When facing a financial emergency, securing a Personal Loan can be an effective solution to address immediate funding needs. However, to obtain a Personal Loan, you must meet certain requirements set by the lender. Understanding these requirements is crucial for a successful loan application. In this blog, we will delve into the key personal loan requirements you need to fulfil and explain why they are essential for loan approval in India.
Key Personal Loan Requirements
Here’s what you need to qualify for a Personal Loan approval:-
- Credit Score
When you request a loan from lenders, they usually assess your credit score and credit history as steps in the process. Your credit score reflects your reliability by analysing how you have handled borrowing and repayments in the past. Lenders generally favour individuals with credit scores (750 or higher) because it suggests they have a track record of managing debt.
Having a high credit score may allow you to access favourable interest rates and loan terms. If your credit score is low or if you have no credit history, you could still qualify for a loan. However, the conditions might not be as advantageous. You might need to pay high interest rates or offer collateral as security.
- Income
Your earnings also play a key role in how lenders assess you as a borrower. They aim to confirm that you have a regular income stream to meet loan repayments. They require your latest bank statements and salary slips as proof of income. To be eligible for a loan, lenders require an income threshold to be met, which can differ depending on the lender and the loan amount you seek to borrow from them. Having a higher income may improve your approval odds and potentially enable you to access larger loan sums.
- DTI Ratio
Your debt-to-income (DTI) ratio is something lenders consider to see if you are able to manage debt. The DTI measures what portion of your income is used to repay debts already owed. It’s calculated by dividing the debt payments by your gross monthly income. Lenders like to see a low DTI since it shows you have disposable income to manage new loan payments comfortably.
- Collateral
When you obtain a secured loan, you offer an asset as collateral to back the borrowed amount. Lenders often prefer this option if your credit score is low or your financial situation is unstable, as it reduces their risk.
If you fail to make payments on the loan you borrowed from a lender, the lender can take possession of the collateral as a means to recoup the money lent to you. Secured loans may have lower interest rates due to being perceived as safer for the lender. But it’s important to opt for a secured loan if you are certain about your capacity to pay it back; otherwise, you run the chance of losing your collateral.
- Loan Processing Charge
Lenders at all times charge a loan processing fee as a one-time payment to handle your loan processing tasks. This fee is usually subtracted from the loan amount you receive upfront. This fee is around 2.5% of the loan amount. It’s worth noting that some lenders may reduce or waive this processing fee. Thus, confirming it before proceeding with a loan application is advisable.
Conclusion
When applying for a loan, it’s crucial to meet the Personal Loan requirements set by the lender and gather all necessary documents to increase your chances of approval. Many lenders also offer pre-approved Personal Loans to their existing customers. Enhancing your credit score can also improve your eligibility for a loan that matches your financial needs. Take the time to explore and compare offers from different lenders to find the most suitable loan terms for your situation.
