A personal loan is a phenomenally popular loan in today’s financial market. Personal loans are excellent for unplanned or planned expenses such as weddings, vacations, or medical emergencies that overshoot your financial capacity. According to Forbes, today personal loans seem to be easily available from diverse lenders like fintech firms, NBCFs or Non-Banking Financial Companies, and of course, banks. Often the diversity and range of these loans leave the potential borrowers perplexed. Before applying for a personal loan, it is a good idea to understand the specific loan requirements.
Personal loan requirements seem to differ from lender to lender. However, there are some parameters like income and credit score that banks and other financial institutions will always examine while reviewing the loan applicant. It is best to be aware of the required documentation and the qualifications to fulfill loan eligibility. Knowing the loan requirements and qualifications will go a long way in streamlining the loan application and approval processes and boosting your chances of getting approval. Let us explore requirements for personal loan eligibility.
Credit History and Credit Score
A lender will first of all, consider your credit score while assessing your loan application. Practically all lenders will consider your credit report and credit score since they can get valuable insight into the way you manage your money loan. Poor credit scores usually are indications of higher default risks. Credit score may range between 300 and 850, and it is based predominantly on factors such as outstanding debt amount, payment history, and length of your credit history. Several lenders choose applicants with a minimum credit score of 670.
Employment History & Income
Lenders need to be convinced that you will pay back the borrowed amount. They would like to lend money to candidates who can prove they have consistent and sufficient income. However, the income requirements depend on the loan amount. Lenders are convinced when you can show a higher income as that is an indication that you will make all the repayments timely. It is pivotal to establish steady employment. Self-employed people, part-timers, or freshers may have difficulties getting loan approval. Income evidence may include monthly bank statements, recent tax returns, signed letters from your employer, and pay stubs. In this context, you may know that self-employed candidates may consider providing bank deposits or tax returns.
DTI or Debt-to-income ratio is a vital factor when considering your loan request. Debt-to-income ratio is the part of your gross monthly income dedicated to monthly debt service. It is expressed in terms of a percentage of your total monthly income. DTI reveals to the lenders whether you can make repayments towards your new loans after paying off your already existing debt repayments every month. A DTI below 36 percent is perfect. However, many lenders give loan approval to people with a DTI as high as 50 percent if they are otherwise highly qualified candidates.
There is no fixed formula that guarantees personal loan approval. However, some recommendations and rules of thumb may go a long way in enhancing your eligibility status. Most lenders will evaluate factors like credit history, credit score, DTI ratio, and income before approving your loan.