Factors That Can Affect Your Personal Loan Eligibility

Lenders focus on your credit score, income, age, desired loan amount, and job history when evaluating personal loan applications. They want good credit scores, enough income to afford the monthly payment, borrowers 18-70 years old, reasonable loan sizes based on income, and steady employment or self-employment for 1-2+ years.

Personal loans allow you to borrow money from a bank or lender to use for things like home repairs, vacations, medical bills, or paying off other debts. However, not everyone qualifies for a personal loan. Lenders look at several factors to decide if you are eligible. This article discusses the factors that can affect your personal loan eligibility criteria.

Your Credit Score

Your three-digit credit score shows lenders how well you have paid back debt in the past. A higher score means you have a good payment history and are more likely to pay back the personal loan as agreed. Most lenders want to see a credit score of at least 600-700 for approval. Your credit score is based on your history of paying bills, your amount of debt, and other factors.
Making loan payments on time, keeping credit card balances low, and avoiding constantly opening new credit accounts can help build your score over time.

Steady Income

Lenders need to see that you have enough income each month to make the personal loan payments, in addition to your other bills. If you are employed, you usually need to provide pay stubs or tax returns to verify your annual income. Self-employed people have to show proof of stable business income, often for the previous 2-5 years.

Your Age

There are minimum and maximum age requirements, usually between 18-70 years old. Lenders prefer borrowers who are likely to have a steady income to comfortably repay the debt. Older adults may need higher income or a co-signer.

Loan Amount & Repayment Timeline

How much you want to borrow and how many years you take to pay it back matters. Larger loan amounts require higher income. The loan amount approved depends largely on your income and existing debts. Lenders want to make sure you don't take out a loan with payments too high for your current budget. Repayment terms are typically 1-5 years, with longer terms meaning lower monthly payments but paying more interest.

Job History

Lenders want to see a solid history of employment or time in business. For salaried employees, lenders generally want to see 6 months to 2 years of experience at your current job. Those with less than 6 months at their job may need to add a co-signer or qualify based on other factors. Self-employed borrowers often need to provide 1-2 years of tax returns, profit/loss statements and other business income documentation. Start-up businesses may be considered at higher risk of default.

The Application Process

You provide documentation like pay slips, tax returns, and employment details when applying. Lenders verify this information. If everything checks out, your loan can be approved. Those who don't meet all of the lender's eligibility criteria may receive a denial, or can negotiate a lower loan amount based on what they do qualify for.
Having good credit, reliable income, stable employment, and borrowing a reasonable amount boosts your chances of personal loan approval. Building your credit score, increasing your income, and limiting other debts can help if you don't currently qualify.