Know How Employment Status Affects Your Personal Loan Eligibility?

If you face a financial crunch or need funds to carry out an essential financial expense, then personal loans can be your go-to solution. Borrowing from someone, a relative, or a private lender can be a tricky situation. But, through a personal loan, you can borrow on your own terms.  Another advantage of personal loans is their unsecured nature. It means that you do not have to pledge your assets as collateral to avail of a personal loan.  

That said, although personal loans are easy to apply for and avail of, you need to be mindful of the eligibility. Personal loan eligibility is the first thing you need to take into consideration. It is mainly based on factors that affect your repayment capacity and creditworthiness.

Employment type and job stability are significant factors taken into consideration by lenders and financial institutions. However, many borrowers seem to overlook these two aspects. Banks and lenders always delve into the organisation you work for, how established it is, whether it is a reputable company and if your job is volatile. Clearly, this is one layer of eligibility that impacts many others. Therefore, here, we will discuss the impact of employment status on other eligibility factors for your personal loan application.

How Does my Employment Status Affect my Personal Loan Eligibility?

Lender’s give a considerable weightage to your job security. Hence salaried individuals are given the first preference for availing of personal loans owing to their income stability. Apart from this, the lenders will also consider the following criteria.

Credit Score

The credit score is the 3-digit numerical provided by your Credit Rating agency. It is solely based on the history of loan disbursements and credit card bills. Ideally, a score of 750 and above is considered a decent score, and as it increases, your likelihood of having a personal loan sanctioned also increases. When availing of a personal loan online, your credit score or CIBIL score plays an integral part in gauging if you will receive the loan at a financially viable interest rate or not. It mirrors your history of repaying previous extensions in your line of credit. It largely depends on your disposable income and expenditure. It is a good signal for the lenders to understand whether you are the right fit for the loan or not.

Net Income

The net income you make per month is a solid indicator of what your repayment capacity is. The higher the disposable income, the better it is for lenders.  This factor connects directly with your employment status as it determines your income status. Having a stable, well-paying job will, without a doubt, give you an edge over other potential borrowers applying for a loan. It is not only limited to this, but it also assures you of a more competitive interest rate given your high repayment capacity.

Debt-to-income Ratio

Your debt-to-income ratio is the percentage of income that goes towards debt repayment. To calculate the number, it is your debt repayments in total divided by your disposable income. If your debt income ratio is any more than 50%, then it makes the acceptance of your personal loan application less likely. The chances of rejection are heightened as personal loans are unsecured and make lenders wary of your repayment capacity.

The DTI ratio is also linked to one’s employment status. Your disposable income and the percentage you spend on repayments are primarily based on how much you earn. Hence, making it essential to have a stable job with a good income.

Overall, understanding from the points mentioned above, it is evident your employment status plays a significant role in your personal loan application process. It is interlinked with almost every considerable eligibility parameter.

That said, just because you do not have the required job stability that meets the lender’s eligibility, it doesn’t mean that you cannot benefit from a loan. You can always talk to your lender and come to terms or apply for a loan against securities at lesser interest rates.

To get started with the loan taking process, find a lender that caters to all of your financial needs. You can undertake a personal loan seamlessly and be debt-free as soon as possible!