Usually, loans are of two types — secured and unsecured — the former being issued in exchange for an asset of the borrower as mortgages and the latter having no such requirements. A personal loan comes under the unsecured loans category and anyone can apply for instant personal loans which can come in handy while planning for a trip, during financial or medical emergencies or to repay outstanding debts. Though personal loans do not require the borrower to provide any security to procure them, they can be more difficult to get and be more expensive than secured loans.
While both salaried and self-employed or unemployed people can apply for an instant personal loan, the salaried application gets an upper edge of approval. Before issuing a loan without any security, any bank or non-banking financial company (NBFC) would like to make sure that the borrower is capable of repaying the loan, and with the income stability, the salaried applicant gets a better chance for qualifying for an instant loan.
In this respect, without a steady or fixed income, the credit worthiness of a self-employed or unemployed applicant to pay back the loan decreases.
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However, even for a salaried individual getting a personal loan application approval depends on certain other factors.
Employer: While evaluating the eligibility of an applicant before approving the loan, the reputation of the organization he is associated with also comes into consideration.
Outstanding debts: Outstanding debts define the financial obligations of an individual and if someone has substantial debts from previously taken credit, the lending financial body may be skeptical about timely repayments.
CIBIL Score: Credit Information Bureau (India) Limited (CIBIL) is a credit rating firm that has over 2400 members, including financial institutions, NBFCs, banks, and home financing businesses. It manages the credit history of over 550 million customers and organizations. Though the CIBIL has no say in whether a financial institution will be approving a loan or credit card, it plays a major role in building the primary and immediate impression of the borrower.
Annual income: The annual income of a salaried individual also influences the bank or NBFC’s evaluation process on repayment prospective. It can also determine the amount of loan to be sanctioned.
Limiting loan applications: Banks and other financial institutions always look into the financial history of an individual before approving a loan application. Thereby, if too many loans have been applied for in a short duration of time, it builds a negative impression on the lender that the borrowers’ existing financial health is not good.
Other eligibility criteria for getting a personal loan include being an Indian citizen, minimum age of 21 years and a maximum of 60, being a salaried employee for a year, having no default cases, having a credit score over 750, etc.
(By Rachit Chawla, CEO, Finway FSC)