Need of money can arise at anytime. It can be due to a medical emergency, purchase of important stuff, and many others. And at such times, individual make use of own savings or take monetary help from friends/relatives.
But what is the solution when the above mentioned two options are not possible/sufficient to meet the demand for money?
In such scenarios, personal loan can come to rescue.
However these days, loan approval process has become very strict and banks make a rigorous verification check before approving any type of credit. This is because, rising default cases (non-performing assets) affects the profitability of lenders. However for a working professional getting a loan is not a cup of cake, since income is what they have to prove credit worthiness.
Personal loan is granted / rejected not on the basis of a single factor i.e. income and credit score. And each application is reviewed minutely and multiple factors are given importance and evaluated to judge credit worthiness of the applicant.
Listed below are the employment requirements for personal loan (apart from credit rating) considered by banks, on a case to case basis, before granting loan to a salaried working professional.
Income: This is the most important eligibility criterion considered by the lenders that helps in evaluating the credit worthiness of the applicant. Higher the income, lower would be the chance of default. Lower income means the borrower may default the loan and is risky for the lender.
Company: If the applicant works in a big company then chances of credit approval are high. So someone working in companies like HCL, TCS, Infosys, and others have higher chance of approval.
Employment Status or Type: Amongst various types of job categories (full-time, part-time, contractual and others), employees with full-time job are a safe bet compared to part-time or contract workers. This is because permanent full-time employees typically have a regular income. Although irrespective of the job type, your pay slips is always verified by the lender.
Salary Type: Another employment requirement for personal loan in India is how the applicant gets the salary. In India, depending on the company, salaries are paid either in cash, direct credit in the account, or cheque. Salary in cash is considered very risky as there is no documentary evidence proving that money was paid by the employer. Whereas online transfer or cheque requires no additional proof as the name of employer providing salary is clearly visible. Typically salary in cash is given by proprietorship based companies or small sized industries/shops etc.
Employment history: If you keep on switching a job frequently then in the eyes of lender you are unstable when it comes to job. And lenders will assume that you will change jobs frequently in the future as well or might not even have a job.
Job role: Certain jobs where risk to human life is high is also given importance by the lender. For e.g. being employed in chemical company, fisherman, firefighters, coal miners, bodyguards, and others have risks to the employed. So risk to the life of borrower is also a risk to the lender. Because in case of any unfortunate event to the borrower, loan repayment will take a hit.
Low work experience: You might have faced the cons of low work experience in career. But loan request can also be denied because of less experience. So atleast have 1+ years of experience and then apply for job. If this is not possible, then a professional degree from a reputed institution can help you in loan approval.
Position: Individuals at a higher position are prime customers for any lender because of assumed high salary. Your position gives additional weightage to the application. But opposite is the case when a junior person applies for a loan. Chance of rejection is high.
However remember that if credit score is poor then none of the above listed factors may work in the applicant’s favor. Higher credit score means applicant has been a loyal borrower in the past. And lower rating is a sign of defaulter, which means he/she will continue to be a risky customer for any lender.
The above factors are typically considered by private and public sector banks.
But what can be done if personal loan is rejected due to any of the above mentioned employment requirements or any other reason?
There are other options available to get a credit as follows:
Co-operative banks: In comparison to public and private sector banks; eligibility criteria of co-operative bank is not strict. Moreover interest rates are low. But at the same time, loan amount is small.
Peer to peer lending companies: Also called as P2PL or PTPL, there is no bank involved between the borrower and lender. Individuals are lenders in case of PTPL. Borrowers can choose from multiple lenders and at the same time it is upto the lender to decide who to borrow money. Low interest, quick disbursal, and faster processing make these online marketplaces for loans an attractive option. Read about differences between P2PL and banks.
Against fixed deposit: One of the best recommended solution to get personal loan is against FD. If you have FD account with the bank then you can keep it as a security and in return bank will offer loan which 80%-90% of the FD amount.
Against securities: Very few people are aware of getting personal loan against securities such as gold, mutual fund, LIC policy and few others. Biggest advantage is that banks charge interest only on the money which is utilized and not on the entire loan amount.
So as you can importance of your employment plays a key role in personal loan approval process. Irrespective of the loan you take, remember to pay EMI on time and fully. This will help in building a good credit history.