A personal loan is receiving money from the bank, online lender, or credit union that you can pay back in fixed monthly payments as the instalment process, typically ranges from 12 to 84 months.
There are different types of personal loans are available in several banks, like
- Secured personal loans
- Unsecured personal loans
- Fixed-rate loans
- Variable-rate loans
- Debt consolidation loans
- Co-sign loans
- Personal line of credit and many more loans
Before choosing the personal loan process, we need to verify all the eligibility criteria like personal loan criteria.
Factors That Affect Personal Loan Eligibility
The following are some of the important key factors that are taken into the eligibility consideration by the lenders before providing a personal loan for an individual client. The loan factors may differ from lender to lender, the following list provides a crystal clear key factor that a lender considers when determining a prospective borrowers’ eligibility for a personal loan:
- Credit Score
- Minimum Income
- Geographical Location
- Employer Reputation
Credit Score: It measures your creditworthiness and that is a 3 digit number that sums how you have handled repayments of credit cards and personal loans in the past. Your credit score is calculated is credit bureaus and it ranges from 300 to 900. The higher your credit score is the better chances of getting approval and favourable terms on your personal loan.
Age Category: Most of the banks offer personal loans to individuals based on the age categories of 18 years to 60 years. While the older individuals may also be eligible for a personal loan such as a pension loan, typically, there are certain restrictions and procedures concerning the grant of such loans.
Experience: Several banks majorly specify that salaried individuals need to have a minimum total work experience of 2 years with a minimum of 6 months in the current organization to qualify the personal loan. In the case, if they are self- employed individuals and professionals they usually need to have the current business for a minimum of 2 years to be eligible for an unsecured personal loan process
Minimum Income: In many banks, the incomes place is the major place according to the personal loan criteria. The annual income criteria set by most of the banks for salaried professionals are $30,000. Although, individuals with a minimum annual income of $20,000 are preferred more by the banks for the personal loan process.
Geographic Location: The location where you reside plays a crucial role in determining whether or not you will qualify for a personal loan. Those who stay in metropolitan cities can have better options for getting a personal loan than those who stay in rural or semi-urban areas.
Employer Reputation: Mostly bank offers personal loans for both salaried workings in private, government and multinational companies, for the all the self-employed individuals and professionals like doctors, architects, businessman, chartered accountant, etc.. Other categories like salaried professionals who are working in a renowned organization or government employees are also preferred for a personal loan process because of their job stability and also the major reason is for their employer reputation.
Personal Loan Eligibility Checking Process
Apart from the above-mentioned criteria. Here is another important process for impacting an applicant’s eligibility for a personal loan is the repayment capacity. There are three main ways using which banks check the maximum loan amount that they can lend based on the repayment capacity of an individual.
FOIR( Fixed Income to Obligation Ratio) Method: In the FOIR method primarily considers the total monthly pay-outs that the applicants need to make for outstanding loans/credit card dues. Typically in this method, the applicant exceeds 50% of the take-home salary the personal loan application may be rejected.
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 an unsecured personal loan.
Documents Required for Loans: One of the most important and common procedures in getting a personal loan is document submission. These documents will help the lenders to understand and analyse the financial stability of the borrower regarding the credit risk factor. Apart from this, it also helps the lender to analyse the applicant details like age, address, financial, transaction, address, employment, etc.
Personal loans are one of the better ideas for consumers with excellent credit. But if you don’t have enough credit score, a personal loan might come with some interest rate. Before receiving the personal loan analyse the process with personal loan criteria and make sure you know the interest rate before you take on a personal loan.
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