Most lenders follow a common set of eligibility criteria to approve unsecured loan applications. Some of them are mentioned below:
- The business should be based in India.
- In the case of self-employed individuals, their business/profession should be in operation for at least 3 years.
- The loan applicant should fulfil the basic minimum salary criteria. The higher your income, the bigger the loan amount you can avail.
- The applicant must have a strong credit score. The credit score represents the repayment capacity of the individual.
Factors Affecting Unsecured Loan Eligibility
The approval or rejection of the unsecured loan may depend on the following important factors:
Job/Business Stability
- Stable businesses are considered more loan-worthy than newer organisations.
- Businesses in operation for at least 3 years have a higher chance of approval.
- An applicant with a stable income and a reputable job has a higher chance of approval.
- Many lenders consider young businesses to be risky investments.
- This is because they may not have a history of strong business management or leadership.
Credit Score
- The credit score is an important parameter to judge the creditworthiness of an individual.
- The score is based on loan and credit card payments made by the applicant.
- Applicants with a credit score of 750 or above have higher chances of loan approval.
- Higher credit scores can help get lower interest rates and relaxed loan terms.
Income
- Most banks require applicants to have a minimum salary.
- In unsecured loans, the loan amount depends heavily on the applicant’s salary.
- Existing loans may make it difficult to obtain loan approval if the EMI/NMI ratio is high.
- Applicants with high salaries and high EMI/NMI ratios may still get the loan approval if other factors are acceptable.
Businesses with Accounts in Bank:
- Many banks prefer to give loans to companies that have accounts with the bank.
- Availing a loan from banks with an existing relationship by these businesses can be relatively easier.
- Banks may pitch relaxed loan terms and, many times, pre-approved offers to borrowers with a healthy credit profile.
Past Defaults
- Defaults or NPAs in the past can make it difficult for loan approval.
- A default signifies that the borrower was unable to handle credit well in the past.
- Thus, the risk for such applicants increases manifold for a lender.
- No defaults in the past make you a credible borrower with less risk for the lender.
