Personal loan approval: How does your salary influence the decision? Find out | Mint

If you want to get a personal loan, your employment as well as your income plays a major role in making your application eligible for the loan. Personal loans are unsecured loans that do not require collateral. You can get quick access to funds as these loans offer quick loan disbursement with minimal documentation. Let us understand the role of your salary in loan approval of personal loans:

Importance of gross income

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 credit worthiness. With the gross income, lenders generally evaluate whether you have sufficient income source to repay the loan EMI on time. Hence, if you have a high salary, your chances of getting your loan application approved is higher.

Minimum salary requirements

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

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 health 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.

Job stability

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.

How you can improve loan approval chances

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.

In conclusion, 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.

(Note: Raising a loan comes with its own risks. So, due caution is advised)