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A personal loan has become a go to product for all kinds of needs. It has increasingly gained popularity over last few years. One of the major factors that has fueled its exponential liking among borrowers is the flexibility to use the loan proceeds. Whether it is the need to bridge gap while buying a house or a car or the need arise out of any exigency or funding a trip, education or marriage of child, the amount can be used for any purpose.

While the personal loan has gained popularity, statistics show that only half of the applications get to see actual disbursal. Following are the four most important factors that can swing the decision from approval to decline. It would be a good idea to check out these to know the amount of loan that you would be eligible for and if you would be able to meet the underwriting expectation to get that money as per the eligibility into your account.

Debt to Burden ratio

The amount of money that gets sanction against your loan request is based on your repayment capacity. The same is termed as debt to burden ratio in banking terms. Let us assume that you have applied for ICICI personal loan. The first factor that the bank will consider while calculating your debt burden ration is your net monthly income. As a second step, the bank will total all your obligations, meaning, sum total of the EMIs and credit card outstanding that you would have. As a thumb rule, your total obligation, including the EMI of new proposed loan, should be lower than 50% of the net monthly income. For example, if your salary is say Rs 100,000 the sum total of all your obligations should not be more than Rs 50,000.

Credit Profile

There may be a scenario where the borrower has capability to repay the loan and the DBR fits the requirement. However, in absence of a good credit profile the loan application may still get rejected. In case you have had repayment issues on your other loans and credit cards, your credit score will get impacted. A regular lending institution in all likely hood is going to reject the application. There is a myth that one can apply for a personal loan without CIBIL score. The fact remains that the credit profile plays as an important role in approval of your loan as would your repayment capacity.

A credit score of 750 and above is deemed to be a good credit score. So it is prudent to check the score before applying for a personal loan.

Segment – salaried/ self-employed

While this may sound strange but the banks are more comfortable in extending that unsecured loan to a salaried borrower as compared to one who is self-employed. This is on account of the salaried segment gets a fixed income every month and would be in a better position to manage the finances in comparison to a self-employed borrower. The fact that most of the EMIs in case of salaried person get processed around the date of pay, the chances of default are much lower. And considering the fact that a personal loan is a high risk lending on account of being an unsecured product, the banks would prefer to lend to one who carries a lower risk on repayment.

Bank relationship

Your relationship with the bank will also lead to impact the amount of loan that you would be able to get. This is not an odd statement. In case you have a salary account with the bank, the bank would have access to your historical transactions. The bank would know the kind of balances you keep, bounces if any, money that gets credited to your account, the date of credit etc. There have been instances where a person with not so good credit profile has also been able to secure a loan from the bank for the relationship he has had.

While you can calculate the amount that you would be eligible for through the simple formula of DBR ratio mentioned above, do not forget to weigh the other three important factors as well that would lead to your qualification on the loan.


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