Personal loans are an unsecured source of credit. Even though personal loans have a higher interest rate, they can be beneficial to tide you over a financial emergency. Now, many lenders have begun providing online salary loan to people at affordable rates. A salaried person’s loan eligibility is calculated by assessing their repayment capacity, income, credit score, career records, and employer profile. Your employment can play a deciding role in your personal loan eligibility.
Here is a look at how your employment can influence your eligibility for a personal loan –
How do Lenders Categorize Employers?
Lenders consider various factors about your employer. Lenders usually categorize employers under listed and unlisted companies. High-net worth companies that fall in the listed category are ranked higher in a bank’s analysis than start-ups and SMEs. Those who work for reputed companies with many employees, business stability, high profitability, and many years of operation find it easier to get approval for a personal loan. Employees of top-tier companies may even enjoy lenient loan terms like low-interest rates, higher sanctions, and longer loan tenures.
Why Does Your Employer Matter to Your Lender?
Analysing the business status of your employer helps your lender determine your job security and repayment capacity. If you default on your loan, the lender may not be able to recover the loan amount by auctioning your assets. Therefore, your income and job security are essential to your loan eligibility.
Those who work for financially unstable companies may not get their salaries on time or, worst case scenario may even lose their jobs in a sudden downturn. Such loan applicants may not be able to repay their loan as their job security is low, and they are deemed less creditworthy.
If you work for a high-net-worth company that has been in business for multiple decades, employs hundreds of people worldwide, and offers strong job security. Then, your probability of default is low, and your income is stable, assuring the lender of your creditworthiness.
How Does Your Job Affect Your Personal Loan Term & Interest Rate?
- Duration of Employment – It is easier to get loan approval if you have been in a job for two more years. If you are out of a job or have just begun your career, it may be challenging to get a personal loan. Even if you do, the personal loan interest rate will be on the higher side.
- Monthly Salary – Your monthly salary is analysed to see if you can afford the monthly EMIs of the personal loan. You can repay the loan only if your disposable income is greater than your loan EMI.
- Work Status – Banks will need to know the status of your employment. Your work status is directly related to your job security. So, it will be easier to get a personal loan if you are a permanent employee, as opposed to a part-time employee or a contractual employee.
- Salary Proof – Your lender will ask you to produce proof of salaries, such as a salary receipt or a bank statement with your earnings details. If your salary is paid in cash, getting a personal loan for salaried people will be even more difficult.
- Employer’s Profile – As stated above, the employer’s reputation for a personal loan is critical. Lenders favor established business employees with a high net worth and many employees. Based on your employer’s profile, lenders decide your credibility as a borrower.
Getting a personal loan as a salaried individual is not too difficult. If you are working in a permanent position with a well-known company with a high net worth, all you need to do is offer proof of employment, an income statement, and a good credit score.
Author Bio:
Shashank Modi is a content marketer who works at KreditBee – India’s leading FinTech platform that provides personal loans for salaried and self-employed individuals.
Shashank writes to empower his readers so they can take control of their finances and live their lives without worrying about money constantly. His ultimate goal is to write a book to teach kids about finance and budgeting.