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Personal loan eligibility

What is the eligibility criteria for personal loan?

Apnaloan.com Research Bureau

10 Aug 2007

The eligibility criteria for personal loan differ from one bank to another. This is because the different lenders have different perceptions of risk. Also, the ability of different banks to keep track of the loan and recovery in case of defaults vary. For example, the eligibility criteria employed by public sector banks is more stringent than that followed by private sector banks.

Nearly all banks divide the potential borrowers into either one of the below three categories:

  • Salaried individuals
  • Self employed individuals
  • Self employed professionals

Salaried Individuals include employees of selected public and private limited companies, government employees including public sector undertakings, central, state, and local bodies. However, some banks exclude salaried employees of smaller companies by maintaining a list of approved companies. If your company is not in this list, it may be difficult for you to get a loan. The approved list varies from bank to bank. Some banks do provide loans to employees of companies that are not in the approved list, but at higher interest rate.

Eligibility criteria for salaried employees are broadly along the following lines:

  • Minimum age of applicant: 21 years
  • Maximum age of applicant at the time of loan maturity: 60 years
  • Minimum Gross Monthly Income: Rs. 10000 p.m.

Self Employed Individuals include self-employed businessmen.

Broad eligibility criteria for self-employed employees:

  • Minimum age of applicant: 25 years
  • Maximum age of applicant at the time of loan maturity: 65 years
  • Minimum Annual Income: Rs. 100000 p.a.

Self Employed Professionals include self-employed doctors (MBBS, MD, BDS, MDS) and chartered accountants.

Broad eligibility criteria for self-employed employees:

  • Minimum age of applicant: 25 years
  • Maximum age of applicant at the time of loan maturity: 65 years
  • Minimum Annual Income: Rs. 100000 p.a.

Age Criteria:

Many banks prescribe a minimum age of 21 years and maximum age of 65 years for personal loans. But these criteria are not set in stone. If you prove your income earning capability, many banks are willing to overlook this factor.

Residence:

Lenders evaluate the number of years staying in the same residence, which can be rental or owned place. If you are staying as a paying guest, you find it difficult to get the loan. Some banks have set geographical limits - customers living beyond this point simply aren't eligible for the loan.

Banks often internally term certain areas in a city as high-risk. These areas typically report high crime rates and lesser safety. If you happen to stay in such an area, you find it difficult to get a personal loan. Banks do not publicly admit to such classifications for many obvious pragmatic reasons.

Tenure of work experience:

If you are salaried/self-employed, banks take into account the number of years you have remained in service/profession.

Repayment Capacity:

This is the most important criteria for a personal loan. The lender evaluates your repayment capacity based on your income, savings, and debt obligations, other than household expenses.

Based on this information the lender decides on the amount of loan that you are eligible, after considering your previous debts and obligations. The lender verifies income by scrutinising your salary/income statements, Form 16, and bank statements.

The minimum income criterion for salaried individuals is generally between Rs 96000-120000 per year and that of self-employed is Rs 60000-80000 per year. The lower income criteria for the self-employed is because banks reckon that a self-employed person may be earning more but shows a lower income for tax-saving purposes.

Past obligations:

The bank will do a thorough check on your past and present financial obligations that will include your other loans. Some of the parameters the bank checks are whether you have been a prudent borrower and that all your dues have been paid on time. They also check your credit card statements to see whether you pay your dues on time or you habitually exceed limits. This is to check on your willingness to repay the loan. Most banks have access to your past credit information through your credit report maintained by credit bureaus.

Your clear past credit background is very important for banks to take a decision to sanction your loan.

Place of work:

The place where you work is very important. Your ability to get a loan as well as better interest rates depends on the strength of the company where you are employed. It is for this purpose that banks maintain lists of companies which they consider favourably and less favourably. This list plays an important role in your loan's interest rate.