Lending institutions sanction personal loans to help meet various financial goals, like vacations, weddings, medical emergencies, home repairs, higher education, or any legal purpose. While looking for an instant cash arrangement during an economic crunch, a personal loan can help overcome the crisis without exhausting your savings. However, while looking for a personal loan, one common question that pops up in mind is – am I eligible to apply for a personal loan? While no standard formula and document required for personal loan can assess your eligibility, loan companies check various factors to evaluate your loan application. Your monthly income is one of them.
Since your repayment capability largely depends on your monthly earnings, it is one of the most crucial factors affecting your personal loan eligibility. Below, you will find all the necessary details about personal loan eligibility and the role of your salary.
What is minimum salary?
Every lender has minimum salary criteria for salaried professionals as part of eligibility for personal loans. It means that the applicant should be earning at least, for example Rs 15,000, every month. This is to ensure the applicant has the capability to pay the loan EMIs on time. This is mandatory to get instant approval for personal loan. However, there are other parameters like debt-to-income (DTI) ratio that are considered.
Why do lenders consider minimum salary for personal loan applications?
Since personal loans are unsecured, the risk primarily lies with the loan provider. Even with the best intentions, if you default on the repayment, the loan company has no guarantee to recoup the outstanding balance. Therefore, they check your financial condition before approving your loan application. Setting a minimum monthly salary requirement ensures you can afford to pay the monthly EMIs regularly.
Your monthly income determines your monthly repayment capacity to pay the EMIs regularly. If the EMI consumes a large percentage of your monthly salary, you have a higher chance of missing EMIs and loan defaults during the tenure. Ideally, after calculating all your income sources and financial obligations, your debt-to-income ratio should be at most 40%.
Role of monthly income in defining your loan eligibility
As a borrower, you must be wondering why your monthly income is so important to determine your personal loan eligibility. So, first, you must understand that personal loan is a collateral-free loan you can obtain without any security, collateral, or guarantor. Therefore, the lenders take a lot of risk in providing you with a personal loan. Your monthly income is the most important thing they check to nullify their credit risk and ensure timely repayment. Since the minimum salary requirement varies between lenders, you must always choose a lender whose needs you can satisfy with a good margin.
Impact of monthly salary on your loan amount
The minimum salary requirement aims to determine your eligibility for a personal loan application. Your monthly income also determines the loan amount you may borrow. A high salary makes you a suitable applicant for a considerable loan amount. However, if you just fulfil the minimum salary requirement, the loan amount might be lower than your expectations. The reason is pretty simple – you can easily repay a bigger loan with hefty EMIs if your income is high and face a financial crunch if it is low. That is why they always check your income documents required for personal loan to review your finances.
Minimum salary requirement for personal loans
Almost every lender has a minimum salary requirement to accept loan applications. For instance, Hero FinCorp requires a minimum salary of Rs. 15,000 after all deductions. Other lending institutions may have higher minimum salary requirements going up Rs. 25,000-30,000 per month. The higher the minimum requirement, the more challenging the qualification becomes. So, opt for a lender with a low minimum salary requirement, even if your salary is higher. It makes you eligible for a bigger loan with instant approval for personal loan at lower interest rates.
Other factors determining your personal loan eligibility
Other than your monthly salary, loan companies determine several other factors to determine your personal loan eligibility. These include the following:
- Age: Your age is a significant factor determining your personal loan eligibility. Ideally, you should be at least 21 years old at the time of loan application and not exceed 58 years at the loan term-end.
- Occupation: Since most lending institutions prefer salaried applicants over self-employed professionals due to job stability and income regularity, check if the lender provides loans to customers in your occupation.
- Work Experience: Your work experience determines your professional and financial stability. Most lenders require you to have at least six months of experience in the same job or profession to qualify for a personal loan.
Other than these, your employment history, credit score, financial obligations, DTI ratio, etc., also play significant roles in determining your loan eligibility. The more stability you show, the better applicant you are for a personal loan application.
What if you do not fulfil the lender’s minimum salary requirement?
If you fall short of the lender’s minimum salary requirement, you may try any of these three options:
- Apply for a smaller amount: If the lender is not convinced with your repayment capacity, consider reducing their risk by borrowing less. Since that will make the repayment easier for your finances, they may reconsider your loan application and give instant approval for personal loan.
- Pick a more reasonable loan plan: The loan providers may not approve your application because they think the total loan cost is too high for you to afford. Managing repayment with another lender with cheaper rates and fees may improve your chances.
- Opt for a longer tenure: Managing hefty EMIs of shorter loan terms becomes challenging with a limited salary. If that is the reason for loan rejection, you may opt for a longer repayment term to reduce your EMI amount and make it more manageable. As a result, the loan company may feel convinced to approve your loan application.
Emergency expenses may arise at any time. In such circumstances, instant approval for personal loan is the best option to cover immediate demands without withdrawing your savings. The minimal salary requirements for personal loans are variable depending on the lender’s policy. If you earn a minimum salary of Rs15,000, you can easily apply for a personal loan online through the Hero FinCorp app and get the required funding instantly.