Personal Loan Eligibility Factors For Self Employed Individual

Shekhar is a self-employed professional who is looking for a personal loan. But he is worried whether any bank will actually give him the loan as his net annual income is around Rs 1 lakh. The worry stems from the fact that the income level might not be enough for the loan approval. The other option for his family is that his father, who is also a self-employed professional but 62 years old, would try for a personal loan. Now Shekhar is wondering whether any of the two efforts will actually bear fruit for the family.

Analysis

Every borrower taking a personal loan needs to fulfill certain conditions related to the loan, for example, the amount of income earned by the borrower. A guaranteed minimum income assures the lending bank that the loan will be repaid.

People applying for a personal loan are broadly divided into two categories – salaried and self employed. The conditions applicable to both categories are different and thus have to be considered separately. One such condition relates to the annual income.

Specific impact
In the above case, Shekhar will be eligible for a loan even though his income is Rs 1 lakh because the minimum income limit set by his bank is Rs 95,000 for the self employed. What had him worried was that the minimum income limit for the salaried with his bank is Rs 1.25 lakh but as he does not fall into that category the figure is not relevant to him.

There is also a different level for these two categories as the nature of income will be different. Banks have their own criteria for these two categories and hence the requirement of the income for them is not the same.

Another factor where there will be a divergence in these categories is the age till which a personal loan will be granted to a person. A bank will give a loan only till the time a person is able to earn and repay the loan that has been taken. Due to this reason, it is once again likely that the age for the salaried will be lower than that of the self employed. Most salaried people retire by the time they are 58 or 60 and hence they are likely to get a personal loan only till this age. A self-employed professional can continue for a longer time because there is no compulsory retirement and hence it is likely that they remain active and earn for a longer period of time. This is also why the age limit for them is higher. In Shekhar's case, his father even though being 62 years old is also likely to be eligible for the personal loan because of the higher age figure and this should not pose a problem. This will prove to be a relief as far as the issue of taking a loan is concerned.