Personal Loan Eligibility Criteria: How to Check & Improve Your Loan Eligibility

Personal Loan Eligibility Criteria for Top Banks and NBFCs

Note: The figures given in the table are indicative and are subject to periodic change at the banks /NBFCs’ discretion.

Personal loan is an unsecured loan that can be flexibly used to pay for a variety of expenses. As no collateral is required to get this loan, the risk involved for lenders is greater than that applicable to a secured loan. There are thus multiple factors that a lender considers when deciding personal loan eligibility of a prospective borrower.

Factors Affecting Personal Loan Eligibility

The following are some key factors that are taken into consideration by lenders before offering a personal loan to an individual. While the weight assigned to different factors may vary from lender to lender, the following list does provide a snapshot of key factor that a lender considers when determining a prospective borrower’s eligibility for a personal loan:

• Credit score: This is a 3 digit number that sums up how you have handled repayments of your credit cards and personal loans in the past. This score is calculated by credit bureaus and ranges from 300 to 900. The closer your credit score is to 900, the better your chances of being approved for a new personal loan.
• Employment Type and Employer Reputation: Banks usually offer personal loans to both salaried professionals working in private, government or multinational companies as well as self-employed individuals and professionals like businessmen, CA (chartered accountants), doctors, architects, etc. Salaried professionals working in renowned organisations or government employees are preferred by lenders for a personal loan because of their job stability and employer reputation.
• Age: Most banks offer personal loans to individuals in the age group of 21 years to 60 years. While older individuals may also be eligible for a personal loan such as a pension loan, however, there are certain restrictions with respect to grant of such loans.
• Minimum income: The minimum monthly income criteria set by most of the banks for salaried professionals is Rs. 15,000. Although, individuals with minimum monthly income of Rs. 25,000 are preferred more by the banks. And for self- employed individuals, a gross annual income of minimum Rs. 5 lakh is usually needed to qualify for a personal loan.
• Work/Business experience: Many banks specify that salaried individuals need to have a minimum total work experience of 2 years with minimum 6 months in the current organisation in order to qualify for a personal loan. In case of self- employed individuals and professionals they usually need to have been in the current business for minimum 2 years in order to be eligible for an unsecured personal loan.

Personal Loan Eligibility Criteria for Salaried Applicant

Salaried applicants including salaried professionals such as doctors, lawyers and chartered accountants are eligible to apply for a personal loan. While the exact eligibility criteria for a personal loan may differ from one lender to another, the following are some of the generic eligibility criteria applicable to personal loans for salaried individuals:

Eligible Age Group	21 years to 60 years
Minimum Net Monthly Income	Rs. 15,000
Minimum Total Work Experience	1 year
Minimum Work Exp. with current organisation	6 months
Minimum Prior Relationship with lender	6 months

The above personal loan eligibility criteria are indicative in nature. Lenders can at their discretion relax or make the eligibility criteria for a personal loan more stringent from one applicant to another.

Personal Loan Eligibility Criteria for Self-Employed Applicant

Most lenders allow self-employed applicants including business owners and self-employed professionals such as doctors, architects, etc. avail a personal loan subject to meeting the applicable eligibility criteria. The following are the indicative personal loan eligibility criteria for self-employed applicants:

Eligible Age Group	25 years to 65 years
Minimum Annual Turnover	Rs. 15 lakh
Minimum Profit After Tax (Previous FY)	Rs. 2 lakh
Minimum Business Experience	3 years in current business
Minimum Prior Relationship with lender	1 year

The above eligibility criteria are only indicative and exact criteria for a personal loan will vary from one lender to another on a case by case basis.

How is the Eligible Personal Loan Amount Calculated?

The maximum personal loan amount an applicant is eligible for is primarily dependant on the applicant’s repayment capacity. The following are the two main ways using which banks check the maximum eligible personal loan amount:

1. Fixed Income to Obligation Ratio (FOIR) Method – The FOIR method primarily considers the total monthly pay outs that the applicant needs to make to service existing outstanding debt. Typically, if the FOIR of an applicant exceeds 50% of the take home salary, the personal loan application may be rejected or the loan amount sanctioned will be lower than
2. Net Monthly Income Method – Some lenders fix the maximum loan amount using a multiplier applied on the net monthly income (NMI) of the applicant. In such cases, the eligible personal loan amount can go up to 30 times the NMI of the applicant. In such cases, if the loan applied for exceeds this amount, the application may not be deemed eligible for a unsecured personal loan.

Also Read: Personal Loan Interest Rates

Documents Used by Lenders to Check Eligibility for Personal Loan

The documents required to avail a personal loan are different for a salaried professional and a self- employed individual. Here is the list of documents required to apply for a personal loan:

For salaried applicants:

• Proof of Residence: Rent Agreement / Utility Bill (not more than 3 months old) / Passport (any one)
• Proof of Identity: Passport / Driving License / Voters ID (any one)
• PAN Card
• Latest 3 months Bank Statement
• Salary slips for last 3 months
• 2 passport size photographs

For self-employed applicants:

• PAN Card
• KYC Documents: Proof of Identity, Address and Date of Birth such as Aadhaar Card
• Proof of Residence: Leave and License Agreement / Utility Bill (not more than 3 months old) / Passport (any one).
• Income proof (audited financials for the last two years)
• Latest 6 months Bank statement
• Office address proof
• Proof of residence or office ownership
• Proof of continuity of business

What is a Personal Loan Eligibility Calculator?

Many lenders offer applicants access to an online personal loan eligibility calculator to help them determine their eligibility for a personal loan. Some key information that you need to provide to use an eligibility calculator includes the following:

• Monthly Income
• Loan Amount
• Occupation
• Desired Loan Tenure

Do keep in mind that the results obtained from a personal loan eligibility calculator in terms of eligible loan amount, tenure, etc. are indicative and lenders may require you to meet additional eligibility criteria to actually qualify for a personal loan.

How to Improve your Eligibility for a Personal Loan?

While there are multiple factors that you need to consider when determining your eligibility for a personal loan, there are a few ways to improve your chances of being approved for a loan. The following are some tips to enhance your eligibility for a personal loan:

• Pay your credit card dues and loan EMIs on time and in full: You must ensure that all your credit card dues and loan EMIs are paid within the due date and in full. Making regular payment over time can help improve your credit score including your CIBIL score and improve your chances of being approved for a new loan or credit card.
• Reduce existing debt: Reducing outstanding debt will decrease your burden of servicing outstanding loans. This in effect will free up a larger portion of your income for servicing new debt and improve your chances of being approved for a new loan or credit card.
• Minimise your credit utilisation: If you reduce your reliance on credit by keeping your credit utilisation ratio at less than 30%, your credit score will improve. An increase in credit score indicates responsible credit behaviour to prospective lenders, which can improve your eligibility for securing a personal loan.
• Apply with a co-borrower: You can improve your eligibility for a personal loan by getting a close family member such as your spouse, parents, etc. to co-sign the loan application with you. At present not all banks and NBFCs allow co-borrowers in case of personal loans. However, having a co-borrower, if possible, can definitely improve your chances of availing a personal loan.

FAQs

Q1. How much personal loan can I get based on my salary?

The personal loan amount that can be disbursed typically varies from one lender to another and salary is only one of the factors that lenders consider. Typically, if you have a good credit score and low or no outstanding debt, you may be eligible for unsecured personal loans of up to Rs. 25 lakh based on the bank’s eligibility criteria.

Q2. Can I apply for personal loan online with low salary?

Yes, even if you have a low salary you may be able to apply for a personal loan. This is because not all lender specify a minimum salary to be eligible for a personal loan. However, the loan amount sanctioned will typically be low and you may also be charged a high rate of interest.

Q3. What is the personal loan eligibility calculator?

Personal loan eligibility calculator is a handy tool that can help users figure out if they are eligible for a personal loan based on the inputs provided. The inputs that need to be provided may include desired loan amount, income level, city/town of residence, number of dependants, current total EMI payments each month and more.

Q4. How is personal loan eligibility calculated?

Lenders typically determine eligible personal loan amount and interest rate based on a few criteria such as:

• Credit score of applicant
• Income level of applicant
• Current outstanding debt/EMI paid per month
• Employer reputation/track record,
• Existing relationship between applicant and lender, etc.

As the weightage provided to each factor varies from one bank to another, the same applicant may receive different personal loan offers from different lenders.

Q5. What is the maximum personal loan amount that I can get?

The maximum personal loan amount that can be sanctioned varies from lender to lender. The maximum unsecured loan amount mentioned by most banks is in the Rs. 20 lakh to Rs. 25 lakh, but some lenders offer unsecured loans of up to Rs. 50 lakh subject to various terms and conditions.

Q6. What is the minimum salary to be eligible for a SBI personal loan?

Currently the minimum salary to be eligible for a SBI personal loan is Rs. 15,000. However, meeting the minimum salary criteria does not guarantee that your loan application will be approved.

Q7. Are self-employed individuals eligible for a personal loan?

Yes. Many lenders offer unsecured personal loans to self-employed individuals however, the eligibility criteria tend to differ from one lender to another.