suggests you’re trying to manage your finances better.
5. Documentation:
Ensuring your documents are in order is pivotal. Incomplete or incorrect documentation can lead to delays or even denials.
- Identity and Address Proof: Usually Aadhar, PAN card or passport.
- Proof of Income: Not just your salary slip, but other documents that show any additional income can also be beneficial.
6. Collateral Offered:
Sometimes, offering collateral can enhance your loan approval chances, especially if you’re concerned about personal loan tax benefit.
- Type of Collateral: Assets like property, gold, or fixed deposits can be leveraged.
- Value of the Asset: The higher the asset’s value, the more secure a lender might feel.
7. Endorser or Guarantor:
In some cases, especially when a lender has reservations about your ability to repay, having a guarantor or endorser can provide an extra layer of assurance.
- Credibility of Guarantor: Just like your creditworthiness matters, the financial stability and reputation of the guarantor can greatly influence the lender’s decision.
- Relationship with Guarantor: Lenders often prefer guarantors who have a close relationship with the borrower, as it often ensures better accountability.
8. Loan Tenure Requested:
The time you request to repay the loan can influence the lender’s decision.
- Shorter Tenure: This might signify confidence in repaying quickly, but also leads to higher EMIs.
- Longer Tenure: Generally results in smaller EMIs but can also indicate uncertainty in long-term repayment capability.
Conclusion
While salary remains an influential factor, as you can see, many elements are at play when considering a personal loan online. Ensuring you tick multiple boxes can not only increase your chances of getting approved but might also fetch you favourable terms. And remember, always stay informed about facets like personal loan tax benefit to get the best out of your borrowing experience.
