Personal loan is an unsecured credit option. Hence, most of the lenders prefer approving personal loan if you have adequate income as this ensures your potential to repay monthly EMI without any default. However, if you belong to a low-income group, availing a personal loan is tough, but is not impossible. Personal loan eligibility depends upon many parameters other than income. Other parameters include repayment capacity, credit score, employment nature, age etc. Thus, if you meet all the other personal loan eligibility criteria, then you can simply avail a loan with a low salary also.
Check out ways to successfully avail a personal loan with low salary
- Credit score
Once you apply for personal loan, all lenders initially evaluate your credit score to assess your credibility. If you hold a credit score of 750 and above, you are looked upon as creditworthy with higher chances of availing loan approval at lower personal loan interest rate. If you hold a lower score, then you are usually considered to have no credit discipline. As an outcome, lenders may either reject or charge higher personal loan interest rates to compensate for the higher credit default risk.
As the need for personal loan is unannounced, checking your score right before personal loan requirement is of no use. Thus, you must ensure to develop a habit to frequently check your credit report periodically to take the required measures to ameliorate or maintain your score. Periodical credit report review also motivates you to take right measures to improve your credit behavior, and thus your score. Such reviews also assist you to figure out incorrect info or errors in your report, which you can report to the bureau or the concerned lender for correction. A corrected credit report can automatically enhance your credit score.
- FOIR (Fixed Obligation to Income Ratio)
For smart borrowing, having an FOIR of up to 60 % is generally recommended. It is one of the crucial parameters that lenders factor in to determine your repayment capacity. The ratio considers all your fixed obligations that you are presently serving monthly like loan instalments, credit card dues etc. Higher FOIR means a considerable portion of your income goes on repaying your debts, leaving meagre room for managing your expenditures, savings or taking another credit option. Having higher FOIR means that you may have a higher possibility of defaulting on your personal loan EMI and thus lenders might hesitate to lend you. Try working on this parameter if your FOIR is over 60%.
- Existing consumer relation with lenders
Many of the lenders provide preferential personal loan interest rate as well as loan approvals to their existing customers. Such relations can be in the form of current, savings, recurring or fixed deposits or through loan or credit card accounts. Thus, if you are looking to avail a personal loan, you must first begin your search by communicating with your banks and NBFCs with whom you already share an existing lending/banking relationship. Set this as a benchmark for comparing your offers on personal loan with other lenders.
- Profile of your employer
Many of the lenders even consider your income sources while approving your personal loan. Also, lenders generally charge a lower personal loan interest rate from the salaried individuals as compared to the self-employed. Among the self-employed, chartered accountants and doctors generally have higher chances of personal loan approval. Amongst the salaried applicants, government and PSU employees are most favored owing to their income certainty and job security. They are followed by reputed private company employees.
Large and reputed private sectors are given the next preference due to their enhanced potential to bear economic downturns as compared to other private companies. Note that having a strong employer profile lowers the lenders’ credit risk perception, leading them to attract you by offering lower personal loan interest rate or instant personal loan also known as pre-approved personal loan.
While income is a factor considered by lenders when evaluating your personal loan, it is not the only parameter factored in by the lenders. Other major factors like credit score, repayment capacity, etc. are crucial parameters basis which lenders determine your approval. Holding a strong credit behavior may help you have a positive impact on such parameters, which may enhance your personal loan eligibility chances.