All you should know about personal loans for salaried employees

Everybody faces financial crunches, even the individuals who expect a regular inflow of salary per month. In such needy situations, personal loans could be a saviour for these salaried individuals. Thanks to its feature of zero restriction on its end usage, you can use it to pay your credit card bills, home renovation, travel to your favourite destination abroad, pay the fees of your children’s education, medical emergency, etc.

Hence, it becomes important for all salaried individuals to know the process and eligibility criteria to take a personal loan, especially because savings can never be enough to tackle financial emergencies. Salaried individuals are amongst the most eligible borrowers who can apply for a personal loan due to their regular inflow of income. All they need to know is the eligibility criteria of banks and NBFCs to make their chances brighter for availing of a personal loan.

Given that every lender has its own eligibility criteria other than some basic requirements which maximum lenders follow while providing a personal loan. If we take an example of an ICICI personal loan, one needs to have a minimum salary threshold, good credit score, required documents to prove their eligibility and fit in the certain age bracket set by the lender, etc. These factors could also make a favourable impact to avail lower ICICI personal loan Interest rates.

Here, we are discussing some of the key factors which can help you to boost your eligibility to take a personal loan.

Fulfill the basic criteria: Firstly, one should know if he/ she can apply for a personal loan through assessment of eligibility criteria. If we take the above example of ICICI Personal loan, a person needs to fulfill the basic eligibility criteria to submit the application for ICICI personal loan. Applicant age should be between 23 to 58; minimum salary should be Rs. 17,500 (Rs. 25,000 in case the applicant is residing in Delhi or Mumbai; Rs. 20,000 if the applicant is residing in Hyderabad, Chennai, Bangalore, Kolkata or Pune), the applicant should be working with the current employer for at least a year, and the total work experience should not be below than 2 years. Even ICICI personal loan interest rates could rise to compensate for the higher credit risk involved for those not qualifying for these criteria, or they may even face rejection.

Also, a salaried individual needs to submit some documents with an application form for a personal loan from ICICI. Documents which need to be submitted are- Identity Proof: Driving Licence/ Voter ID/ Aadhaar/Passport (any one), Residence Proof: Utility Bill (Should not be more than 3 months old)/Valid Rent Agreement (anyone), to prove the income one should need to submit his/ her salary slips for last 3 months and latest 3 months bank statement of the salary account and 2 passport size photographs. A bank could ask for additional documents as well.

Build your credit score:  Credit score is one of the major factors considered by lenders while evaluating a personal loan application. As ICICI Personal Loan and other lenders first look at applicant’s credit score to consider the creditworthiness of that applicant.  If the score meets their yardstick, then they check other factors as well. Individuals with credit scores of 750 and above usually have higher chances of loan approval. Such consumers are viewed better in terms of financial discipline, and hence, banks have low credit risk to get a loan.

Credit Score can also make an impact on the interest rates of a personal loan. The ICICI personal loan interest rates could also be different according to the credit score of an applicant. Since the lenders have started risk-based pricing practices, many have begun to offer attractive interest rates to personal loan applicants having higher credit scores. Those with poor credit scores either face rejection or have to avail of loans on higher interest rates to make up for the higher credit risk for the lender.

Hence, one should build and maintain a good credit score to improve personal loan eligibility and to secure a personal loan at attractive interest rates. For this, go along with healthy credit practices like repaying your EMI and credit card bills full by their due dates, do not apply for loans and credit cards in a short period of time, do not give up your old credit card accounts and make a balance between secured and unsecured loans in your credit profile to build and maintain a strong credit score.

Moreover, reviewing your credit report at regular intervals is a healthy credit practice, at least once every three months. You can have sufficient time to take measures to improve your credit score if needed. Sometimes incorrect information comes in your credit report, by the fault of bank and bureau, and it can make unfavorable impacts on your credit score, inform the concerned bureau and bank if you see any kind of incorrect information in your credit report. An updated credit report will automatically increase your credit score.

Debt to income ratio: Securing a personal loan could be a tough task for you if you have too much burden on other borrowings. A bank could reject an application of a salaried employee already spending a big part of his/ her salary on paying EMI’s. To be eligible for the personal loan, an applicant should ideally not spend more than 50% of the salary on EMIs (including new loans). It is desirable that you should maintain a debt to income ratio (DIR) of 50% or lower. In order to enhance your debt-to-income ratio, you can either pay off all or at least some of your existing loans and credit card dues in full, and you can also convert your big credit card bills or big purchases into EMI, and thus, your monthly obligation would be reduced.

Spending a big percentage of your earnings on EMI’s could even raise the credit risk for the lender, as you will have less disposable income, which could lead you to take more credit to fulfil your needs. Even after having a high debt to income ratio, if a bank lends you the money, it is likely to be costly for you. Like if you get an ICICI personal loan despite the heavy existing EMIs, ICICI personal loan interest rates may be on the higher side. You can check your ICICI Personal loan Application Status.