Getting a personal loan after a few years of working sounds perfect if you’re looking for an instant source of funds. You don’t need to give up collateral, nor do you need to meet extensive eligibility requirements. You’re of employable age, have a regular income, and have a spotless credit history, giving weight to your loan repayment ability. So, lenders should approve your loan application quickly, right?
Well, lenders consider one more thing when reviewing your application - your employment status. In fact, your application could get approved or rejected on its basis.
Wondering how your employment status can impact your personal loan eligibility? Read on to find out.
How Employment Status Affects Your Personal Loan Eligibility
When offering loans, banks want to maximise the possibility of timely loan repayments. This is why employees with a stable employment status are more eligible for personal loans. Most banks consider the following employment parameters before approving a loan application. Let’s take a look.
● Employer Status
Depending on company profiles, lenders classify companies into categories like Cat A, Cat B, Cat C, Cat D, and so on. Well-reputed companies with good profiles come under Cat A, while companies with poor profiles come under Cat D.
Banks presume top-rated companies not only offer better and timely salaries to employees but also offer better employment continuity. Simply put, employees at such companies have the funds to make timely loan payments and are less likely to have job stability issues. This makes them more eligible for a personal loan.
● Employment Duration
Lenders will ask for your employment certificate before approving your personal loan application. If you’ve worked at an organisation for over a year, your application is more likely to get approved than someone who changes jobs in six months. Here’s why.
Job changes are typically accompanied by a period of salary uncertainty. If a borrower takes up a loan during this period, they could default on their EMI repayments. Since lenders want to reduce the instances of loan defaults, they offer loans to individuals who have held jobs for longer.
● Nature of Job (Salaried vs Self-Employed)
Believe it or not, you are more eligible for a personal loan if you have a salaried job versus when you run your own business. Here’s why.
Having a salaried job at a company with a good profile means you get a stipulated salary every month. So if you manage your finances well, you can put away funds towards your personal loan EMIs and pay them on time.
In contrast, your income is considered likely to be unstable, especially if you run your own business or work at a startup that is still growing. This is also why most banks have different eligibility requirements for salaried and self-employed professionals.
Over to You
Having a stable job at a reputed institution for over a year and getting paid a regular salary improves your personal loan eligibility dramatically. After all, these indicate that you have the means to make timely loan repayments.
So, make sure you apply for a personal loan only after you meet the basic eligibility requirements. If you have just started a new job, wait for a few months before sending in your loan application. Similarly, if you work at a startup, make sure you have an additional source of income or a co-applicant to add weight to your application.
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