What is the criteria for a personal loan?

Posted in Personal Finance by Kevin | Tags: , ,

I have received numerous e-mails from readers asking about the eligibility criteria for a personal loan. There is no straight answer to this question as all financial institutions have different screening processes.  There are no two people alike, and the same thing happens to financial situations. The market offers an incredible variety of financial products and thousands of applicants apply for them every day, thousands of incredibly varied applicants. Is there any particular factor which might trigger a lender’s desire to fund a person’s project? You might be thinking that this question can easily be answered in two words: “good credit”. But that is not all, the percentage of loan applicants with good credit is lower than you might think. Before the credit bust, having a high credit score virtually guaranteed the applicant a loan. Nowadays, numerous other aspects, such as assets, employment, salary, and age are taken into account.

Applying for the correct loan depending on your particular situation seems to be essential. If you apply for the correct loan, but request a short term loan with high monthly payments you obviously cannot afford, chances are nobody will be willing to fund you. It is as simple as that. But besides these evident considerations, there is a loan eligibility criteria which is universal and might help you obtain a better understanding of the process and hopefully assist you in achieving loan approval.

Employment Status

Before I start describing what I mean by employment status, I want to break down three factors that are looked at when a creditor checks your employment- job security, length of time on the job, and who your employer is.
This is something lenders will take into account when assessing your application for any loan. Unfortunately, sometimes you do not have the chance to choose over many job opportunities and might end up with one which does not certainly scream “risk free applicant”, but this is beyond your control. If your job is unstable (provided that you have changed jobs many times in the last few years, it will be considered unstable by financial institutions), if you are self-employed or if you are unemployed, you might be considered somewhat of a risk factor, only because loan repayment capabilities in your particular situation might fluctuate, and lenders are looking for financial stability. What I recommend is to meet the lender personally and let him or her know in detail about your employment circumstances. They will feel more at ease.

Current Salary

It is only natural that this variable be taken into consideration for the approval of your loan. It is the most tangible evidence the lender has regarding your repayment abilities. You will also be required to show proof of income if you are employed, and tax returns if you are self-employed (so as to check your monthly income). Nowadays, incomes over $70,000 combined with good credit almost guarantees the loan.

Possession Of Assets

This is essential if you are applying for a secured loan. If you have a property to pledge as security or even a car, your chances of approval will be better. You might feel that it is not worth it to risk the security of your asset, but provided that you need a large loan or that you are sure you will be able to repay it timely, then a secured loan is definitely the way to go.

Age Limits

The applicant must be older than 18 years of age when applying for a loan. And you must not be older than 65 years of age at the completion of the loan. The reasoning behind this particular criterion is pretty obvious. Banks want their money and they know its hard to collect when age is an issue.


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