How Your Income and Employment Status Affect Personal Loan Eligibility

Personal loans are widely chosen as a convenient option for various financial needs, thanks to their easy availability and flexibility. However, there are instances where loan applications get rejected, leaving borrowers wondering what went wrong.

In this blog, let’s explore the impact of one’s income and employment status on personal loan eligibility. By understanding how lenders assess the repayment capacity based on these factors, one can increase their chances of being approved for a loan.

Importance of Income for Personal Loan Eligibility

The borrower’s income is a crucial factor when applying for a personal loan. Lenders use this information to assess repayment ability and determine a suitable loan amount, promoting responsible borrowing and timely repayment.

Lenders generally analyse income to determine loan repayment ability using a debt-to-income ratio. Ideally, financial institutions prefer that the individual’s debt obligations, including the proposed Equated Monthly Instalments (EMI), do not exceed 21% – 35% of their Gross Monthly Income. However, the ratio may vary depending on an individual’s income level, allowing for more personalised loan evaluations.

Consider using a personal loan eligibility calculator for better understanding. This tool provides an estimate of the loan amount one can secure based on income.

Employment Status in Determining Personal Loan Eligibility.

The borrower’s employment status is a crucial factor to consider when applying for personal loans. Lenders use the reputation and stability of the borrower’s employer to determine the borrower’s financial responsibility and ability to make timely loan repayments.

Financial institutions often categorise employers into two: listed and unlisted. 

Listed companies are usually reputable, stable, and have been in business for a significant period. They’ve deemed a lower risk, and their employees often find personal loan terms more favourable.

Unlisted or less established companies are often subject to financial fluctuations, potentially delaying salary disbursements or even leading to sudden job losses.

This situation raises the perceived risk for lenders, making it harder for employees of these firms to secure personal loans.

The individual seeking a loan should be mindful of their employment history. A stable income is important as it gives lenders confidence in the borrower’s ability to handle loan obligations.

Frequent job changes can create the impression of financial instability, which may negatively affect the loan approval process or loan terms. 

Overcoming Personal Loan Eligibility Challenges

While unstable employment or income might impede securing personal loans, don’t worry -there are still several options. Here are some potential solutions:

  • Showcasing Other Income SourcesThe borrower should consider demonstrating additional income sources if their employment is unstable. This can help reassure lenders of their ability to repay the loan. Income from rentals, investments, or freelance work can all be used as evidence of financial stability, which may increase the chances of loan approval.

  • Bringing a Co-applicant or Guarantor: The borrower may want to consider a co-applicant or guarantor with a stable income to improve their chances of getting approved for a loan. This can help alleviate the lender’s concerns about potential repayment risks and increase the likelihood of loan approval.

  • Maintaining a Solid Credit Score: The borrower’s credit score is important in determining their financial reliability. A score of 750 or higher can greatly increase their chances of being approved for credit. Lenders also consider the user’s credit history, considering their borrowing and repayment habits, any missed payments, and the variety of credit types they have used. The user can manage their existing credit responsibly by making timely payments and offset the impact of income instability.
  • Turning to Alternative Lenders: NBFCs may provide greater flexibility compared to conventional lending institutions. They often employ different risk assessment strategies, which may consider factors beyond employment stability to gauge one’s creditworthiness.

  • Demonstrating a Consistent Work History: The individual may want to highlight their steady employment history within the same industry if their current job is unstable. This can demonstrate industry stability and resilience, which may appeal to lenders.

Remember, every lender has different criteria. The borrower is advised to conduct thorough research and check their eligibility for a personal loan using a personal loan eligibility calculator. By preparing accordingly, they may increase their chances of being approved for a loan, even if they are experiencing employment or income instability.


While income and employment status significantly impact personal loan eligibility, solutions exist to overcome these challenges. By showcasing financial stability, exploring alternative lenders, and leveraging additional income sources or co-applicants, one can increase the chances of securing a personal loan, even if one faces employment or income instability.

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