Usually, loans are of two types – secured and unsecured – the former being issued in exchange for a borrower’s asset in the form of mortgages and the latter having no such requirements. A personal loan falls under the category of unsecured loans and anyone can apply for instant personal loans which can be helpful when planning a trip, during financial or medical emergencies or paying off unpaid debts. Although personal loans do not require the borrower to provide collateral to obtain them, they can be more difficult to obtain and cost more than secured loans.
While salaried and self-employed or unemployed can apply for instant personal loan, salaried application gets higher approval. Before issuing a loan without any collateral, any bank or non-bank financial company (NBFC) wants to make sure that the borrower is able to repay the loan, and with income stability, the salaried applicant has a better chance of qualify for an immediate loan.
In this regard, without a stable or fixed income, the solvency of a self-employed or unemployed applicant to repay the loan decreases.
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However, even for a salaried person, the approval of a personal loan application depends on some other factors.
Employer: When assessing an applicant’s eligibility before approving the loan, the reputation of the organization they are associated with also comes into consideration.
Unpaid debts: Unpaid debts define an individual’s financial obligations and if someone has large debts from previously contracted credit, the lending financial institution may be skeptical of timely repayments.
CIBIL score: Credit Information Bureau (India) Limited (CIBIL) is a credit rating company with over 2400 members including financial institutions, NBFCs, banks and home finance companies. It manages the credit history of over 550 million customers and organizations. Although CIBIL has no say in the approval of a loan or credit card by a financial institution, it plays a major role in building the primary and immediate impression of the borrower.
Annual revenue: An employee’s annual income also influences the bank’s or NBFC’s assessment process of repayment prospects. It can also determine the amount of the loan to be sanctioned.
Limitation of loan requests: Banks and other financial institutions always review an individual’s financial history before approving a loan application. Thus, if too many loans have been applied for in a short period of time, it creates a negative impression on the lender that the current financial health of the borrowers is not good.
Other eligibility criteria for getting a personal loan include being an Indian citizen, having a minimum age of 21 years and a maximum of 60 years, being employed for one year, having no events of default, having a rating of credit over 750, etc.
(By Rachit Chawla, CEO, Finway FSC)