How do Lenders Decide Your Personal Loan Eligibility?

Whenever a personal loan is applied, the loan seeker is always in a hurry to get the loan sanctioned and disbursed to him. Most of us apply for a personal loan online and hope a instant approval. But have you ever wondered why the lender takes time to take the lending decision?

In between the application submitting and the loan disbursal, your loan application has to go through a complicated process. This is the process which determines whether the loan will be approved to the applicant or not. The lending decision is taken by the lender only after the loan application successfully accomplishes a number of tests.

Here are the parameters which an applicant has to successfully come over in order to prove himself eligible for the loan.

The Multiplier

The multiplier is the parameter which is used to check the highest amount that can be credited to the loan applicant. The amount of loan which can be given to the applicant is determined by using this formula.

Loan Eligibility = (Your Net Salary) x (a number from 9 to 18)

Your net monthly income determines your repayment capacity hence the amount should be the one which the applicant can easily repay. The number between 9 to 18 which will be multiplied by your net salary depends on your employer. An employee of an established company can avail a higher amount than an employee of a less reputed company even if they earn equally.

Credit History

The credit history is the report which consumer credit reporting agencies like CIBIL or Equifax provide for every individual. Whenever a loan application is sent to a lender, they need to take out the applicant’s credit history to know the credit habit of the applicant. Any kinds of credit activities such as a loan, credit card or any other credit related stuff are mentioned in the credit report and based on that, a numerical representation is provided. A credit score which is above 750 is taken as a good credit score. A credit score below 750 may make the lender reject the application.


 The full form of FOIR is Fixed Obligations to Income Ratio. By this parameter, lenders check if the applicant has any other loan beyond the applied one and what is the ratio of income and the outgo.

The formula for calculating FOIR is:

FOIR = (Sum of Existing Obligations/Net Take Home Monthly Salary) * 100

If the ratio comes more than 50, then the loan is likely to get rejected.  If the total payable is more than half of the net income then there are chances of defaulting the loan. Lending is such conditions may become a risky affair for the lender.


Age is the next bar which you have to cross to proof Personal Loan Eligibility. A personal loan is provided to an applicant only if he is in the age group of 21 to 60.  If you haven’t yet reached 21 or you are more than 60 years old, your loan application will not be approved by the lender. Let’s say you are 58 years old and applied for a personal loan. In such cases, you may get an instant approval but the tenure of the loan cannot be longer than 2 years which means the loan should not run after 60 years of age.


Your employer also has a role to play in making your lender decide the approval. An employee of a reputed employer gets a loan easier than a less famous employer. When a big employers name adds in your loan application, it works as an advantage to your application to make it stronger.  

Job Stability

Along with employer, the lender checks the job stability too. While a job changing in the corporate world is the ladder to earn progress in your career, it may become the reason to make a loan application go rejected too. lf an applicant is found to be a frequent job changer, the lender may hesitate to lend that person assuming that the person has lack of stability. A loan is actually a subject to long term commitment. One has to keep on paying the EMIs until the tenure ends. So job stability is another checklist of the lender.  

Social Media

Social media has become the mirror of the present generation. Nowadays even lenders check the social profile of the loan seeker in order grant the personal loan online approval. Facebook, Twitter, Linkedin etc social media profiles are checked to understand the person better. Social data is used by the lenders to go beyond the transactional data to take the lending decision.  

A personal loan is always a risky business for the lender as the lender does not keep any of your valuables in line to recover the lent amount in the case of defaulting. The only thing which they do is checking the loan eligibility which may take some time.  Knowing this fact one must keep patience once the loan application is submitted to the lender.

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