When you apply for a loan, banks initiate a process, commonly known as eligibility check. This process entails a few pre-determined parameters with the help of which, banks assess your eligibility to avail the loan in the first place and eventually, the ability to repay the debt on time. Such criteria usually vary across banks and financial institutions.
Here are some of the more common eligibility criteria that banks warrant you to meet, no matter the type of loan you’re applying for:
1. Credit score
Your credit score is one of the primary factors that determine your loan eligibility. It is calculated on the basis of your credit history, one that takes into consideration your financial track record, loans sanctioned in the past and whether you’ve repaid them on time. If you’ve paid up EMIs and credit card dues on time and kept your credit utilization ratio in check, your credit score is likely to go up.
A credit score of 750 or beyond is considered good as it drives up the chances of you availing the desired loan amount, subject to favourable rates of interest and better terms and conditions that fit your financial obligations.
One important tip here is that you should develop a habit of checking your credit report regularly. This way, it would be easy to spot anomalies and take corrective action to set it right. You can check your credit score for free, once every year, from any of the 3 credit reporting bureaus - Equifax, TransUnion and Experian.
2. Monthly income
Another important factor that ascertains your eligibility criteria for a loan is your monthly income. This is because banks would want proof of your financial viability to repay the debt on time, thereby negating any possibility of defaulting. Generally, higher your monthly income, more are the chances of you availing the desired loan amount.
Moreover, the income that you bring home would, in all likelihood, differ across cities. For instance, metropolitan cities entail a higher cost of living as compared to its non-metropolitan counterparts, Tier 2 and Tier 3 cities.
3. Employment status
Your job stability and current employment status are also crucial for the lender to decide on your eligibility. If you are a salaried employee and have been working for a reputed company for a couple of years or more, chances of banks considering you a viable prospect are more. This takes care of your eligibility and better chances of you availing the desired loan amount.
These are some of the common factors that would affect your chances of taking out a loan hassle-free. That being said, other factors such as age, business turnover, etc. are vital in impacting eligibility as well. It’s prudent to check the criteria and make sure you comply with it prior to applying for a loan. This will eliminate chances of rejection if any.
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This content has been created in association with YONO SBI.