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What are the Salary Requirements for Qualifying for a Personal Loan

What are the Salary Requirements for Qualifying for a Personal Loan
Personal loans help in myriad ways, whether you need it for a crisis, educational expenses, renovating your property, or meeting your business expansion plans. Since personal loans are unsecured loans, your income plays a crucial role in determining the eligibility requirements for the loan. If you are offering services as an employee, it is your salary that will decide your qualification for a personal loan.

Hence, a salary income under a stable employment can be a lucrative factor in upgrading your profile to prospective lenders. Hence, the obvious question in your mind would be: How Much Salary do I need to qualify for a personal loan? Let us look at a few parameters below:
 

Personal Loan for Salaried Employees: Eligibility Requirements for Qualifying


As a salaried employee, you will be required to keep your salary slips handy and ensure that you have duly filed your income tax returns. Typically, determining how much salary you will require to qualify for a personal loan will be influenced by various factors. There is no fixed amount we can cite as you need to consider different parameters that will help you arrive at the right figure:
 
Also Read: How Personal Loans Help During An Emergency
 

  • Loan Amount

    How much amount of loan are you seeking and is it in tandem with your current financial income after meeting other commitments? The loan amount will affect how much salary you will be required to qualify for that loan. Needless to say - the higher the loan amount, the higher will be the salary requirements.

    Usually, lenders prefer a potential borrower who has at least INR 15,000 as monthly income, however, the threshold might differ from lender to lender. This threshold may also differ as per the place of employment. Additionally, timely credit of salary at regular intervals is crucial. You might be even expected to have a minimum experience of approximately 6 months with your current employer, to prove that your job is stable. However, this is discretionary in nature. Check out lenders that offer low salary personal loan options, if your current income does not fulfil these criteria.
     
Also Read: Understanding What is Flexi Personal Loan and When it is Ideal
 

  • Criteria of the Lender

    Every lender has different terms and conditions that might affect you when it comes to personal loan for salaried employees. The lender might have a minimum threshold below which they will not consider you for the loan amount you are seeking. Talk to your financial advisor or enquire at the financial institution from whom you are planning to seek loan. Typically, you are eligible for a loan amount that is almost thirty times your salary income. However, these are general market observations and every lender may have different criteria.

    You can check online marketplaces that indicate the eligibility criteria of various lenders. It will help you compare and shortlist prospective lenders. Remember, you can always do soft enquiries through these platforms to determine whether your salary satisfies their expectations. If you directly send applications to prospective lenders, it may negatively affect your credit score.
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  • Loan Tenure

    Your desired loan tenure makes a difference too as it will affect the monthly instalment you have to pay. Conventionally, lenders consider only 40 to 60% of your salary amount for determining the EMI. If the tenure is on the lower side, your eligibility capping might be higher than a loan with a longer tenure.
 

  • Debt-to-income Ratio

    Debt-to-income ratio, or DTI, is the metric informing you or your lender about your total monthly income going towards debt repayment. It is a crucial factor because, even if you have a higher income, your application for a personal loan for salaried employees may be denied.
     
    Assume you earn Rs 1,50,000 per month and are aware that the lender's minimum monthly income requirement is Rs 15,000. However, you are dealing with multiple debts, including a home loan and a loan against property, and have recently financed a used car. The total EMI you pay in a month is Rs 1,10,000. In this case, the lender may reject your application regardless of the amount. Any DTI ratio less than 40 is ideal for personal loan approval.
     

  • Credit Behaviour

    You may be familiar that a credit score is a crucial parameter in loan approval. However, this is not the only factor influencing your personal loan for salaried approval. Credit behaviour is broken down into several parameters. You will not be approved if you have previously defaulted on a credit card payment or other loans. Similarly, consuming a credit card balance of more than 30% on a regular basis will result in a low credit score and loan rejection.
     
    You should review your credit report at least once a year and prepare a list of the negative parameters lowering your score.
     

  • Hard Enquiries

    Approval for a loan on a salary basis is also contingent on the number of hard inquiries on your credit report. This parameter is not mentioned on the lender's website; but it is a vital consideration during the credit appraisal process. When you apply for any type of loan, the lender asks credit bureaus to provide them with your credit report. This is commonly referred to as "hard enquiry." The more inquiries received in a short period, the greater the likelihood of rejection.
     
    Be mindful of this point when determining the minimum salary for a personal loan. Wait for the lender to respond with whether or not you qualify for a loan before applying with another lender.
     

  • Age

    Age equates to your earning potential and career stability. If you are a college student, you may not be earning and rely on your parents to help you meet your financial needs. Similarly, elderly people either have no income and rely on their children for support, or they receive a pension.
     
    As a result, age has become one of the most crucial factors in loan approval. Most lenders require you to be between the age group of 21 and 58 at the time of application.
     

  • Employer Type

    The more dependable your employer is, the better your chances of approval. Most lenders prefer to lend to individuals who work for government organisations or multinational corporations. Going a step further, many of them offer funds to government employees at lower rates.
     
    However, if you work in a small shop or a startup, you may either receive funds at a high interest rate or have your application rejected entirely.
     
Also Read: Opting for Instant Personal Loan Know How to Get Better Interest Rate
 

To conclude


Bear in mind that the above are simply primary indicators that will give a brief idea of how much salary income you should have before applying for a personal loan. Your credit history and credit score equally influence your eligibility for a loan. Your past and current financial obligations will also be a deciding factor as to whether you are eligible for the loan or not.

Keep your financial health intact and do consider your credit score before being a guarantor for any third-party loan. Choosing a lender with whom you have had a past relationship will improve your chances of qualifying for a personal loan. You can use an online loan calculator to check your eligibility as well.
 
Disclaimer: This post was first published on 30th April 2021 and has been updated for the latest information, freshness and accuracy.
 


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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