5 Factors to Keep in Mind for Personal Loan Approval
You’ve finally found a personal loan that checks all the right boxes—a suitable loan amount at a good interest rate with a flexible repayment schedule. But as exciting as it is, getting the loan approved still depends on a few important details. Before moving forward, it’s essential to understand what really matters in the approval process. Here are five factors that could make or break your personal loan approval.
1. Your income
Your income plays a crucial role in the approval process. Lenders evaluate it to gauge your repayment ability, as higher earnings often suggest better financial stability. Lenders have clear minimum income criteria to guide applicants. For instance, if you’re a salaried applicant, you should typically have an ‘x’ amount of minimum monthly income. This varies across lenders, so knowing your income compared to these requirements helps you choose the right lender.
2. Your credit profile
Your credit profile, especially your credit score, is a critical factor that reflects your history of managing credit. It shows lenders whether you’ve consistently paid off debts on time or have struggled with repayments. A good credit score (usually 700 or higher) demonstrates responsible credit behaviour and makes you more likely to secure a loan with favourable terms. If your score is lower, lenders may perceive you as a higher risk, which could either lead to higher interest rates or a declined application. It’s beneficial to check your credit report beforehand to ensure there are no errors. If needed, take steps to improve your score by paying off outstanding debts.
3. Eligibility criteria set by the lender
Lenders have specific eligibility criteria to determine who qualifies for a loan. These criteria include factors like age, employment type, work experience and income level. At Unity Small Finance Bank, applicants should be between the ages of 23 and 55 years, with a monthly income of at least ₹20,000 for salaried employees. Self-employed individuals may face different requirements, often based on the stability of their income. Understanding this can help you determine if a particular lender’s requirements align with your profile. It also allows you to prepare the necessary documentation to meet these benchmarks.
4. Other obligations
Lenders assess your existing financial obligations. This includes ongoing loans, credit card debts or other regular commitments. This evaluation helps them ensure you’re not overextending your finances. They look at your debt-to-income (DTI) ratio to see if you have enough disposable income to comfortably take on a new loan. Ideally, maintaining a DTI ratio below 40% (meaning your debt obligations account for less than 40% of your income) is favourable. Pay off smaller debts before applying for a personal loan to improve this ratio and strengthen your application.
5. Documentation
Providing accurate and complete documentation is essential for a smooth application process. Lenders typically require documents such as:
• Identity proof: PAN card, Aadhaar card or passport.
• Address proof: Utility bills, rental agreement or passport.
• Income statements: Salary slips for salaried individuals and income tax returns for self-employed individuals.
• Bank statements: The statements from the last six months are usually required to verify your income flow and expenditure patterns.
Ensure that the documents are up-to-date and accurately filled out to avoid delays or rejections. Small errors or outdated documents can cause setbacks, so double-check each document before submission.
Conclusion
Your personal loan application requires a careful review of all details. Double-check that your income, credit profile and documentation align with the lender’s criteria. Ensure all documents are current and error-free to avoid unnecessary delays.
When filling out the loan form, make sure every section is complete and accurate. Any missing or incorrect information could slow down the approval process. Carefully review each detail to ensure your application is as strong as possible, giving you the best chance for a successful outcome.
