New Delhi. Personal loan is one of the most used loans today. People take help of personal loan for marriage, medical expenses, travel or any important need. But not everyone gets a personal loan easily. For this, banks and NBFCs set some important conditions, in which minimum income is considered the most important.
Why is income necessary for personal loan?
When a bank or NBFC gives a personal loan, it first checks whether the borrower will be able to repay the EMI on time or not. Personal loan is unsecured, that is, no guarantee or property is pledged against it. If the customer does not repay the loan, the bank has no direct means of recovering the loss. For this reason, banks examine your salary or income seriously.
Risk is higher in unsecured loans
The bank’s risk is higher in a personal loan as compared to a home loan or car loan. There is no mortgage of any house, vehicle or property in these loans. In such a situation, the bank wants to ensure that the customer’s income is sufficient so that he can pay the EMI without financial pressure. This is why the minimum income condition is decided differently in every bank.
What is DTI ratio and why is it important?
Banks not only look at your salary, but also see how much part of your income is going towards the EMI of the already ongoing loan. This is called debt-to-income i.e. DTI ratio. For example, if your monthly income is Rs 50,000 and Rs 12,500 is already going towards EMI, then your DTI ratio will be 25 percent. Generally DTI up to 35 percent is considered good.
What happens if there is too much DTI?
Some banks also accept DTI up to 40–45 percent, but in such situations the conditions become strict. The bank may ask you to bring a co-applicant or guarantor. Many times the loan amount is reduced or it is advised to choose a longer tenure, so that the EMI remains low. There is a possibility of the loan amount increasing in case of low DTI and high salary.
Income criteria for personal loan in HDFC Bank
The minimum monthly net income for HDFC Bank’s XPRESS Personal Loan has been fixed at Rs 25,000. This facility is for salaried employees working in private limited companies, public sector and government institutions. Clear information for self-employed people is not given on the bank’s website.
Income eligibility of Axis Bank
The minimum income for personal loan in Axis Bank depends on whether you are a customer of the bank or not. The minimum income for existing customers of Axis Bank has been kept at Rs 15,000. Whereas, for new customers this limit is Rs 25,000. This condition applies to doctors, government employees and those working in the private sector.
Kotak Bank and SBI rules
The minimum income for salary account holders in Kotak Bank is Rs 25,000, while for those without salary accounts, the requirement is Rs 30,000. For Kotak employees this limit is Rs 20,000. In State Bank of India, the minimum income for government and defense employees is fixed at Rs 20,000, while for corporate sector employees the minimum income is Rs 25,000.
Conditions vary according to city and job
The minimum income conditions are not the same everywhere. The cost of living is higher in metros and tier-1 cities, hence the demand for income is also higher there. At the same time, this limit may be less in small cities and towns. Apart from this, banks consider government and PSU employees as low risk, hence the income terms for them are relatively soft.
How to increase loan approval in low salary
Even if your salary is low, the possibility of getting a personal loan is not lost. You can add a co-applicant or guarantor. EMI can be reduced by keeping the loan amount less or choosing a longer tenure. Apart from this, good credit score and record of repaying old loans on time works in your favor. Minimum income is an important condition for a personal loan, but it is not the only condition. Banks also give equal importance to your age, job stability, credit score and DTI ratio. Therefore, before taking a loan, it is very important to understand your financial situation and make a proper plan.
