Personal Loan for Contract Employees: 7 Factors Banks Consider
Nowadays lending (credit card or loan) business is taken very seriously by the banks. Every application is scrutinized in detail in order to avert default in the future, which impacts the profit of the lender.
Especially a personal loan application, which is an unsecured loan is taken very seriously by the lenders. In this article, we’ll discuss about personal loan for contract/part-time employees.
The type of job you do sometimes plays a key role in approval of any kind of credit. This includes personal loan as well. Job stability is a key factor checked for each applicant.
There are broadly following types of job categories in India:
- Permanent – Mostly it is a full time job
- Part-time – This type of job is typically requires an individual to work for fixed hour. Freelancing is also a kind of part-time job.
- Contractual – This varies depending on the tenure of the project.
When personal loan application of a working professional is under the review process by the lender, the most common factors considered are the income, credit score, and company. However many a times employment status (permanent, part-time, contract) is also taken into consideration before approval.
So how can employee on contract get personal loan? And what factors will get loan approved for a contractual employee?
Listed below are the factors banks take into considering while processing personal loan for a contract employee, although approval is solely on the bank’s decision:
- Income: If your income is high, even when you are on contract, then chances are that your loan will get approved. Because higher income means strong chance of loan repayment i.e. credit worthy. Check out loan for low income earners.
- Credit history: If your credit score is good, then it further increases the chances.
- Company name: If contract is in a big company then it will work in his/her favor.
- Experience: If you are highly experienced and only the current job is contract, then chances are high. Because being on a contract does not mean banks are at risk in granting personal credit.
- Employment Tenure: This is very important. If the job contract is for a long tenure then it should not be a worrying factor for the bank. There would be a higher chances of personal loan approval. Typically a job with less than 6 months may go against.
- Employment History: If all your previous jobs were full-time then it’s a plus point. However if the part-time job is your first job, then lender will definitely make extra effort to scrutinize your application. In this case, the other factors will help in strengthening your case.
- Profile or Designation: If in a contract job, your designation is at a senior level, then chances of loan approval increases. However opposite is the case. For e.g. positions such as “trainee” and “junior” might not impress the bankers.
What if personal loan is still rejected?
Remember it is not the end of the world. There are many other ways for a contract worker to get personal loan as follows:
Peer to peer lending: Relatively a new concept in India, peer lending (also called as P2PL or PTPL) market is booming in India. Recently RBI notified that peer to peer lending companies will be categorized under NBFC. Advantage of P2PL over banks is that – the interest rate is on a lower side compared to bank and borrower has an option to choose investor and mutually decide on the lending rate. Although PTPL also verifies each and every applicant, the approval chances are high provided borrower meets their requirement, which are no more different than the banks.
Against FD: If you have a fixed deposit with the bank, then you can apply for a personal loan against FD. This is a kind of secured loan. Benefit of taking a credit against FD is that the interest rate would be on a lower side and approval process is not very stringent with minimum documentation.
Against securities: If you have invested in mutual fund, shares, insurance, or bonds then you can apply for loan against securities. The most important benefit is that the interest paid is only on the amount utilized and not on the entire loan amount.
Private money lenders: This should be the last option to try. Because of high interest rate, history of misleading the borrowers, and bad recovery process, they should be avoided as much as possible.
So as you can see above, there are multiple ways of getting personal loan for a contract worker.