Factors Affecting Personal Loan Application

There are several factors that financiers consider carefully before approving a personal loan application. The applicant’s credit score plays a major role as it gives an idea of his repayment capacity and financial discipline. Applicants with a decent credit score have a much higher chance of loan approval. Stability of income is also assessed to determine if the individual will be able to make timely repayments.

Chola also look at the existing debt-income ratio while calculating repayment ability. Too many existing loans can reduce your personal loan eligibility. The purpose of taking a loan is also evaluated as emergency needs are considered more justifiable than discretionary expenses. Putting up collateral can sometimes help secure approval for a higher loan amount at lower interest rates.

If you need funds for an emergency, education or other large expense, a personal loan provides quick access to funds. However, financiers evaluate multiple risk factors before approving applications. Understanding what affects your eligibility can help present yourself as a low-risk borrower while you apply for a personal loan.

Credit Score

Your credit score, calculated based on past loan repayment behaviour, is the most vital factor considered by lenders. A decent credit score shows higher likelihood of on-time repayments. Work on paying dues on time and in full to build a healthy score over 6-12 months before applying.

Income Stability

Lenders check income sources like salary, pension, business income to assess repayment ability. Those with stable long-term employment at reputed organizations get higher chance of approval. Freelancers or those with intermittent income may find it difficult to prove income stability.

Debt-Income Ratio

This reflects the portion of your monthly income going towards repaying existing debts. It is ideal to keep this ratio under 50%. Too many existing loans will lower eligibility irrespective of income levels since repaying a new loan will be challenging.

Loan Purpose

Loans for emergency medical bills or marriage-related costs are considered worthwhile. However, loans for vacations, home renovation or investment purposes without collateral are less favourably viewed by banks.

Already Existing Customers

If you are already an existing customer with a financier and pay your loan EMIs on time, then you are most likely to get approved for a new loan. A good relationship with the financier will increase your probability of getting a loan. Financiers prioritize their existing customers over new applicants.


While personal loans are unsecured, pledging assets as collateral, especially high-value ones like property or gold, presents yourself as low risk customer to financiers and helps in sanction of high loan amounts at lower interest rates.

Customer’s Age

Customers below 25 years of age and those over 60 years may have limited access to personal loans due to higher perceived risk levels. Mid-career individuals between 30-45 years generally get approved for loans more easily.