20 JUNE, 2022

With the growing needs and never-ending demands of individuals today, availing personal loans has become the need of the hour for many. These loans not only help in meeting emergency needs but are also useful to arrange funds for other purposes, such as weddings, holidays, education, etc. 


However, one should keep in mind that several factors come into play when lenders determine personal loan eligibility. Your salary is one of them as it determines your repayment ability and, hence affects your interest rate too. So, how does salary affect your personal loan eligibility? Let's find out.


Salary requirement for personal loan eligibility

Your salary is a crucial criterion for your personal loan eligibility. Lenders typically have a pre-set salary limit that you need to fulfil to get your loan approved. If you do not earn the required limit of take-home salary, a lender can reject your application. The salary eligibility also varies based on your city of residence. Typically, you need to have a minimum salary of Rs 15,000- 20,000 to meet the personal loan eligibility criteria.


Effect of your salary on your personal loan eligibility

Your personal loan eligibility includes various quantifiable and non-quantifiable factors. Salary is one of the crucial quantifiable factors. With your salary declaration, lenders can gauge and determine your creditworthiness, repayment capacity and income flow. Unless you have a minimum salary package, you might not be able to repay the loan timely. Similarly, lenders also consider your existing debts to know your disposable income. If you have too many debts already, it can again affect your repayment capacity.


If you have a low salary level or do not meet the income eligibility criteria, a lender can reject the loan application. If they approve, they are more likely to charge you a higher interest rate to cover the risk. They can also refuse to lend you a high loan amount or shorter tenure.


Impact of your employer on your personal loan eligibility

Apart from your salary, your employer also affects your personal loan eligibility. As lenders do not ask for collateral for a personal loan, they rely on your job and income to determine your creditworthiness. So, if you are working in any government organisation or a reputed private organisation, you are more likely to get salary on time, which is a guarantee for lenders of an assured EMI payment. However, if you work in a small or low capital investment firm, you may or may not have a steady salary and source of income, which can lead to EMI defaults. Due to the same reason, lenders are not very interested in lending personal loan to freelancers or start-ups unless they have a strong financial backing. So, if you plan to avail a personal loan, you must strive to get employment with a reputed organisation and avoid switching too many jobs.

Bottom line

Your salary, income and employer can have a significant impact on your personal loan eligibility. To determine if your current salary can help you avail a personal loan, you can use a personal loan eligibility calculator online.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.