How does your employment status affect your personal loan eligibility?   

A personal loan is one of the easiest and popular kinds of unsecured loan options that you may opt for to meet all your personal requirements. With this loan option, you can meet any kind of financial crisis like medical exigency, tuition fee payment for your kid, home renovation, etc. or use the proceeds to meet your short-term goals of travelling abroad, arranging a destination wedding, etc. 

The popularity of such loans is because of their easy and quick availability. For you as a borrower, it is an apt choice to avail funds without any hassle. Having said this, there are certain instances where personal loans may be rejected. As a borrower, you must know all the personal loan eligibility criteria and play your cards well. As personal loans are unsecured in nature, lenders may prefer you if you have a stable and regular income source as this ensures timely loan repayments. 

As the risk for the lenders in a personal loan is higher owing to its unsecured nature, they often base the personal loan eligibility on your repayment capacity, which is understood not just by reviewing your credit score but also your income and the reputation of your employer. If your income and your employer’s reputation are on a satisfactory mark or below, lenders may hesitate to offer you the loan. In such a scenario, if you apply for a personal loan, a lender may either turn down your application or approve it at a higher personal loan interest rate.

Know the impact of your employment status on your personal loan eligibility

As mentioned above, a personal loan is an unsecured form of loan option. Thus, lenders consider your work profile to determine your approval chances. By checking your work profile, they tend to determine your income stability, income growth and chances of repaying the loan on time. 

Aspects linked with your employment that are factored in by lenders to understand your personal loan approval chances

  • Monthly income

Lenders check your monthly income to understand your repayment capacity and personal loan eligibility chances. The minimum monthly salary required to be eligible for a personal loan approval for most banks is Rs 25,000. Thus, if your income is below the minimum salary requirement, you may not be able to qualify for a personal loan. 

However, note that meeting the salary requirement does not always guarantee your chances of personal loan approval. Even if after drawing an adequate income, if you have existing multiple loans and credit card dues, then it may lower the confidence of lenders in you. Hence, after reviewing your salary, lenders review your FOIR (fixed obligation to income ratio). Lenders consider an FOIR of up to 60 per cent as good. 

This ratio consists of all the fixed obligations you are serving monthly like credit card dues, loan instalments, etc. A higher FOIR infers a substantial amount of your income is headed towards repaying all your debts, leaving little room for managing other expenses, savings and availing other credit facilities. Having a higher FOIR also means you have a higher potential of defaulting on your loan EMI and thus lenders may hesitate lending to you. Thus, work on this aspect if your FOIR is more than 60 per cent. 

  • Length of employment

Lenders even review your work experience. In case you have 2-3 years of work experience with at least a year in the current company, then your chances of loan approval are higher. Your work experience must be in the same domain. 

  • Work profile

Lenders have a keen interest in lending to you if you have a secured position at a reputable company. Amongst self-employed, doctors and chartered accountants usually have a higher chance of securing a personal loan. Amongst the salaried category, PSU/government employees are highly favoured owing to their higher job security.

If you work in a reputed and large private sector organisation, then you too may be preferred by the lenders as the organisation you are working in holds higher chances to face economic downturns than private companies with low reputation. Remember that having a strong employer reduces the lenders’ credit risk encouraging them to attract you by providing lower interest rates or preapproved/instant personal loans. 

Ending note

Getting approval on a personal loan is not a piece of cake. To get a personal loan, not just a good credit score is necessary but it is also important for you to have a stable and regular income source. This not just enhances your chance of availing a personal loan approval but also allows you to avail a loan at a lower personal loan interest rate.