Applying for a Personal Loan? Know These 5 Key Points or Your Application May Be Rejected

New Delhi (The Uttam Hindu): Whether it’s the festive season or an urgent financial need, a personal loan often seems like an easy solution. However, applying without complete knowledge can not only lead to rejection but also negatively affect your credit score. Banks and financial institutions (including fintech companies) evaluate your profile against key criteria before approving a loan. By understanding these factors beforehand, you can increase your chances of approval and secure better interest rates.

Here are the 5 key factors banks focus on most:

1. Salary and Income Stability

Banks first ensure that you have a regular and stable source of income to repay the loan. Higher and steady income increases your chances of approval. Working with the same employer for 1–2 years is considered positive. Self-employed individuals must provide tax returns and other financial documents to prove their income.

2. Credit Score Matters Most

Your credit score plays the most crucial role in personal loan approval. A score of 750 or above is considered excellent, indicating timely repayment of past debts. Defaults, late payments, or multiple recent loan applications can lead to rejection.

3. Existing Debts and Liabilities

Banks also check how much of your monthly income is already going towards EMIs, known as the Debt-to-Income (DTI) ratio. If 40–50% or more of your income is already committed, obtaining a new loan becomes difficult. Paying off small existing debts before applying is a smart strategy.

4. Age and Repayment Capacity

Your age is a significant factor in loan approval. Younger applicants are considered lower risk due to a longer earning period. Generally, banks prefer applicants aged between 21 and 60 years. The loan tenure is often decided keeping retirement age in mind.

5. Employer Profile

Where you work also directly affects your loan application. Employees of reputed, stable, and large companies have higher chances of approval. Professionals like doctors, engineers, and Chartered Accountants (CAs) are considered trustworthy and are more likely to get loans easily.