What are the Key Factors that Influence Personal Loan Approval in India?

You have set your sights on something important, perhaps a wedding, a dream vacation or streamlining your finances. A personal loan feels like the perfect solution to make it happen and you are ready to make an application.

But getting an instant personal loan isn’t as simple as just filling out an application. Every approval goes through a detailed evaluation process, where lenders carefully assess different factors to decide your eligibility and how much they can lend. Knowing the process is key to improving your chances of approval.

This blog looks at the key elements that influence personal loan approval in India. It will give you a clear understanding of what lenders prioritise and how you can improve your chances of a hassle-free experience.

Credit profile

Think of your credit profile as your financial report card. It tells lenders how well you’ve managed your money over time. Your credit score, typically the headline number, reflects your repayment habits. Scores above 750 earn you brownie points, showing lenders that you’re financially disciplined. But it’s not just the score; your credit history reveals the story behind it—timely payments, loan closures or any red flags like defaults or frequent late payments. A clean, well-maintained credit profile acts as a green signal, assuring lenders of your reliability.

Debt to income ratio

Lenders want to make sure you’re not biting off more than you can chew. That’s where the debt-to-income (DTI) ratio comes in. It’s a simple calculation—how much of your income is already committed to repaying debts. A low DTI ratio, say under 40%, tells lenders you have enough wiggle room for a new loan. A higher ratio, however, might suggest that your finances are stretched thin. It’s not just about earning big but managing debts wisely. Keeping your DTI ratio in check is like maintaining the perfect balance between what you earn and what you owe.

Financial stability

Earning a high salary is great, but lenders also care about how steady that paycheck is. A stable job with a reliable employer or a consistently performing business tells lenders you’re less likely to default. Self-employed? Don’t worry—lenders evaluate your business income trends, tax returns and your savings or investments to gauge your overall stability. Essentially, lenders are looking for assurance that you’re not just earning well today but will continue to do so in the future.

Loan amount and tenure

How much you want to borrow and the time you need to repay can also be the deciding factors. A high loan amount naturally makes lenders cautious—they’ll want solid proof of your ability to pay it back. On the flip side, a smaller amount might sail through more easily. Tenure matters, too. A shorter tenure means higher EMIs but less interest overall. While a longer tenure reduces monthly EMIs but increases total interest. Striking the right balance between the loan amount and tenure improves your chances of loan approval. Eventually, this makes repayments stress-free.

Take time to compare different loan offers

Finding the right personal loan is all about making informed choices. Lenders like Unity Small Finance Bank or others offer varying personal loan interest rates, loan amounts and terms, so take the time to compare. Whether you need ₹5 lakhs or a different amount, shopping around ensures you get the best deal tailored to your needs. Look beyond just interest rates—consider fees, repayment flexibility and customer support. Every lender has unique criteria, so review the details carefully. The perfect loan is out there—just make sure it aligns with your financial goals!