Does your salary decide personal loan approval? Here's what you need to know

Your salary plays a crucial role in determining whether your personal loan application gets approved. In the nation, personal loans are unsecured in nature, meaning no collateral is required due to the same, lending institutions primarily assess your monthly income and employment stability to gauge repayment capacity.

With quick disbursals and minimal documentation, these personal loans are popular, still approval depends heavily on your financial profile. Let’s explore how your salary influences personal loan eligibility.

Why gross monthly income matters for loan eligibility

Gross income is the total income earned before the deduction of taxes which is an important aspect for the lenders in determining your repayment capability as well as your creditworthiness. With the gross income, lenders generally evaluate whether you have sufficient income source to repay the personal loan EMI on time. Hence, if you have a high salary, your chances of getting your loan application approved is higher.

What is the minimum salary required for a personal loan?

Most of the lenders have minimum monthly requirements as a part of their eligibility criteria for personal loans. By meeting the minimum salary requirement, it acts as a security for the lender to grant you the loan as personal loans are unsecured and do not require any collateral. Hence, minimum salary criteria acts as an added security for the lender to get the loan amount back in time.

Debt to income ratio: A key factor in loan approval

The debt to income ratio implies whether you are capable of affording the debt according to your salary. A higher debt to income ratio reflects poor financial resilience and that you might not be able to repay the loan on time.

However, on the other side, a lower debt to income ratio portrays better financial performance and also improves your chances of getting the loan application approved.

How job stability affects your personal loan eligibility
 

Having a stable income and employment, reflects your possible future, career growth and stability. Most lenders have a requirement of work experience which mainly includes that you need to work in the same organisation for at least 1 year in order to become eligible for a personal loan.

If you constantly switch between companies and have faced termination recently from your previous employment, your chances of getting the application rejected may become high.

Tips to improve your chances of personal loan approval

• Stable employment: Work with a reputed company and maintain a stable monthly income for sometime to improve your creditworthiness.
• Low debt to income ratio: Aim at keeping your debt to income ratio below 30% to maintain a healthy credit profile which will get you better loan options in future.
• Maintaining financial records: Maintain your salary slip, tax return and bank statements up to date.

Should you apply for a personal loan?

Hence, having a stable income will help you in attracting lower interest rates as well as improve your chances of getting a personal loan approved faster. However, you must always keep in mind that before you choose to apply for a personal loan, you must first determine whether you really require the loan and if you can afford the EMI.

Personal loans attract higher interest rates as compared to other loans in the market. Hence, explore other options as well before you choose a personal loan so that you can get a deal which suits your budget the best. With this you will be able to make informed decisions and avoid any debt traps.

Disclaimer: This article is for informational purposes only and does not constitute financial advice or a recommendation. Interest rates are subject to periodic revision by banks. Investors are advised to assess their risk appetite, refer to the official websites of banks, conduct due diligence on the institution, and consult a financial advisor before making any investment decisions.