How to get personal loan despite low income?

by Shaista Shaikh
How to get personal loan despite low income

Presently, many of the lenders in India, like State Bank of India, Bank of India, Punjab National Bank etc., follow the concept of risk-based pricing for determining your rate. As per the concept, your credit risk gets analyzed before fixing the interest rate, i.e., the lower interest rate is charged from those with lower credit risk and vice versa. This risk-based pricing is highly relevant in the situation of unsecured loans such as personal loans, where the lenders do not have the underlying security to depend on in the situation of any loan default by the borrower. Currently, the interest rate on personal loans might widely differ from 8.45 % to 24 % p.a. basis your credit profile and income.

A personal loan is one kind of loan, which can help in the situation of a financial crisis. To meet your specific financial goal, you might have to seek assistance via a personal loan. May it be marriage, paying for your ward’s higher education, purchasing a gadget, or witnessing only an emergency issue. Such kind of loan gets disbursed in just minutes. This is completely up to you for this purpose of use. 

For such loans, banks do not demand any security or collateral when applying for the loan. Thus, it gets categorized as an unsecured loan option. Similar to a loan against credit card, it needs minimal documentation. For being eligible for such loans, banks require to assess many of the factors, like your income, age, employer, location etc. Income is a crucial factor watched by banks as it is given high preference over the rest of the factors as it determines your potential to pay your loan EMIs to rule out default repayment. 

When it is about income, few of the individuals do not hold any salary slip owing to which they might not be able to avail a personal loan. Well, few of the banks do provide loans even if you do not hold any income statement because they consider other conditions for approving your personal loan. Thus, a Personal loan for low salary is also available to those with a positive mark on other parameters. Check out some of the crucial parameters asked by the lender to approve a personal loan for low salary earners. 

Credit score

When assessing your personal loan application, lenders ensure to consider your credit score. In case your score is equivalent to 750 and above, you will be thought credible and hold higher personal loan approval chances at the lower interest rate. However, in the situation you have less credit score of below 750, you usually are thought to lack the credit discipline with enhanced chances of credit default. To compensate for such risk, lenders usually charge a higher interest rate on a personal loan. 

However, in case you have a lower score of below 750, you are generally considered lacking credit discipline with high credit default chances. To make up for this risk, lenders often charge a higher personal loan interest rate. As the requirement for a personal loan is usually unannounced, reviewing your credit score just before applying for the loan is of little help. You should develop the habit of timely reviewing your report. Doing this will help you take corrective measures to maintain and ameliorate your score. Regular credit report review even assists you to know about any incorrect information or mistake stated in your credit report. In a situation of any discrepancies, you simply can report to the bureau and the concerned lenders for correction. A correct report can increase your credit score. 

Fixed obligation to income ratio (FOIR)

For smart borrowing holding a FOIR of up to 50 % – 60% is usually recommended. Thus, it is one of the important parameters that the lenders consider for determining your repayment capacity. Ratio factors all your crucial fixed obligations that you currently are serving monthly, such as credit card dues, loan instalments etc. Higher FOIR infers that a substantial amount of your income goes towards your debt repayment, leaving little room for managing your expenses, savings or taking another loan option. 

Holding higher FOIR means you might have a higher defaulting possibility on your loan EMI and thus, the lenders may hesitate to lend you. Ensure to work on such parameters if your FOIR is more than 50 – 60 percent. 

Existing relationship with the lenders

Many lenders offer a preferential interest rate on personal loans and loan approval to existing customers. These relationships can be in the form of savings, current, recurring, credit card or fixed deposit accounts. Thus, in case you are looking to take up a personal loan, you should first start your search by approaching the NBFC or bank with whom you hold an existing banking relationship. You can fix this as a benchmark to compare your offers on the personal loan with various other lenders. 

Employer profile

Many lenders also factor in your income sources when approving your personal loan. Also, the lenders usually charge a lower interest rate from salaried individuals than the self-employed. Amongst self-employed, doctors and chartered accountants usually hold higher personal loan approval chances. 

Amongst salaried loan seekers, PSU and government employees are highly favoured because of their job security and income certainty. After them, reputed company employees are preferred. Reputed and huge private sector banks are given priority because of the higher potential to bear the economic downturns when compared with other private companies. Remember holding a strong employer profile reduces the lenders’ credit risk perception. As a result, they attract you by providing a lower rate of interest or instant personal loans. 

Conclusion

While the income is a parameter factored in by the lenders when assessing your personal loan, this is not the only factor considered by the lender. Other crucial factors like repayment capacity, credit score etc., are important parameters based on which the lender decide your approval. A strong credit behaviour might assist you to have a positive influence on such parameters, which might increase your eligibility chances for a personal loan. 

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