In simple words Personal loan is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc.
Unlike a home or a car loan, a personal loan is not secured against any asset. As it is unsecured and the borrower does not put up collateral like gold or property to avail it, the lender, in case of a default, cannot auction.
An increasing number of consumers apply for personal loans online for their purchases, especially the big-ticket ones. They are also converting their purchases into equated monthly instalments (EMIs).
Personal loans help the households meet any shortfall they experience in buying a house or a car, in children's higher education, or even in cases of medical contingencies, among other things.
Eligibility Parameters Banks Consider in a Personal Loan Application
So, How do you check personal loan eligibility? How do they decide whether to process a particular application or not? Which elements increase the probability of you getting a loan?
Credit Score: A good credit score reflects that you have paid all your loans in the past as and when due. Any default in repayment will affect the credit rating negatively and reduce your chances of getting a loan. Banks access your credit scores through credit bureaus like CIBIL, Equifax, CRIF etc.
Source of income: Since there is no collateral security to cover a personal loan, banks want to assess whether you will be able to repay the loan on time. They prefer that you have a steady source of income and hence ask for salary slips and bank statements to verify the same.
Job Stability:– Not only your income but also your work history affects your chances of getting a personal loan. Frequent job changes or long gaps in between may have a negative impact on your eligibility
Residential stability: Banks may not prefer customers who have changed their residences very frequently. A stable address impacts your eligibility favourably.
A Personal loan is the best option when you need funds without denting your savings. But the cumbersome processes make it less desirable to apply for loans from regular institutions.
The best Personal loans can be availed on online apps as it reduces the hassle of long tedious processes and trips to banks. More efficiently than banks, online loans are availed faster and help meet the urgent cash requirements.