Recently I received a query from one of the readers of my blog Mr. A regarding personal loan eligibility. He asked me that he is in an urgent need of money but the bank is not willing to lend the desired amount. As I shared in my other posts related to a loan that loan eligibility depends on multiple factors. There are 2 types of factors i.e. direct factors and indirect factors. Let’s accept the fact that only direct factors are in the control of a borrower whereas for indirect factors you can’t do much.
Some readers asked me what these indirect factors are. One of the indirect factors is the weightage assigned to your employer. If you are working in a high risk sector like IT, Startup or e-commerce then it will automatically impact your personal loan eligibility. You cannot change your sector or employer to avail the loan. Similarly, another indirect factor is no of dependents on the borrower. If I have 4 dependents on me then I cannot change this fact though it will impact my personal loan eligibility negatively. Let’s discuss how you can increase your personal loan eligibility through direct factors.
You can also check out my post, Personal Loan – 5 important points to avoid rejection by the bank.
Personal Loan Eligibility – Five Golden Tips To Increase
1. Selection of a Bank or Financial Institution:
It is very important to select right financial institution or a bank. Here based on my learning and experience, I can highlight 2 points.
(a) Preferably you should avail personal loan from a bank or financial institution with which you already have an existing relation. For example, if my Auto Loan is from financial institution X and I am paying all the EMI’s on time then the financial institution X will consider my application favorably. In all probability, the personal loan eligibility will be higher in this case. Secondly, if I am a salaried employee then I will avail the loan from the bank with which I hold my salary account.
(b) Another personal observation is that financial institutions and small private banks are more liberal in fixing the personal loan eligibility. On the contrary, PSU banks and large private banks are a bit strict in their approach.
2. Credit or CIBIL Score:
It’s a no-brainer that higher CIBIL Score means a high probability of loan approval and higher personal loan eligibility. A Good CIBIL Score Can Help You Get a Better Deal On Your Personal Loan. Now you must be wondering why I am including this point in the post as it is a known fact.
The point I am trying to make is that there are 4 credit bureaus in India. The credit score of a borrower varies in all 4 credit bureaus. I explained it in my post, Variation in Credit Score. Now assuming my credit score is as follows with each of the following credit bureaus (CB)
CB 1: 760
CB 2: 753
CB 3: 793
CB 4: 767
In this case, my personal loan eligibility will be high in case I avail loan from the bank or financial institution referring to a credit score of Credit Bureau CB 3. Therefore, the conclusion is simple that before you apply for a personal loan you should check your credit score with all the credit bureaus. After that, you should apply with the bank or financial institution referring to a score of credit bureau reporting your highest credit score i.e. CB 3 in the example mentioned above. I agree that it is difficult to find out i.e. which credit bureau’s score bank is referring to but trust me it is not impossible.
3. The purpose of Personal Loan:
Normally the banks or financial institutions ask for a purpose of the personal loan. The personal loan eligibility also depends on the purpose of the personal loan. At the macro level, if you are availing a loan for a luxury like foreign trip etc then the personal loan eligibility will be low.
On the other hand, if you have a genuine reason like marriage or house repair etc then the probability of higher eligibility is high. Here I am not telling you to pass wrong information to the bank or financial institution. The point I am trying to make is that you should provide a genuine reason. You should also share how will you repay the loan and at first place why you need this loan. It should not appear that you are in a deep financial crisis.
Lastly, you should be an actual borrower. If you are borrowing for someone else even for your kids then the probability of rejection is high. For example, one of the readers shared with me that her loan is rejected as she was borrowing for daughter’s education. In this case, education loan is better bet rather personal loan.
4. Unsecured Loans:
As the personal loan is unsecured loan therefore while fixing personal loan eligibility max weightage is given to running unsecured loans and income. The income part I will discuss in the next section.
In the case of any running unsecured loans, try to close these loans before you apply for another unsecured loan like a personal loan. It will help to increase the personal loan eligibility.
Lastly, if you have any running home loan then you should not expect high personal loan eligibility. The reason being, home loan utilize almost 100% credit eligibility and increase EMI to net take home salary ratio. In the majority of the cases, a personal loan is rejected if the borrower has a running home loan.
5. Income:
Before availing a loan you should review your salary as I keep suggesting to my readers. You should do away with the allowances and perquisites to increase net take home salary. Unfortunately, even though the allowances and perquisites are part of salary but are not considered for the calculation of personal loan eligibility.
For example, if your post-tax salary including allowances and perquisites is Rs 1.5 Lac and excluding the same salary is Rs 90k then personal loan eligibility will be calculated on Rs 90k. On the other hand, if I merge my perquisites and allowances with the basic salary, my tax liability will increase & post-tax salary will be Rs 1.4 Lac. In this case, my personal loan eligibility will increase though it will be at the cost of the higher income tax.
Words of Wisdom:
Before you avail any type of loan, it requires proper planning. The reason being you avail loan to fill the monetary deficit. Every borrower has a specific loan amount figure in mind. In the case of any deviation between sanctioned amount and loan applied for, It comes as a shocker for the borrower. The entire planning goes for a toss.
Another important point is to keep Plan B ready. For example, if I am applying for a personal loan then in case it is rejected or sanctioned amount is less than my requirement, the Plan B will be to avail loan against a credit card. I also shared how you can utilize your credit card limit to get short term loan at 0% interest rate. Therefore, you should explore all possible options.
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Hi Nithin,
I have an FD of 5 Lacs with SBI, now thinking of taking a loan against it online for 2 Lacs. They are offering only overdrafts and no EMI option as per my knowledge. Just wondering how my CIBIL score gets affected due to this. I am self employed, so no other way of getting personal loan right now. I have decent CBIL score of 768 which I want to improve to apply for home loan in future.
Instead of taking loan, i suggest to break FD’s. The overdraft is different from loan against FD. Overdraft will be reported as a sort of loan in your CIBIL Score and will impact negatively.