Are you thinking of applying for a personal loan?, must notice these things
Generally, personal loans are sanctioned to salaried, non-salaried and self-employed individuals.
Personal loans work like any other loan, but it offers more flexibility and is easily available. It is made available considering the credit history of the customer. It is an unsecured loan, not backed by collateral such as home or car. Taking a personal loan involves a lot of paperwork and can be availed only after it gets sanctioned. Generally, personal loans are sanctioned to salaried, non-salaried and self-employed individuals. The documentation and rate of interest is different for personal loans granted to self-employed individuals. There are two types of personal loans, namely secured and unsecured ones.
If you are, you must know the methods adopted by banks to determine the eligibility of applicants.
Aditya Kumar, Founder & CEO Qbera.com said, "Banks screen individuals on a wide range of parameters that include the credit score, income, the employer, zip code and age. Every bank has its own terms and conditions that individuals will have to meet in order to qualify for personal loans."
Kumar adds, "Personal loans are unsecured loans that don’t involve any form of collateral. In the case of secured loans, banks use collaterals to secure loan amounts in case consumers fail to meet their end of the obligation. As personal loans are unsecured, banks use multiple parameters to assess an individual’s creditworthiness and his/her ability to make timely repayments."
Let’s go ahead and look at some parameters that banks use to screen applicants, as per Qbera.com. Notably, different banks employ different parameters to evaluate an individual’s loan eligibility.
The company you work for is one of the most important eligibility criterion to qualify for a personal loan with a bank. Top banks only offer loans to individuals who are employed with categorized companies – companies that are listed. In case you work for a company that isn’t listed, even if your profile qualifies under other parameters like the age, income or credit score, your loan application will be rejected.
Most private banks require applicants to have a minimum income of Rs 30,000 per month. In case you’re not at that income level, approaching a Fintech lender is a better option, as Fintechs usually have not-so-stringent eligibility parameters.
As personal loans are unsecured loans, the credit score sometimes serves as the single most dominant parameter that includes the approval or rejection of your loan application. In case your credit score does not meet the internal credit norms of the lender, your application will almost immediately be rejected. While private banks ask for credit scores of above 750, Fintech lenders provide loans to individuals with low credit scores as well. So, if your credit score is low, you know which type of lender to approach.
Type of Residence
The type of residence is also an important eligibility parameter that needs to be met in order to qualify for loans from private banks. Unlike Fintech companies, banks don’t usually offer loans to applicants who reside in shared accommodations. It is mostly Fintech companies that offer personal loans to individuals residing in shared accommodations. This has, however, changed in recent times, with private banks also allowing individuals living in Paying Guest accommodations and shared apartment accommodations to qualify for personal loans.
Years of Industry Experience
Most top bank require individuals to have at least 2-3 years of total work experience, with at least 1-year of work experience in the current organization to qualify for unsecured personal loans. Fintech companies are better in this front too, for they don’t reject applicants merely on the basis of number of years of industry experience. However, while Fintechs allow individuals with lesser number of years of industry experience to apply for loans, applicants in that case won’t qualify for higher loan amounts although their income allows it.