Personal loans are versatile financial tools that help you meet various financial needs, from consolidating debt to covering unexpected expenses. However, to secure an instant personal loan, you must meet specific criteria set by lenders. Understanding these criteria and preparing accordingly can increase your chances of approval and favourable loan terms.
So, if you are planning to get an instant personal loan and want it to get approved, you must fulfil certain personal loan eligibility.
Top 5 Criteria to Get Personal Loan
- Income and Employment
Lenders require assurance that the individual must have a stable source of income to pay the personal loan. Therefore, they will evaluate the borrower’s employment status and income level when reviewing your application. Most lenders prefer borrowers with a steady job or a reliable source of income.
To qualify for an instant personal loan, you must provide proof of income, such as recent pay stubs or tax returns. Lenders will assess your DTI ratio, which compares the individual monthly debt commitment to your income. However, a lower DTI is more favourable because it suggests you have more disposable income to pay the personal loan amount.
- Credit History
Another personal loan eligibility is your credit score, lenders will assess your credit history to determine your creditworthiness. That means the individual credit history provides a detailed account of your financial behaviour, including your past borrowing and repayment habits.
Lenders will look at the length of your credit history, the types of credit accounts you have (credit cards, loans, mortgages), and your payment history. A history of making on-time payments and responsibly managing credit can improve your chances of qualifying for a personal loan.
- Loan Amount and Purpose
The loan amount you require and its intended purpose can impact your eligibility and the personal loan terms. Lenders may have specific minimum and maximum loan amounts, and they may restrict how the loan can be used.
Before applying for an instant personal loan, carefully consider how much you need and what you plan to use it for. Common purposes for personal loans include debt consolidation, home improvement, medical expenses, education, and major purchases. Ensure that your loan purpose aligns with the lender’s guidelines to avoid potential issues with approval.
Lenders may also consider the LTV ratio, which compares the total loan amount directly to the value of any collateral you provide. While personal loans are typically unsecured, meaning they don’t require collateral, some lenders may offer secured personal loans with lower interest rates. In such cases, assets like your car or savings account may be used as collateral, affecting the loan’s terms and eligibility.
- Debt-to-Income Ratio (DTI)
Your DTI ratio is a critical metric that lenders use to evaluate the ability to take on additional debt. It compares your monthly debt obligations, including credit card payments, mortgage or rent, student loans, and other loans, to your monthly income.
Most lenders prefer borrowers with a lower DTI because it suggests they have more disposable income to cover new loan payments. To calculate your DTI, add all your monthly debt payments and divide that total by your monthly income. Multiply the result by 100 to express it as a percentage.
Lenders typically have a maximum DTI threshold of 40% to 50%. If your DTI exceeds this threshold, you may have difficulty qualifying for a personal loan or be offered less favourable terms. To improve your DTI, consider paying down existing debts or finding ways to increase your income.
- Credit Score
One of the most critical factors lenders consider when approving an instant personal loan application is your credit score and credit history. Your credit score is a numerical representation of your creditworthiness, ranging from 300 to 850, with higher scores indicating lower risk for lenders.
A good to excellent credit score (typically 700 or higher) is essential to qualify for a personal loan with competitive interest rates. Lenders use your credit score to assess your ability to manage debt responsibly. They will also scrutinize your credit report for any red flags, such as late payments, defaults, or bankruptcies.
The Bottom Line
Meeting specific criteria is essential to get a personal loan successfully. By improving your credit score and history, maintaining a stable income, carefully considering your loan amount and purpose, managing your debt-to-income ratio, and understanding any citizenship or residency requirements, you can enhance your eligibility and secure a personal loan with favourable terms. Always remember to shop around and compare offers from varied lenders to get the best personal loan that suits your unique financial needs and situation.
To get the best offers and low-interest rates on personal loans, contact IIFL Finance today!