Preferring a personal loan rather than another secured loan? Looking here and there to apply for a personal loan? You need to meet the demanded criteria set forth by the lender. Lenders do not easily give funds to any borrower without checking some important factors. All lenders have their checks and balances in place. Knowing what those might be puts you ahead of the game when applying for a specific loan.
Further, it outlines the elements used in assessing an individual from the lender’s perspective and suggests techniques to help improve his or her chances of acquiring a loan.
1. Your Credit Score
Why It Matters
- Your credit score is a judgment by lenders on the financial responsibility with which you operate. Better scores usually mean better chances of approval, along with lower interest charges.
- 700 & above: Great! Higher chances of approval.
- 650-700: Okay, but may come with higher interest rates.
- Below 650: Tougher to get approved, may need extra documents or a guarantor.
How to Improve It
- Pay your bills and EMIs on time.
- Use your credit card wisely (keep usage below 30%).
- Avoid applying for multiple loans in a short time.
- Check your credit report for mistakes and fix them.
2. Your Income and Job Stability
Why It Matters
Lenders check these things to make sure themselves whether the borrower makes enough money to pay back the loan on a given term.
What Lenders Look For
- Stable income – Salaried employees and self-employed individuals with regular income have better chances.
- Job history – Staying at a job for at least 1-2 years is preferred.
- Minimum salary – Most lenders require ₹15,000-₹25,000 per month.
How Can You Improve Your Chances
- Stay in a stable job for longer.
- If self-employed, maintain proper financial records.
- Show additional income sources if available.
3. Debt-to-Income Ratio (DTI)
Why It Matters
Your DTI shows how much of your income already goes to loans. A lower ratio means you can afford more credit.
How It’s Calculated
DTI = (Total Monthly Debt Payments / Monthly Income) × 100
What’s a Good DTI?
Below 40%: Ideal
40-50%: Manageable, but lenders may hesitate
Above 50%: High risk, loan approval may be tough
How to Improve It
- Pay off some debts before applying for a new loan.
- Increase your income sources.
- Avoid unnecessary loans.
4. Your Age
Why It Matters
Lenders prefer borrowers who can repay the loan before retirement.
Eligible Age Range
Salaried individuals: 21 to 60 years
Self-employed individuals: 25 to 65 years
How to Improve Your Chances
If close to retirement, go for a shorter loan tenure.
Apply for an amount that fits within your repayment capacity.
5. Loan Amount and Repayment Capacity
Why It Matters
Lenders want to be sure you can afford to repay the loan.
How to Improve Your Chances
Borrow only what you need.
If EMIs seem too high, choose a longer repayment term.
Show additional income if possible.
6. Your Job and Employer
Why It Matters
Lenders prefer borrowers with stable jobs at reputed companies.
Preferred Employment Types
Salaried workers: Government employees, MNCs, or well-known private companies.
Self-employed individuals: Business owners or professionals with steady income.
How to Improve Your Chances
Keep clear financial records if self-employed.
If working for a small company, show stable income and job history.
7. Loan Purpose and Documents
Why It Matters
Though personal loans are flexible, lenders may ask why you need the money.
Common Loan Uses
Medical emergencies
Weddings
Home renovation
Education
Travel or debt consolidation
Required Documents
ID Proof – Aadhaar Card, PAN Card, Passport, etc.
Address Proof – Utility bills, rental agreement, etc.
Income Proof
Salaried: Salary slips and bank statements (3-6 months)
Self-Employed: ITR, business financials, and GST returns
How to Improve Your Chances
Ensure all documents are updated and accurate.
Provide complete and verifiable information.
8. Relationship with the Lender
Why It Matters
Existing customers of a bank or lender often get better loan offers.
How It Helps
Pre-approved loan offers.
Lower interest rates.
Faster loan processing.
How to Improve Your Chances
Maintain a good relationship with your bank.
Keep your financial transactions clean.
Key Takeaways:
- Maintain a high credit score.
- Keep a stable job and income.
- Borrow only what you can afford.
- Reduce existing debts before applying.
- Submit complete and accurate documents.