Many things have to be kept in mind for loan approval.
It is not right to take a personal loan without knowledge. Before taking a loan, it is better to know its important parameters. If the loan gets rejected, not only is your plan delayed but your credit score may also get damaged. Banks and fintech companies check some important things before approving the loan. By knowing these things, you can improve your financial profile and get loan on better terms.
salary
The lender (bank or fintech company) wants to ensure that you have a regular income, so that you can repay the loan. The better the income, the higher the chances of loan approval. Working in the same company for 1-2 years also works in your favor. Self-employed people have to show proof of their income such as financial reports or tax returns.
credit score
Your credit score plays the most important role in getting a loan. A score of 750 or more is considered good. This shows that you have repaid the loans taken earlier on time. If you have defaults, late payments or a large number of loan applications, approval may be difficult. Check your score regularly and correct any errors in the report.
Current debts and liabilities
Before giving loan, banks look at your Debt-to-Income Ratio (DTI), that is, what part of your monthly income is already going towards EMI. If more than 4050% of your income is going towards EMI, then your chances of getting a new loan reduce. Prepaying old loans or consolidating loans can increase your eligibility.
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Age and ability to repay
Younger applicants, who have many years of earning potential ahead of them, are considered lower risk. But if you do not have a financial track record at a very young age, it can also be harmful. Most of the banks consider the age between 21 to 60 years to be acceptable. The loan tenure is usually fixed till your retirement age.
Employers and Profile
Where you work is also important. If you work for a well-known or stable company, your loan application may get approved faster. People with professional degrees or working in regulated professions (like doctors, engineers, CA) are considered more trustworthy by banks.