Personal loans are, undoubtedly, one of the most popular and convenient financial products. They are perfect for funding your diverse range of needs including medical emergencies, household purchases, educational needs, business investments, and commercial expenditures. While availing a personal loan has become easier than ever before, with the advent of online loan apps and digitalized support, knowing the fine print of your loan offer is important. Did you know that your employment status affects your eligibility for a personal loan?
Personal loans are unsecured loans, which means you do not have to put up collateral or guarantee against your loan. But this also means that a personal loan is a high-risk loan for the lender and they need to be sure of your capability of paying back the loan amount along with the interest. This is why your employment status weighs critically on the chances of your loan application approval.
When applying for the advance, it is crucial that you know the factors related to your employment that can impact your borrowing capacity. But before that, let’s check out how your association with the employer affects your chances of loan approval.
How Does an Applicant’s Occupation Affect Their Chances of Personal Loan Approval?
Individuals can be identified under two different types of occupations for the purpose of applying for a loan. They are –
– Salaried individuals
– Self-employed individuals
Usually, personal loans are designed to fulfill the funding needs of salaried individuals. They are available in small to medium ticket sizes and can easily make up for the lump sum household spending needs suitably. However, the spending requirements cannot be limited to an occupational category and thus lenders have made financing possible for self-employed individuals as well.
Lenders prefer salaried individuals working with MNCs, and private or public companies more than self-employed ones. However, a self-employed individual can raise the financing equally conveniently if all other financial aspects are in place, such as the stability of income generated, past credit behavior, credit score, and the like.
The new-age personal loan apps provide financing for individuals from across all occupational backgrounds. Be it salaried, self-employed, freelancer, or businessman, anyone can avail a personal loan with ease. All they have to do is submit their valid documents and income proof.
Now, let’s check out the factors related to one’s employment status that can impact the overall availability of the advance, whether applying through a lender website, a personal loan app, or in person.
Factors Related to Your Employment Status Impacting Personal Loan Availability
Various factors related to your employment status serve as parameters defining the stability of your job as a salaried applicant. The lender may thus check and cross-examine the following factors to assess your employment stability and proceed with the processing of your instant loan online.
1. The years of employment completed/remaining
The total years of service an individual has completed is one of the first factors that lenders check. This gives them an idea about your employment stability. The longer the term of service, the higher the employment stability and the better their chances of receiving approval for the advance.
Similarly, the remaining years of service also indicate at the applicant’s employment stability. It helps the lender determine how much of the loan and tenure approval would be suitable for easy repayment. It is thus essential that you time your personal loan application properly, and make sure it is not too late in your employment.
When availing the advance from a personal loan app, however, this may not be a hindrance as these are small to mid-ticket-size loans and come with short tenures which any borrower can manage to repay with decent employment stability.
2. Total monthly income
The borrower’s total monthly income is a crucial yardstick for measuring how much they can avail and repay affordably. With some of the best personal loan apps, your total monthly income needs to be at least Rs.15,000. The higher your income the greater your chances of loan approval. Also, the loan amount that you will be approved for depends on your monthly salary.
However, please note that it is not just the salary that the lender will check, they will also check your income-to-debt ratio. If you have already availed of different loans and have exhausted your borrowing limit then also your loan application may suffer.
3. Profile of work
Your work profile involves details like your designation, type of service rendered whether full or part-time and employment as a professional. Lending institutions have an affinity for extending finances to individuals employed in full-time, permanent jobs. They also give weightage to loan applications of professionals like CA, doctors, and engineers.
4. Change in employment
The number of employments you have had and jobs you have changed also impact your overall employment status. If you are working with a single employer for a considerable amount of time, your chances of loan approval increase. The lender sees you as a stable employee and low-risk borrower. They may also extend you a loan at a lower interest rate and offer other benefits. Make sure you ask the lender about all the deals that they can offer you and don’t forget to negotiate on the interest rates.
5. Profile and reputation of the employer
Along with these, the overall profile and reputation of your employer also contribute significantly to your eligibility for a personal loan. Working with an MNC or a public/private company would be preferred to working with any other type of employer for the purpose of financing.
In conclusion, we can say that your employment status is a crucial parameter that impacts your loan application. However, with the eased regulations, it is not necessarily a hindrance. Working with a reputed company at a good designation does have its perks. But if you are working with an unlisted company then also you can avail a personal loan. You just have to keep a few aspects of your borrowing profiles in check.
For instance, you should hold a high credit score, have your ITR filed for the previous 2-3 years, and have your income remittance record presentable via bank account statements. With these things taken care of, you can avail financing conveniently through personal loan apps.