With the enhancement in the lifestyle and financial uncertainties, the personal loan has become a need for most of the people. When compared with other loans people more often choose a personal loan, the reason behind this is its unsecured and multipurpose nature which makes it comfortable and easier for the borrower to avail this loan. The online availability of the personal loan is also one factor which makes it more user-friendly for its customers. However, the need for a personal loan has become common these days and the question which arises now is- How Much Should I be earning to avail a Personal Loan?
Personal loans are provided by all the leading banks and NBFCs in India. The banks have defined their own terms conditions and eligibility criteria for the borrowers to avail a personal loan whether it be an online personal loan or a conventional one. The personal loan eligibility criteria vary from lender to lender and the related policies too. However, in general, the criteria is dependent on a decent income and a good CIBIL Score. A lender usually charges a higher rate of interest on Personal Loans as compared to other loans as a personal loan is an unsecured loan and lenders are at a higher risk comparatively. Generally, the rate of interest for an online personal loan may vary from 11.59% to 32% per annum.
How Much Should I be Earning to Avail a Personal Loan?
Personal loans are used by a number of people for different reasons and hence the earning of the borrower varies. However, to make the lending easy and decrease the risk lenders decide personal loan eligibility on the basis of borrower’s income and set a minimum income that a borrower needs to meet in order to avail a personal loan. This minimum income of the borrower also varies from lender to lender that means the minimum income required by ICICI Bank for a personal loan will not be the same as the minimum income required by an HDFC bank.
In general, to avail a personal loan, the applicant should be earning a minimum of INR 18,000 per month, if the place of residence is in a Tier 2 city. For Tier 1 cities, the minimum required income is INR 22,000, while it is INR 25,000 for the metro cities.
However, your income wouldn’t be the only criterion to be considered by any lender.
Your Debt-to-Income Ratio
The debt-to-income ratio or DTI is the percentage of your monthly debt compared to your gross monthly income. This is a kind of measurement through which lenders see how you’ve managed your payments for what you’ve borrowed. DTIs often cover more than just debts as they can include taxes, fees, and insurance premiums as well. Typically borrowers who have a high debt-to-income ratio likely have trouble making payments. Borrowers with 40% debt-to-income ratio are generally considered to be going through a financially tough time. Whereas an excellent debt-to-income ratio is about 20% or even lower than this.
For an example, you have a total of INR. 20,000 towards your debt each month and your gross monthly take-home salary is INR. 50,000– Your debt-to-income ratio is less than 40%. Hence you appear as a relatively responsible borrower and the lenders will be ready to lend you easily.
How do lenders determine the borrowing power Apart from Income?
Generally, apart from income when a borrower submits an application for a loan, the lender will inquire about different details, which include:
Age – The younger you are, you have more probability to get a personal loan. This is because lenders believe you have many earning years ahead to repay your loan. General for most of the banks the age required to apply for a personal loan is from 21 to 60 for salaried. However, for self-employed, it is between 25 to 65 years.
Employment status – For salaried or employed individuals to avail a personal loan they need to be employed for than 2 years in the current profession and if self-employed they need a minimum 5 years of total tenure of earnings. However, this criteria is discretionary and depends on the current company and annual compensation of the borrower. If the borrower is employed with a top-notch company where it seems to have a stable and promising career ahead then the above-mentioned time duration is negotiable.
Current debt – Current debt or DTI should not be more than 40% of your gross monthly take-home salary
Credit history– CIBIL or a Credit Score above 750 is always considered good and in terms to avail a personal loan you need to have a good credit score. If not you may not get the loan. This is so because your credit score represents your financial history including your borrowing and repayments. A low credit score represents defaults in payments and bad financial history. Hence to avoid the risk lenders are not ready to lend to a borrower with a low credit score.
Employer– The employer with the applicant works with is the best way to gauge the credibility of the applicant. Being a part of the reputed and high turnover company is an asset when it comes to avail an online personal loan.