How Can I Get A Personal Loan?

According to CRISIL, a large chunk of people taking personal loans in India are the working class in the age group of 25-45 years. So, whether you are single or married in the former age group, at some point of time you will likely ask this question: “How can I get a personal loan? ”

A personal loan can mean a lot of things to a lot of people. For some, it could be a medical loan to care for a loved one, for another it could be financing a long-awaited holiday abroad, and for some a new beginning with a wedding loan. Then, there are personal loans that help you fulfil your desires for new gadgets, smartphones, home appliances and furniture, or supply you with adequate funds to redo your home.

Whatever the need or desire, personal loans have become an indispensable part of our modern lives where rising costs and inflation dictate purchasing decisions in almost every aspect of life. So, let’s try and find an answer to that question, “How can I get a personal loan?”

What is a personal loan?

A personal loan is an unsecured loan sanctioned by a financial institution to a borrower based on him/ her meeting various criteria of eligibility for personal loans. Rate of interest and loan amount for personal loans are determined by the creditworthiness of the borrower. One is not required to provide any form of security or collateral to apply for personal loans.

With flexible terms and attractive personal loan interest rates, you can apply for a loan up to INR 20 lakhs with tenure of up to 60 months from various banks and NBFCs.

How can I get a personal loan?

The best way to find an answer to that question is to ask what lenders check to assess your eligibility for personal loans. So, first we’ll understand the eligibility criteria and documentation requirements. You will also get some valuable tips on how to improve your personal loan eligibility.

Eligibility for personal loans – Minimum requirements

To apply for a personal loan, you need to meet these minimum eligibility requirements: 

• You must be a salaried professional working in a MNC, private company or any government sector.
• Self-employed professionals such as doctors, CAs, architects etc. are also eligible to apply for personal loans.
• You must be between the ages of 22 to 55 years.
• Minimum income eligibility can vary according to various financial institutions. Generally, it’s INR 25,000 per month for salaried professionals and INR 5 lakh per annum for self-employed professionals.
• Lenders generally prefer a loan applicant with at least a work experience of 3 years and stable earning capacity.
• You must have a CIBIL score of 700-750 for higher chances of loan approval.
• Ideally, your EMI amount should not be more than 65% of your monthly income.

Documentation for personal loans

Before you apply for personal loans. ensure that the following documents are in order. It will help you get a loan faster and improve your chances of loan approval. 

• Filled application form with a recent passport photograph
• Passport, Voter ID, Driving Licence, PAN Card – Any one of these documents as proof of identity
• Address proof : Any one of the following documents: Ration card, passport, bank statement, driving licence, telephone bill, electricity bill and rental agreement
• Age proof : Any one of the following documents: PAN card, passport, any other age proof document from a statutory authority
• Bank statement for the last 6 months or salary slip for the last 3 months
• Form 16
• Income tax returns for the last 3 years

How lenders assess your ability to repay?

Though artificial intelligence is gradually changing the way lenders assess your ability to repay, it is yet to become part of the mainstream credit assessment system. Therefore, your CIBIL credit score and debt-to-income (DTI) ratio are the primary information that lenders rely to judge your creditworthiness. The way you use and make payments for your credit cards, the loans you have taken and their payment history, overdrafts, etc., are all taken into consideration while calculating your credit score.

Make sure that your monthly EMI outflow is not more than the recommended percentage of your income. According to the chart below, your personal loan EMI should not be more than 10% of your net monthly income. Banks and NBFCs may still lend you if you are not maintaining this ideal number but it will invariably put some stress on your finances if you don’t maintain this balance in the long run.

Ideal Monthly Outflow Of EMIs

HOME LOAN

Not more than 40% of net monthly income

 

CAR LOAN

Not more than 15% of net monthly income

 

PERSONAL LOAN

Not more than 10% of net monthly income

 

Before you apply for a personal loan, we also suggest that you take a good look at your debt to income ratio. It can be calculated by dividing your total EMIs by your net monthly income and multiplying it by 100.

According to financial experts, a debt to income ratio of 25% to 40% is fine; anything above 50% is a cause for alarm.

If you are not sure how much EMI you can afford as per your current income, we suggest you use the SMFG India Credit personal loan EMI calculator to get a better understanding.