A Beginner’s Guide To Personal Loans in india


Share post:

Personal loans are generally unsecured and can be obtained without having to provide any collateral to the bank.

Therefore, banks do not ask for any kind of security whenever you apply for a personal loan. But since the lender’s money is at stake, there is a risk involved in these kinds of loans as well.

As a result, Banks have established personal loan criteria based on various characteristics in order to evaluate the risk involved in lending to the applicant. This eligibility criterion varies from one bank to another but generally remains the same across all the major banks in the country.

Banks consider a number of factors like your income and employment status, Credit Score, etc while establishing your creditworthiness.

Eligibility Criteria In Most Banks

Before approving a personal loan application, banks evaluate a number of elements, including the age of the applicant, income levels, along with the CIBIL score. Each bank has its own set of criteria, but the core characteristics they assess are nearly identical.

In order to acquire a personal loan, applicants must meet certain qualifying requirements. Moreover, it is advisable to check whether you are eligible or not for a personal loan before applying in order to avoid rejection. The table below lists the standard eligibility conditions for the major banks in the country:

Criteria Requirement
Age Between 21 to 68 years of age
Minimum Net Monthly Income Minimum of INR15,000 and above
Employment Employed or in In-business for a period of at least 2-5 years
Type of Employment Salaried, Business owner, Self-employed professionals
Working Experience A minimum of 1 to 3 years & Above
CIBIL Score CIBIL score of 750 or more
Maximum EMI Amount Up to 65% of Applicant’s Income

Personal Loan Eligibility Calculation

Every bank might have a different process for personal loan eligibility calculation. However, all the major banks in the country employ one of the two most popular procedures to determine personal loan eligibility. Below are the two methods to calculate personal loan eligibility in India:

The Multiplier Method

Banks utilize the multiplier approach to determine your personal loan eligibility, taking into account your salary, the company you work for, and your credit score.

Banks utilize a simple method to assign you a multiplier based on the three elements listed above. Depending on your credit history, the multiplier can range from 9 to 18.

Banks typically utilize a simple formula to determine your personal loan eligibility using the multiplier approach, as described below-

Personal Loan Eligibility = Salary x any number between 9 and 18 (as assigned by the bank based on the applicant’s credit profile).

Fixed Obligations to Income Ratio (FOIR)

Banks use this method to evaluate your repayment capacity by subtracting all of your monthly commitments, including EMIs on current debt, from your monthly income.

Banks may then estimate how much money you’ll have leftover after paying off all of your monthly obligations and how much you’ll be able to pay the EMI at the end of each month. The formula to calculate eligibility for a personal loan using the FOIR approach is as follows:

FOIR = (Total existing commitments / Net monthly salary in hand) x 100

These are the most common calculation methods used by all major banks to evaluate your personal loan eligibility. 

Factors to consider while evaluating Personal Loan Eligibility

The criteria used to establish personal loan eligibility differ from bank to bank. The most prevalent factors used to evaluate personal loan eligibility are as follows.

  1. Credit score

Improving your credit score before applying will help you increase your chances of being approved.

  1. Age of the applicant

Personal loans are typically considered for people between the ages of 21 and 68.

  1. Income

Generally, the minimum monthly income required is INR 15,000. However, banks prefer a monthly salary of INR 25,000 or more.

  1. Work Experience

For salaried professionals, a minimum of 2 years of work experience with a minimum of 6 months at the current organization is required.

A minimum of two years in the present business is preferred for self-employed individuals.

  1. Debt to income ratio

The lower your debt-to-income ratio, the better your chances of obtaining a personal loan.

How to Improve Personal Loan Eligibility?

You can improve your eligibility for a personal loan by following the procedures below.

1. Do not apply for too many loans at once.

Applying for many loans at the same time makes you appear desperate, and it may harm your credit score and your chances of securing a personal loan.

Your loan applications will be recorded on your credit report as a hard inquiry, and if lenders detect a high number of such inquiries, they will assume you are desperate for loans, which does not reflect favorably on your financial behavior. It is best to wait at least 6 months before applying for a personal loan.

2. Be wary of the Debt Income Ratio.

Divide your monthly debt by your monthly income to get your debt-to-income ratio. EMI payments should not take up more than 50% of your wages.

Therefore, it is advisable to maintain a low debt to income ratio in order to improve your personal loan eligibility. Because lenders will reject your personal loan application if they fear you won’t be able to repay it.

3. Keep a Good Credit Score

A strong credit score increases the chances of approval on your loan application. It is important to have a credit score of 750 or above in order to be eligible for the best personal loan options.

If you have a low credit score then it is most likely that the banks would reject your loan application.

It is advisable to always check your credit score before applying for a personal loan to boost your chances of getting approval on your loan application.

However, if you do not have a high credit score, then you can follow the steps on how to improve your CIBIL score and then apply for a personal loan

The process should be simple and you should be able to obtain the necessary amount without any delay if you match the personal loan eligibility criteria of the bank to which you are applying.

5 Easy Steps For Choosing The Best Personal Loan in India

As per the data published by the RBI, the outstanding value of the personal loan category reached Rs. 29.18 lakh crore in September 2021. This is a 12.1% jump over the last year’s figure, which was Rs. 26 lakh crore in September 2020. 

The increasing popularity of this financial product is mainly due to its customer-friendly benefits and prompt disbursal.

However, the availability of more than one loan offer makes it difficult to find the best personal loan offer. In this regard, applicants can consider a few steps to find a good deal.

Five Steps to Finding the Best Personal Loan Offer

Here are the five steps that can aid a prospective borrower to get an ideal personal loan offer –

Step 1: Compare the interest rate

Comparing the interest rate is the first step to finding the best possible loan deal. Focusing on this factor is essential to determining the total outstanding loan and EMIs. Thus, opting for the best low-interest personal loans will lower one’s total loan burden by a considerable amount.

Since deciding loan interest rate is at the discretion of a financial institution, one must check and compare before moving ahead. In this regard, they can use online calculators for assistance.

Step 2: Be mindful of the additional charges

Whether it is a personal loan or any other financial product noting down the additional charges is essential. Processing fees, late payment penalties, and part prepayment charges are some examples of these associated expenses that one needs to be mindful of. Together these charges will increase the total borrowing cost.

Now, best personal loans will levy minimal additional charges and not put more strain on a borrower’s finances.

Step 3: Find a suitable tenor

The third step of finding an ideal loan deal is determining a suitable repayment tenor. Since EMIs will depend on this factor, making an informed decision is essential. Potential borrowers can take the assistance of an online calculator to find the right personal loan tenor that works for them.

A point to remember here is that a longer tenor helps lower the monthly installments, but it will increase the total outstanding. In contrast, a shorter tenor will increase the monthly payment amount, but the total outstanding will reduce.

Step 4: Note down the eligibility criteria and documentation

Factoring the eligibility criteria and documentation is another essential step while applying for an NBFC personal loan. It will help individuals complete the loan application process without any hiccups and avoid rejection.

Even though the eligibility parameters of a personal loan alter with one’s choice of lender, here are some basic requirements to keep in mind –

  • Age: 21 to 67 years
  • Credit score: 750 or more
  • Employment type: Both salaried and self-employed
  • Monthly income: Depends on an applicant’s city of residence
  • Nationality: Indian

Here is a list of documents that one needs to submit with a personal loan application –

  1. KYC
  2. Income proof (salary slip, form 16, ITR details, business turnover details)
  3. Bank account statement
  4. Employee ID card for salaried applicants

Note that this is a tentative list, and a lender may ask for additional papers that one needs to submit to complete this process.

Step 5: Access the loan repayment options

The process of finding an ideal personal loan concludes with applicants noting down different repayment options.

Apart from regular EMIs, financial institutions offer various payment systems like part-payment, foreclosure, etc. These help individuals to manage their debt efficiently and as per their suitability.

Hence, making an informed decision can help borrowers manage their finances efficiently.

Besides noting down these five essential steps, debtors must also consider a few additional points to better their borrowing experience. Here are the details –

Pre-approved offers 

Leading financial institutions extend pre-approved offers to their existing customers. This facility streamlines the loan application process and saves time. It is available on financial products like personal loans, business loans, credit cards, etc.

Intending borrowers can check their pre-approved offers by submitting their contact information.

Loan disbursal time

The loan disbursal time is another point to take note of. Best personal loan deals will come with the shortest turnover time, where financiers will approve and disburse the loan amount within a few working days.

Loan terms and conditions

Last but not least, one must go through the terms and conditions of a loan before applying for credit. It will help individuals avoid any future complications.

Best personal loans will provide a financial option to help individuals meet various financial commitments. However, before moving ahead with it, one should find an answer to some questions that they should be asking before availing of a personal loan.

Read Also: How Calculating Car EMI With Car Loan EMI Calculator Benefits You More?

7 Costly Mistakes To Avoid While Taking A Personal Loan

A personal loan could be a financial survivor for many during times of emergency because many lenders offer the loan with quick documentation.

These loans don’t demand collateral from the lender as they are unsecured. Despite these excellent features of the personal loan, I have heard many lending institutions rejecting the loan application.

Easy documentation and the unsecured loan do not mean that there are no eligibility requirements for the loan; many fail to get approval due to the blunders they commit while applying for the personal loan.

You need to understand that getting approval for a personal loan is not a cakewalk. Here are a few blunders committed by the customers to keep away from getting the loan of your choice.

1 No credit check before you apply

Personal loans are unsecured, so a credit score is one of the essential things that lenders look at while issuing the loan. Get your credit report before comparing personal loan interest rates and applying for the loan.

If there are any errors in the credit report, get them corrected before you apply for the loan to smoothen the loan approval process.

2 Don’t be greedy

You might be eligible for the loan amount that you need. Before you go greedy, availing of the entire suitable loan amount, calculate your repayment capacity with the help of the Personal loan calculator in Hyderabad. Make sure that you don’t bite more than you chew.

Expecting the loan amount beyond your repayment capacity may result in the denial of the loan.

Recommended articles

3 Don’t be credit hungry

There is no doubt that a personal loan is a financial survivor during times of need, but this does not mean applying for the loan with multiple lenders will quicken your process, and you can tap on the fastest lender first. Wait!! Your credit hungry is going to hamper your credit score negatively.

Instead, you can compare personal loan interest rates offered by different lenders and filter the top three lenders based on EMI, which you figure out with the help of a Personal loan calculator in Hyderabad, and choose one to apply.

4 Sort out the best deal

Don’t just settle for the personal loan offer that comes your way. Does some homework to know different personal loans available in the market by comparing individual loan interest rates.

While researching the best deal, you should remember that lenders offer different interest rates for the same loan amount and credit score.

5 Don’t understate debt

Many customers commit a big mistake of understating the debt, i.e., hiding the debt they already hold. Know that every lender scrutinizes your credit report before processing the personal loan application. Identifying any undisclosed debt may result in the rejection of your loan application.

Let the lender know your financial status and approve the loan based on your repayment capacity. This will help you get the loan without any possible delays during times of need.

6 Make Sure of Things Before Taking Personal Loan

There is no surprise to see some form of debt in the books of everyone. Debts like outstanding credit card bills and exceptional payables harm your credit profile and stress your finances.

On the contrary, having a personal loan in debt books will help you.

You can bridge the shortfall of money by addressing various expenses like wedding-related expenses, medical bills, vacation plans, and anything of your choice without any restriction from the lender.

They are ready to sanction the loan to help you address your needs. Before you go ahead with availing of the personal loan, you should look at the points mentioned below to ensure that the loan is suitable.

 7 Reasons for taking the loan

Unlike many other loans that have restrictions on the purpose they can be used for, a personal loan is versatile. The high-interest rate on cash loans makes them a preferred option only during times of emergency.

These emergencies in life have a bordering scope, and they differ from person to person. Few consider taking the cash advance loans to address the wedding expenses of the children is correct, but few people advise staying strict on the budget rather than assuming a loan for the need.

Before you avail of the loan, question yourself about the need of availing one and consider exploring other options before considering one.

8 Affordability   

The next point you check in a while taking the quick loans is your affordability. Check if you can afford the repayment of a loan in highly uncertain situations like loss of your job or unexpected medical expenses.

You should have emergency funds after paying your regular EMIs to help you sustain your expenses in any situation.

Your affordability should not be just checked based on your income level; you should be able to pay off the loan in highly uncertain situations so that your credit score is not hampered.

Taking loans without checking the affordability may affect your future financial objectives.

9 What if you default on the loan?

Everybody is good at their intentions. If you commit a mistake in assessing your affordability to get the loan, you may default the loan during highly uncertain conditions.

You need to be aware of the consequences of defaulting on the loan before availing of one cash advance loan. You may face pressure from the lender asking for the loan repayment.

The calls and visits you get from the lender asking for the payment may disturb the quality of your life, and your reputation among your peers will be spoiled. Defaulting the unsecured loan will have a significant impact on your credit score.

The lender keeps reporting your repayment history to credit reporting agencies from time to time, so any default in the payment will impact your credit score badly.


  1. Mothers are the most important persons of our life and to appreciate her efforts Mother’s Day is celebrated every year worldwide on 2nd Sunday of May i.e on 8th of May 2022. A mother is a friend, protector, guide, disciplinarian and many more things. She is a selfless, loving human who sacrifices many of her desires for the needs of her children. A mother’s love is unconditional and knows no cosmic boundaries. Although no special day is required to show her our love, gratitude and respect, Mother’s Day can be a great opportunity to make her feel special with Mother’s Day Gift Baskets & Hampers to UK Online Delivery. Order the best gifts and flowers arrangement at reasonable prices from our online store and get Express Delivery to locations in UK. Buy a beautiful bouquet of Roses or Carnations or have Tulips and Gerberas arranged in decorative baskets for your mother. Sending Mother’s Day Gift Baskets to UK comes with guaranteed on-time delivery and is an excellent way to surprise your mom.
    Source – http://www.giftbasketworldwide.com/uk/mothers-day

  2. Исстари заказываем услуги [url=”http://stroiplastdon.ru/”]остекление балконов от производителя [/url] у этой компании, вечно выгодные цены.
    Можно вызвать по телефону +7(495)128-45-21, вас проконсультирует менеджер и подскажет подходящие окна.
    Установка окон затем стройки, ремонта, отходов производства и т.д. по всей Москве и области.
    Ради больших объемов делаем скидки, можем заключить контракт и устанавливаем окна в определенные даты и время.
    Большой, принадлежащий, завод по изготовлению окон под любую задачу. Звоните будем рады.


Please enter your comment!
Please enter your name here

Related articles

Netgear EAX15 Setup Step by Step guide 2022

The Netgear EAX15 setup instructions will let you connect your WiFi booster to your home wifi network or...

Top 35 Stock Market Quotes & Captions for Investors

A share market or stock market is a space where shares are issued and traded in the open....

Best Residential Societies To Invest In Pakistan

When it comes to choosing the right place to call home, there are many things to consider. Location,...

Top most Web App Development Technologies in 2022

Introduction If you have been planning to create robust websites or web apps, you should be aware of the...