Factors to Consider While Applying for a Personal Loan from Private Finance Company
A personal loan can help you sail through financially tough times as it usually comes with simple terms and conditions and is easy to pay off as well. Plus, you get quick access to funds no matter what the need might be. And in India, the process of loan application and approval becomes even more hassle-free when you apply for a personal loan from a private finance company. They generally require minimal documentation and sanction the loan if you meet the basic eligibility criteria. However, you must consider the following factors to get better loan terms.
Table of Contents
Factors that Affect your Personal Loan Approval
This is one of the most important aspects of an applicant’s profile that a private finance company for a personal loan considers. Even though a high salary is not required for a personal loan, those with a high income receive a better deal than those with a low income. Apart from that, most borrowers are generally curious about the maximum loan amount they can obtain based on their income. To clarify that, most personal loan private financing companies provide loan amounts of up to 30 times the borrower’s monthly salary. It means that if your monthly salary is Rs 15,000, you can get a loan for up to Rs 4.5 lakh. However, you must keep in mind that while approving your application, a personal loan private finance company in Delhi or any other big city will evaluate other factors as well.
This is another crucial parameter that the loan service providers consider in the applicant’s profile. Lenders can determine how much risk is associated with lending to a specific applicant based on their credit history. The credit history of a borrower not only reveals previous loan defaults, but also enables lenders to determine whether the applicant has paid his or her previous EMIs on time. So, regardless of how high your salary is, if the personal loan provider finance company discovers that you have a habit of missing out on EMI payments, your application will be denied. As such, in order to acquire better personal loan terms and offers, try to improve your creditworthiness before applying for a loan.
Before approving your personal loan application, a private finance company for a personal loan also checks the reputation of your employer. If you work for a start-up that has only been in business for a year, the lending institution may be hesitant to approve your personal loan application. Furthermore, when compared to those who work at small shops or establishments, those who work for MNCs or in government departments have a higher likelihood of getting their loan approved. Simply put, just as a financial institution assesses your profile, your employer’s credibility is also evaluated. This allows a personal loan provider to judge whether the company you work for is capable of paying your salary on time.
Imagine that you are a private finance company for a personal loan. Now let’s say you get a personal loan application for Rs 5 lakhs, and the borrower’s monthly salary is Rs 60,000, from which Rs 50,000 is going towards repaying his prior loan EMIs. Will you approve his application in this case? The answer is no! Any financial institution will consider your debt-to-income ratio when evaluating your loan application. The lender will approve your application if this ratio is less than 50%. However, anything above that may result in your application getting rejected or you might receive the loan but at a higher interest rate. As such, before applying for a personal loan, you must know your debt-to-income ratio. To calculate the same, you can use the below formula.
Debt-to-Income Ratio= (Total Monthly Debt Payments) × 100 / Gross Monthly Income
If you already have a good relationship with a private financial institution, have taken loans from them before and paid them off on time, try to apply with them again. This is because your previous lender knows everything there is to know about you. Furthermore, they are well-aware of your repayment habits. If you have been a loyal customer who has always paid their EMIs on time, your lender will put in the effort to retain you by offering you attractive loan terms. During festive seasons, your lender may try to entice you with low-interest personal loans or pre-approved loans. As a result, it is recommended that you establish a positive relationship with your lending institution so that your personal loan application can be approved quickly.
As personal loans are unsecured loans, they do not require you to pledge any security or collateral. Due to this, it is usually quick and simple to apply for. However, lenders grant personal loans based on a set of criteria in order to ensure that you do not default on your payments. Hence, to get the best deals and offers, consider the factors above before approaching a personal loan private finance company.