Small personal loans are becoming very popular in India. Personal loans are unsecured loans that are given collateral-free to eligible applicants. These loans have no-end restrictions and can be taken by salaried people and people in business. Since these loans are collateral-free, they generally carry a higher interest rate, as the risk for lenders is more than other secured loans. Since personal loan interest rates are high, these loans are usually taken for fulfilling some financial objective or in case of urgent cash requirements.
As far as lenders are concerned, small personal loans carry more risk as there is no collateral. So banks or NBFCs consider many factors and parameters of the loan applicant. They conduct an in-depth credit analysis before approving the small personal loan. The elements considered may vary from organisation to organisation, but all the banks or NBFCs consider some points in India.
Here are the factors that affect the small personal loan eligibility:
- Credit Score
The most crucial aspect of any loan is the applicant’s credit score. Personal loan interest rates are high if the client’s credit score is low and vice versa. However, if the applicant’s credit score is below 700, then the chances of getting a small personal loan are significantly less. Also, if the applicant has multiple loans, getting a personal loan becomes difficult. So to avail of a small personal loan, an applicant should have a decent ( above 750) credit score.
- Age of the applicant
Another aspect considered by the lending organisations is age. Generally, loans are disbursed to people in the age group of 21 years to 60 years. Some lenders may provide small personal loans to applicants more than 60 years of age. However, it is challenging to get a small personal loan below 21 years of age.
Income is a vital criterion on which approval of a small personal loan depends. All the banks and NBFCs set a minimum income criterion in the country. The income range for these institutions is a salary of Rs. 15000 to Rs. Twenty-five thousand per month or gross annual income of Rs. 5 lakhs for business people. If the minimum income criteria are not met, it becomes difficult to avail a small personal loan. Personal loan interest rates are generally low for applicants in a high-income range and vice versa. Applicants should provide their latest Income Tax Returns and salary slips as proof of their income.
- Employment Type
NBFCs and banks generally provide personal loans to people working with reputed companies or organisations. They prefer salaried people working in private companies, government organisations, or multinational companies. If you are a professional or a businessman, the chosen category is CAs, CSs, doctors, architects, etc. Personal loan interest rates are low if you are a government employee.
- Work experience
To be eligible for a personal loan, applicants must have a minimum year of work experience. For salaried individuals, they need to have a minimum of two years of work experience in the same field and a minimum of 6 months experience with the same organisation. The ideal work experience required is generally three years for professionals and business people. Personal loan interest rates also depend on the work experience of the applicant.
Applicants looking for availing a small personal loan should work on the above points and make sure they meet the eligibility criteria. Also, they should try to minimise the individual loan interest rates as it will result in a lot of cost savings.