How Do Lenders Determine Your Loan Eligibility?

Your loan eligibility is determined by lenders based on your financial credentials (income, age, financial position, credit score, other liabilities) and more. This includes your debt-to-income ratio.


You can improve your chances of loan eligibility by reducing your debt-to-income ratio. This may mean asking for a raise or finding a side gig.


If you’re looking to get a personal loan, it’s important to understand how lenders assess your loan eligibility. They consider factors like your credit history and income, which determines whether you qualify and how much you can borrow.

Income is the amount of money received by an individual or business as compensation for labor, goods or services; a return on investments; a distribution of dividends; or profits from sales of property or investment. Income is also a measure of economic activity and the basis for most forms of taxation. It is usually reported annually in financial statements.

Generally, to qualify for a loan you must have sufficient income to repay it. Lenders will review your household income and your existing debt to assess your capacity for repayment. They may also consider other sources of income, such as alimony, child support or gifts. However, these sources typically won’t be considered unless they’re stable and likely to continue for two years or more.

You can use a personal loan eligibility calculator to estimate how much you might be eligible for. It will take into account your net monthly income (excluding one-time bonuses or incentives) and existing EMIs. It will also factor in your age and other debt obligations to calculate your maximum loan eligibility. The lender will then assess your loan application based on this information and your CIBIL score.


Lenders look at your assets to make sure you have enough funds to cover a down payment and closing costs (reserves) on your new mortgage loan. Assets can also help you qualify for certain types of loans with a low interest rate. The type of assets lenders consider varies depending on the loan program you choose and your lender.

Physical assets can include items like your primary home, vacation homes, rental properties, jewelry, cars and artwork. Nonphysical assets can include checking, savings and money market accounts as well as 401(k)s and IRAs. Liquid assets are those that you can easily convert to cash, such as readily tradable stocks and bonds.

Fixed assets take longer to sell, and can include things like furniture, some real estate and antiques. Some of these may be able to be sold for cash, but some may require a lot of work to get rid of.

Some lenders offer alternative loan products that allow borrowers to use their verifiable assets as income, rather than using traditional pay stubs, W2s and tax returns. These are called asset utilization loans and can be beneficial to borrowers who have a complex financial picture that makes it difficult for them to qualify under traditional means. They are particularly useful for retirees, investors and small business owners.


Lenders will want to see a consistent track-record of on-time debt payments, which can be an indicator that you’ll repay your personal loan in the same way. The lender will also consider the borrower’s debt-to-income ratio, which is how much of a borrower’s gross monthly income goes toward repaying existing debt. A DTI lower than 36% is generally preferred by lenders.

Getting a personal loan can be an effective way to pay for a financial emergency, consolidate debt or make a big purchase. But before you apply, take a closer look at whether this type of financing is really right for your situation.

The best way to improve your eligibility is by boosting your credit score. However, it is important to remember that each lender has its own credit requirements. For example, some lenders may want to see a credit score of 800 or higher while others may require a slightly lower score.

Another important consideration is your employment stability. Many lenders prefer to work with borrowers who have stable jobs and a proven track record of repayment. Frequent job changes can be a red flag for lenders and can increase the risk of default on the loan. Consider asking for a raise or picking up a side gig to help you boost your income before applying for a personal loan.


The lender must verify the borrower’s employment status and receive documentation indicating that the employer agrees to allow the borrower to return to work at or before the loan closing date. If the borrower is on temporary leave, the lender must determine the amount of “regular employment income” for qualifying purposes (including base pay, commissions, and bonus) received prior to the temporary leave period. Alternatively, the lender may consider income from a qualified retirement account (401(k), SEP or Keogh) if the borrower has unrestricted access and the ability to withdraw funds without incurring tax withholding or other penalties.

Banks also offer special products for salaried you to avail home loans like Salary Multiplier wherein your eligibility is based on the earnings from your salary. These products are offered to you if your company is in the list of specified companies categorized by the bank.