Personal loan eligibility: A step-by-step guide for first time borrowers | Mint

If you are in urgent need of funds, and do not possess any asset to raise the money against – there is little you can do besides taking out a personal loan. It is a handy tool which offers immediate funds for an array of purposes such as an emergency, higher education, travel, or other expenses.

However, if you are a first-time borrower, it is important for you to understand eligibility criteria to make sure your application gets approved without any hassle – big or small.

Here we share a step-by-step guide to help you go through the process.

A step-by-step guide

Step 1: Banks typically consider the following factors when determining personal loan eligibility: a) Age should be between 21 to 60 years. b) Applicants should be salaried, self-employed professionals, and business owners with a minimum income threshold of ₹15,000 to ₹20,000 a month. Typically, banks want the applicant to have been working for some time- say one year or so. c). A good CIBIL score – usually above 700.

Step 2: Check your credit score: A credit score is a three-digit metric (between 300 to 900) that determines whether your loan will be approved or not. You can check your score here for free. A high credit score means you can easily procure your loan at a low rate of interest.

If your score is low, consider improving it by paying the credit card bill on time, reducing existing loan burdens and avoiding multiple loan applications at once.

Step 3: Now you can use online personal loan eligibility calculators which are offered by banks and NBFCs to estimate how much you can borrow. Banks typically check your debt-to-income (DTI) ratio, which ensures your monthly EMIs do not exceed 40-50 per cent of your income.

Step 4: Arrange required documents: Typically, you would need to submit identity proof such as Aadhaar, PAN , or Voter ID and income proof such as salary slips, bank statements, ITR, offer letter, employer certificate, or business registration documents

Step 5: Compare loan offers: Different banks and NBFCs have varying interest rates, processing fees, and terms. Compare lenders based on:

Interest rates (typically 10 per cent-24 per cent per annum)

Processing fees (0.5 per cent to 3% of the loan amount)

Loan tenure (12-60 months)

Prepayment charges (some lenders charge for early closure)

Step 6: Apply for the Loan: You can apply online or visit a bank branch. Many lenders offer instant approval if you meet their criteria. Ensure all details are accurate to avoid rejection.

Step 7: Loan approval and disbursal: Once approved, you’ll receive a loan agreement. Read the terms carefully, including EMI structure and penalties. Upon signing, funds are disbursed instantly – sometimes within a few hours.

It is recommended to maintain a good credit history. And one should borrow only what you can repay comfortably. You should avoid applying with multiple lenders at once and read all terms before signing the document.