10 Steps for Low Income Earners to Get Personal Loan for 1st Time
How can I get my first personal loan since my income is low? This is the first question that comes to the mind of poor earning individuals.
Such low salaried or self employed individuals have countless fears, doubts and uncertainties when thinking about applying for a personal loan or a credit card for the first time. Adding to their fear are the bad experiences heard from their friends or relatives, who may be earning high or low income.
Therefore, this article tries to help low income earners to get personal loan for the first time in a step by step manner.
(1) Do you really need a loan? Why not lend from friends/family members?
The very step is to ask yourself – is personal loan really required?
Can’t you utilize personal saving or ask money from your friends/family members. If they are able to assist you then nothing better. Because this way, you will save significant amount of money which you will be paying in interest or other charges. In return, you can offer to pay small interest along with the principal amount. This way, they will also earn more money and happily lend money.
You may like this: How low income earners can generate extra income
(2) Evaluate the loan amount needed
If financial assistance from friends/family members is not possible and personal loan is the only solution then the initial recommendation is to evaluate the exact amount required. This will allow you to evaluate number of factors, including the time frame to end the loan account and how much your monthly EMI will be.
It’s important that you don’t ask for more than you can pay. Because that’s when you get into a whirlpool called DEBT, which can turn out be disaster especially for low income earner applying for the personal loan for the first time. Although personal credit will allow poor earning individual to get out of financial trouble, these individuals should be extremely responsible with the repayment. A poor experience in the first time can be very demotivating for low income earning – salaried or self employed individuals.
(3) Choose the option that best suits your needs
The next thing you need to do is evaluate what options are available in the market and determine what suits the best. Low income earner can get personal loan through following ways:
- Secured i.e. against collateral. E.g. against fixed deposit. – Recommended when amount required is less.
- Unsecured i.e. without any collateral. Recommended when amount required is high.
- Friends or family members (mentioned above).
(4) Know who offers personal loan for low income earners
In case of unsecured personal loan, income of the applicant is the first thing any lender will check and ask for the proof. Therefore the very first thing to do is check the minimum income required by the lenders. Here’s the table showing minimum income required by various lenders.
|Lender||Minimum Net Monthly Income Required||Loan Amount Limit|
|The West Bengal State Co-operative Bank Ltd.||Rs. 2,000||Rs. 25,000 to Rs. 1,00,000|
|The Andaman and Nicobar State Co-operative Bank Ltd.||Rs. 5,000||Upto Rs. 2,00,000|
|The National Co-operative Bank Ltd.||Rs. 5,000||Rs. 25,000|
|City Union Bank (Consumer Loan) for Salaried||Rs. 5,000||Rs. 50,000|
|City Union Bank (Consumer Loan) for Professionals||Rs. 6,250||Rs. 50,000|
|Janakalyan Sahakari Bank||Rs. 7,500||Rs. 5,00,000|
|State Bank of India (Xpress Credit Personal Loan)||Rs. 7,500. This loan is only for the employees of state and government, PSUs, selected companies||Rs. 24,000 to Rs. 15,00,000|
|Abhyudaya Co-operative Bank||Rs. 8,000||Rs. 5,00,000|
|Thane Bharat Sahakari Bank||Rs. 8,000||Rs. 5,00,000|
|The Greater Bombay Co-operative Bank Ltd.||Rs. 10,000||Rs. 2,00,000|
|Canara Bank||Rs. 10,000||Rs. 3,00,000|
|TJSB Sahakari Bank||Rs. 15,000||Rs. 5,00,000|
|State Bank of India||Rs. 10,000 (rural/semi-urban)||Upto Rs. 10,00,000|
|ICICI Bank||Rs. 15,000 (for individuals from Bangalore, Chennai, Hyderabad, Pune, Kolkata)||Rs. 50,000 to Rs. 15,00,000|
|Dena Bank||Rs. 15,000||Rs. 1,00,000|
|HDFC Bank||Rs. 15,000 (for individuals from Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Pune, Calcutta, Ahmedabad, Cochin)||Rs. 15,000|
|Punjab National Bank||Rs. 15,000||Rs. 4,00,000|
|Axis Bank||Rs. 15,000||Rs. 15,00,000|
|ICICI Bank||Rs.17,500||Rs. 50,000 to Rs. 15,00,000|
|ICICI Bank||Rs. 25,000 (for individuals from Mumbai & Delhi)||Rs. 50,000 to Rs. 15,00,000|
|ICICI Bank (Privelege Banking Customer)||Rs. 20,000||Rs. 50,000 to Rs. 15,00,000|
|State Bank of India||Rs. 24,000 (In metro and urban cities)||12 times net monthly income|
|Yes Bank||Rs. 25,000||Rs. 2,00,000 to Rs. 20,00,000|
|Allahabad Bank||Rs. 20,000||Rs. 7,50,000|
|Standard Chartered||Rs. 22,000||Rs. 1,00,000 to Rs. 30,00,000|
|Kotak Mahindra Bank||Rs. 40,000||Rs. 15,00,000|
|Bank of Maharashtra||Rs. 25,000||Rs. 15,00,000|
|Indusind Bank||Rs. 25,000||Rs. 15,00.000|
|Ratnakar Bank||Rs. 30,000||Rs. 15,00,000|
|Central Bank||40% of Gross Salary||Rs. 5,00,000|
|Bank of india||40% of Gross Income||Rs. 2,00,000|
|HSBC Bank||Rs. 4,00,000 per annum||Rs. 15,00,000|
|IDBI Bank||Rs. 20,000||Rs. 10,00,000|
|Indian Oversees Bank||50% of Gross Salary||Rs. 15,00,000|
|Citi Bank||Rs. 20,000||Rs. 30,00,000|
|Karur Vysya Bank||25% of Gross Salary||Rs. 10,00,000|
|Deutsche Bank||Rs. 25,000||Rs. 15,00,000
So if your income is below:
- Rs. 12,000 per month – Then you can approach prominent banks like Canara Bank, City Union Bank, State Bank of India
- Rs. 15,000 per month – Then you can approach ICICI Bank, Punjab National Bank, Dena Bank and HDFC Bank in addition to above listed banks including co-operative banks like Janakalyan Sahakari Bank, The National Co-operative Bank Ltd., The Andaman and Nicobar State Co-operative Bank Ltd. and The West Bengal State Co-operative Bank Ltd.
There is absolutely no point in approaching a bank, if the income is below the specified limit. No lender will entertain you and straight away reject the application.
(Note: Apart from income, there are many other eligibility criteria by each lender mentioned below)
(5) Resolve all your doubts
Before finalizing the lender, you resolve any and all of your doubts with the lender. Remember to keep all the communication over E-mail to avoid any future problems. They will be able to clear all your queries about penalties, benefits, requirements, etc.
Clearing all your questions will allow you to make the right decision at the time of acquiring a credit of any kind.
(6) Verify that it is a certified company
The next step is to verify that the company you choose is a certified company. Let’s not forget that there are a lot of frauds nowadays, mainly on the Internet. Especially stay away from private money lenders because of the risks involved.
Therefore, you must ensure that the institution is regulated by Reserve Bank of India or regulatory authority in your country.
It is extremely important that you take this point into account, as it will determine the seriousness and formality of the financial institution of your choice.
(7) Find out about the eligibility criteria
Apart from the minimum income required, there are many other eligibility criteria set for every loan applicant. Therefore this step is extremely important for low income earners. Because it is the one that will allow you to speed up the lending process or delay it.
Here are some of the basic requirements to get personal credit approved:
- Minimum income
- Working in government/self employed/private company/teacher/medical profession etc.
- Completely filled application form
- 3 last payment slips/IT returns
- Address proof – residential or company, depending on the application
- Bank statement printed by the bank
(8) Gather the necessary documentation
When you know each of the requirements needed for personal credit, it’s time to collect the necessary documentation.
There is a myth that financial institutions take a long time to grant personal credit, but the reality is that they do not. In many cases, the process is delayed because of the delay in submitting the documents or incomplete/incorrect documentation or errors in application form.
Remember lenders make money from loan, so there is a less chance of delaying the process at their end. Therefore, the faster the collection and delivery of documents, faster will be the decision made on the personal credit application.
(9) Healthy credit history
Most of the finance lenders consider credit history a mandatory requirement. So the first thing low income earners applying for personal loan should keep in mind is to have a good credit history.
A healthy history will allow you to acquire a credit in any institution, since it will guarantee that you are a person responsible for your financial commitments. On the contrary, incidences in the bureau could cause a financial institution to deny you credit.
But since this is the first time, low income earner is applying for a loan the chances of having a credit history is not possible. In such case, income and proper documentation and meeting other eligibility criteria are the only saviour. Else low income earners can apply for secured personal loan against fixed deposit, etc.
(10) Finally apply for personal loan
Once you aware of all the requirements, deadlines, the amount you need, the formality of the institution you selected and your status in the credit bureau, it is time to proceed to the formal application.
The most important thing when applying for a personal loan is to be aware that it is a financial commitment and that you will have enough liquidity to meet it.
Low income earners can use personal credit for:
- Children’s education
- Paying off debts
- Starting small business
- Medical emergencies etc.
(Note: Remember to read fine print to understand what the loan amount can be used for. There are personal loans which can be used only for specific purpose).
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 35+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries.
He has authored many articles on this site (allonmoney.com).