Factors That Affect Personal Loan Eligibility

A personal loan is an unsecured loan that comes in handy during times of cash crunch. It does not have any end usage restriction and is collateral-free. There are multiple benefits of personal loans. However, before you take a personal loan, know about the factors that affect personal loan eligibility. This way, you can ensure your application from getting rejected and increase your chances of getting approval. 

Credit Score

Since personal loans are unsecured loans or collateral-free loans, the main factor considered by lenders for approval is the credit score. A credit score indicates your repayment history. A score above 750 is generally considered good and shows that you have been paying your credit card bills and loans on time. This guarantees to lenders that you can pay your debts on time. If your credit score is low, ensure to take steps to improve it. 

Monthly Income 

The monthly income is yet another factor that determines your personal loan eligibility. For gold loans and home loans, collateral is also added in addition to monthly income. But, for personal loans, the lender will want high monthly income to ensure timely repayment of loans. Also, the income eligibility will vary with location. For instance, in metro cities such as Mumbai, Delhi etc, it will be higher since cost of living is greater. 


Your age will help the lender in ensuring that you have enough years remaining in employment. Since people who are self-employed or non-professionals can continue to work even after the retirement age of 55 to 58 years, the eligible age range for them is 28 to 65 years. For salaried applicants, the eligible age is between 23 to 58 years. 

Work experience

Borrowers having more work experience will have a financially secure future in comparison to someone who has just entered the workforce. However, the minimum experience required varies based on the lender, your job, and other necessary factors. For example, salaried people usually require around 3 to 5 years of work experience. Business entrepreneurs require a minimum of 5 years of experience in the business field. Self-employed people require at least 3 years of working experience.   

Employment Stability 

Personal loan eligibility is influenced by a stable job. People in government jobs, PSUs, reputed companies, MNCs, etc. have higher eligibility for personal loans. Whereas, for the self-employed people, eligibility may be lower. 

Current Liabilities 

If you are already having current liabilities and are paying your car loan, home loan, education loan, etc., then the lender would like to know about them in detail. This is because the lender would want to make sure that you have enough funds to repay your current liabilities along with your personal loan. 

Debt-to-income ratio

If your debt-to-income ratio is on the higher side, then the lender may not approve your loan application and may charge a higher rate of interest for your loan. For instance, if a lender knows that 50% of your income goes into paying EMIs, then he cannot be assured that you will repay the personal loan on time. So,  aim for a debt income ratio of 36% or less. 

Inquiring For Multiple Loans

Each time you make a request for a loan, a hard inquiry is made by the lender. When you have multiple hard inquiries, it affects your credit score and subsequently your personal loan eligibility. Lenders will see you as a financial risk as you are making repeated requests for credit. 

Existing relationship with the lender 

Many borrowers often have a long time relationship with lenders. Lenders will give preferential interest rates for existing borrowers who share a good relationship with the bank.

Benefits of a Personal Loan 

  • Quick Approval: It is much easier to process a personal loan than a home loan. If your credit score is healthy, then you will get personal loan approval within a day or two.
  • Collateral-free: personal loans are unsecured loans and do not require any collateral. All you need is a healthy credit score and proper documents. 
  • No end usage restriction for the amount: The amount that is obtained as a personal loan can be used for anything – home renovation, marriage, medical treatment, purchasing a machine, educational expenses, etc. 
  • Build a credit score: When you take a personal loan and pay it back on time,  it will help in improving your credit score. 
  • It is easy to get: if you have a good credit history, then you can obtain a personal loan with ease. 
  • Minimal documentation: A personal loan comes with minimal documentation. However, the documents submitted must be genuine. 

Documents Required For Personal Loans 

  • Identity Proof: Either PAN card, Aadhaar card, voter ID, passport, or driving license
  • Address proof: Either voter Id, Aadhaar, or driving license
  • Bank statement for the last three months
  • Employment ID
  • Salary slip for the last three months.  

Mistakes To Avoid While Applying For A Personal Loan

  • Don’t Apply Without Checking Your Personal Loan Eligibility: Your personal loan application will be rejected if you do not match the eligibility criteria set by lenders. So, check the eligibility before you apply. Also, use a personal loan EMI calculator to compute the loan amount you can get. If you want a higher loan amount, you can go for a co-applicant with a high credit score.
  • Avoid Misrepresentation in Your Application: Do not give false information in your application. Also, it must be error-free when submitting it. Check every field for accuracy before submission.
  • Maintain a good credit score: You should maintain a good credit score of 750 plus to get an easy personal loan approval. 


Personal loans are unsecured loans and do not require collateral. This is basically why lenders use a bunch of parameters to determine if you are worthy of credit. After evaluating your credit profile against the set parameters, lenders approve loans and offer interest rates using the concept of risk-based pricing. People who have a good credit profile are given preferential interest rates and easy loan approval while individuals with poor credit profiles find it hard to do so. 

By Moana Snow

Hello everyone! Myself Moana Snow & I am a person who loves to write blogs about different categories like - Digital Marketing, Business, Finance, Lifestyle, Home Improvement & Technology. Please share my posts with your network & grow this Blog. Bhartiya Airways

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