When you apply for a personal loan, you have to fulfil various eligibility criteria. Some of these include a good credit score, a low debt-to-income (DTI) ratio, age, income, work experience, etc. Your work experience is one of the criteria that is considered when approving your personal loan application. In this article, we will understand how your overall work experience can impact your personal loan application.
Impact of work experience on personal loan application
One of the criteria that the bank considers while processing a personal loan application is an individual’s experience. Most banks specify the requirement of overall work experience and tenure with the current employer.
Positive impact of a job change on a personal loan application
If you have changed your job recently, it can impact your personal loan application both ways: positively as well as negatively. During your recent job change, you may have moved to a higher designation, a reputable company, and, of course, with a higher salary. All these factors can have a positive impact on your personal loan application.
Higher cash flows: A higher salary, which results in higher cash flows, improves the probability of the personal loan application getting approved. A higher cash flow reduces the debt-to-income (DTI) ratio and improves the borrower’s loan repayment capacity, which are important factors that a bank considers.
Shift to a stable company/sector: If you move from a company/sector considered risky by the bank to a company/sector considered stable, it improves the probability of personal loan approval.
For example, suppose the individual was earlier working with a startup or an IT company. Individuals working in some of these companies/sectors are vulnerable to layoffs due to various reasons. Suppose the individual has now moved to a manufacturing company or a Government job. These companies/sectors are considered stable by the bank. In this case, the probability of the personal loan getting approved increases.
Negative impact of a job change on a personal loan application
In the earlier section, we understood how a job change can positively impact an individual’s personal loan application. However, in some cases, a job change can negatively impact an individual’s personal loan application. Let us understand how.
Frequent job changes:If you have made multiple job changes, and that too within a short duration, it is a red flag for the bank. The bank may consider you unstable with your employment and can reject your personal loan application. Even if the bank processes your application, in some cases, it may come with conditions like a higher interest rate, a shorter loan tenure, or a lower loan amount.
Banks prefer personal loan applicants with a stable career, where an individual stays with an organisation for a longer tenure and grows there.
Break between jobs:If you are taking up a new job after a long break, the bank will process your personal loan application cautiously. If the break between your new job and your earlier one is a few days, weeks, or a month, it will not impact your application much. So, when applying for a personal loan, ensure that there are no long gaps between jobs without valid reasons.
Probation:When you take a new job, there may be a probation period of 6 to 12 months. Banks are cautious about processing personal loan applications during the applicant’s probation. They may prefer to wait till you get the confirmation letter.
Work experience criteria for personal loans
Most banks specify work experience as one of the criteria for personal loans. They specify the overall work experience and the tenure with the current employer. Here are the work experience criteria for a personal loan as specified by some banks on their website.
HDFC Bank: The applicant must have had a job for at least 2 years. Out of this, a minimum of 1 year must be with the current employer.
ICICI Bank: A salaried individual must have a minimum of 2 years of total work experience. A self-employed individual must have been in the current business for at least 2 years, and have a total experience of 3 years.
Axis Bank: A minimum work experience of 1 year is expected. It ensures the applicant’s employability status and repayment capacity to the lender.
State Bank of India (SBI): Individuals working in the Government or Defence sector must be in service for a minimum of 6 months. Similarly, individuals working in the corporate sector must be in service for a minimum of 12 months.
Kotak Bank: The individual must possess at least one year of work experience.
How to increase the probability of personal loan approval?
We have discussed the work experience requirement by some banks for personal loan eligibility. Let’s examine some steps that you can take to increase your chances of getting the personal loan approved.
- Ensure you have a stable career. Aim to stay with the same organisation and grow within it.
- Even if you change jobs, ensure you move to a higher position with a better pay package.
- Ensure there is no/low time gap between two job changes.
- If you have taken up a new job recently, wait for the probation period to get over before applying for a personal loan.
- Always maintain a good credit score (750 and above), low DTI ratio (35% or lower), good timely repayment track record, etc.
Banks consider the overall eligibility criteria
While processing a personal loan application, banks consider the overall eligibility criteria, one of which is the applicant’s work experience. The individual must possess overall work experience along with the required minimum tenure with the current employer. However, just meeting the work experience criteria is not enough for personal loan approval.
Along with meeting the work experience criteria, you must fulfil the other eligibility criteria. These include having a good credit score, a low DTI ratio, a minimum income, and age etc. Only when you fulfil the overall eligibility criteria will your personal loan application be approved.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.
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