When it comes to taking a personal loan, there are certain parameters that you need to meet to qualify for the loan. Personal loans are unsecured loans, which means that they don’t require any collateral or security. This makes them a popular choice for people who need quick funds for various purposes such as home renovation, wedding, medical emergency, education, or travel.
Here are top 5 parameters you must meet to avail a personal loan.
- Credit score
The first and foremost parameter that lenders look at is your credit score. Your credit score is a three-digit number that ranges between 300 to 900 and represents your creditworthiness. A good credit score of 750 or above increases your chances of getting a personal loan with a lower interest rate. However, if your credit score is below 600, you may face difficulty in getting a personal loan or may be charged a higher interest rate.
The second parameter that lenders consider is your income. Your income determines your repayment capacity and plays a crucial role in deciding the loan amount and interest rate. Lenders prefer borrowers who have a stable income source and a higher income level. If you have a steady job or business and can demonstrate a regular income flow, you are more likely to get a personal loan at a competitive interest rate.
- Employment history
Your employment history is another parameter that lenders look at when considering your loan application. They prefer borrowers who have a stable employment history and have been working for the same employer for at least 2-3 years. This demonstrates your job security and reduces the risk of default.
- Low debt-to-income ratio
Your debt-to-income ratio (DTI) is the amount of debt you have compared to your income. It is calculated by dividing your total monthly debt payments by your gross monthly income. A low DTI indicates that you have a good balance between your debt and income. A high DTI, on the other hand, indicates that you may have difficulty repaying the loan. Most lenders prefer borrowers with a DTI of less than 40%.
Your age is also an important parameter that lenders consider when evaluating your loan application. Lenders prefer borrowers who are between 21 to 60 years of age as they are more likely to have a stable income source and are less likely to default on the loan. If you are younger than 21 or older than 60, you may face difficulty in getting a personal loan.
To wrap up
Before applying for a personal loan, it’s essential to check your eligibility and compare the interest rates and terms offered by different lenders. You can use online tools such as personal loan EMI calculator and apply for a personal loan online to simplify the process. Keep these parameters in mind and ensure that you meet them before applying for a personal loan to increase your chances of getting approved and avoid any inconvenience.