According to data from the Reserve Bank of India, around 96% of all credit (excluding food credit) from financial institutions were personal loans in 2018. The share is more than double compared to 41% in 2017.
The rise in personal loans is primarily because of NBFCs and other financial institutions making it possible to avail these loans within 24 hours. These loans are available for expenses like travel, wedding, home renovation, and more. Apart from salaried individuals, professionals like doctors, chartered accountants, and engineers can also opt for the same.
Lenders also offer personal loans for self-employed personnel. Both types of customers have to fulfil different eligibility criteria to avail a personal loan.
Eligibility criteria for salaried individuals
Salaried applicants have to be between the ages of 23 and 55 years and must be employed with a public/private company or an MNC.
They also have to provide the following documents:
- Employee ID card.
- KYC documents.
- Salary account statement for the last 3 months.
- Salary slips of the previous 2 months.
Eligibility criteria for a personal loan for self-employed applicants
Self-employed individuals have to be between the ages of 22 and 55 years and own a business that is at least 3 years old. They also have to audit their previous year’s turnover by a CA and file income tax returns for the prior year.
Financial institutions also require KYC documents of self-employed customers; they may also ask for bank account statements.
Other than the above, the following eligibility criteria are essential for both salaried and self-employed individuals:
- Credit score
A credit score of 750 or more is mandatory when availing a personal loan for self-employed or salaried individual.
The CIBIL score is necessary as these loans are unsecured or collateral-free. Lenders assess the creditworthiness and repayment abilities of a customer depending on his/her credit score.
A score of 750 is considered ideal to certify that a borrower can repay the personal loan without defaulting. It is also one of the factors that affect personal loan interest rates.
How to increase CIBIL score?
Availing a credit card is a quick and easy way to increase one’s CIBIL score. One can also go for a secured credit card sanctioned against a fixed deposit.
Paying the full outstanding amount within time and using up to 30% of the credit limit will increase the credit score.
Individuals also have to make sure not to make multiple credit card applications. Companies conduct credit enquiries with each application which lowers the CIBIL score.
- Fixed Obligation to Income Ratio
Some financial institutions may check the Fixed Obligation to Income Ratio (FOIR) as part of their eligibility criteria for a personal loan for self-employed or salaried individual. They do so to determine whether he/she is a safe customer.
The FOIR is the ratio between your monthly income and liabilities. Usually, lenders prefer customers whose total monthly obligations are below 50% of their income. Such a FOIR enables the applicant to have more surplus income to pay the loan EMIs.
Later on you may check your personal loan for self-employed EMIs accurately with SME loan EMI calculator.
How to lower your FOIR?
Closing any existing loans and clearing credit card debts is one of the ideal ways to lower FOIR before applying for a personal loan.
Lastly, salaried and self-employed customers must know how to find the right personal loa that suits their requirements. Opting for an unreasonable amount can cause the lender to reject the application. Using a personal loan eligibility calculator can help deduce the most suitable amount to guarantee approval.