Banks and NBFCs have various eligibility criteria for personal loans. Some of these include having a good credit score, being within a specified age range, meeting the minimum income requirement, a favourable debt-to-income ratio, employment status, among others. The bank uses the applicant’s income to assess their personal loan repayment capacity. In this article, we will understand the minimum income requirement for various banks to be eligible for a personal loan.

Why is the income criterion important?

When a bank or an NBFC gives a loan, they need to assess whether the borrower has the repayment capacity. They also need to assess whether the borrower will be able to pay the loan EMIs on time without stretching their finances. Assessing the borrower’s repayment capacity and timely repayment is even more critical in personal loans, as they are unsecured.

In an unsecured loan, no collateral is available. In the event a borrower defaults, the bank will not have any security to rely on, which it can sell and recover the personal loan outstanding amount. Hence, meeting the income eligibility criteria is crucial for a personal loan.

Calculating the DTI ratio using the borrower’s income

The borrower’s net monthly income helps the bank assess whether the borrower has the capacity to repay the loan. Based on the borrower’s monthly income and the amount going towards servicing existing debt obligations, the bank calculates the debt-to-income (DTI) ratio.

For example, an applicant’s monthly income is Rs. 50,000, and Rs. 12,500 is going towards paying existing loan EMIs. In this case, the applicant’s 25% income is going towards servicing debt obligations. Banks consider a DTI ratio of 35% or lower as good for approving personal loan applications, provided the other eligibility criteria are fulfilled.

Some banks may consider a higher DTI ratio of up to 40-45% range and still approve the personal loan application. In some of these cases, the bank may ask the borrower to get a co-applicant or a guarantor. In some of these cases, the bank may ask the borrower to reduce the loan amount or opt for a longer tenure.

Thus, the borrower’s monthly income, in conjunction with the DTI ratio, plays an important role in helping the bank assess the borrower’s repayment capacity and timely payment of EMIs. If an individual has a higher salary and a lower DTI ratio, there is scope for taking a personal loan of a higher amount. However, if the salary is low, it limits the amount that can be taken as a personal loan.

Minimum income requirement for a personal loan

In the earlier section, we understood the importance of the income criteria for being eligible for a personal loan. Let us now examine the minimum income requirements set by various banks for personal loans.

HDFC Bank: HDFC Bank has a minimum monthly net income of Rs. 25,000 for its XPRESS Personal Loan. The employment eligibility mentions about employees of private limited companies and public sector undertakings (Central, State, and Local Bodies). The HDFC Bank website doesn’t mention about the eligibility for self-employed individuals.

Axis Bank: The Axis Bank website mentions that the minimum monthly income for a personal loan depends on whether the applicant is an Axis Bank customer or not. For Axis Bank customers, the minimum monthly net income requirement is Rs. 15,000. For non-Axis Bank customers, the minimum monthly net income requirement is Rs. 25,000.

The personal loan eligibility criteria mentioned are for salaried Doctors, public and private sector employees, and Government sector employees (PSUs, Central and Local Bodies).

Kotak Bank: The Kotak Bank website mentions that the minimum monthly income for a personal loan depends on whether the applicant has a salary account with Kotak Bank or not. For a Kotak Bank salary account holder, the minimum monthly net income requirement is Rs. 25,000. For a non-Kotak Bank salary account holder, the minimum monthly net income requirement is Rs. 30,000. For a Kotak Bank employee, the minimum monthly net income requirement is Rs. 20,000.

The personal loan eligibility criteria mentioned are for salaried individuals working with a private limited company, a public limited company, or a multinational company (MNC).

State Bank of India: The State Bank of India website mentions that the minimum monthly income for a personal loan depends on whether the applicant is a Government employee or not. For a Government or Defence sector employee, the minimum monthly net income requirement is Rs. 20,000. For a corporate sector employee, the minimum monthly net income requirement is Rs. 25,000.

Does the minimum income requirement vary?

Yes, the minimum income requirement can vary across banks and even within the same bank, depending on the applicant’s city of residence, employment status, and other factors. In big cities, such as metros and Tier-1 cities, the cost of living is high. Therefore, the minimum income requirement for personal loans in such cities can be higher than in Tier II cities, smaller towns, and rural areas.

Similarly, the minimum income requirement can vary based on the applicant’s employment status. Some banks usually consider individuals working with the Government (Central, State, and Local Bodies) and PSUs to be less risky than those working in the private sector. Hence, the minimum income requirement for Government and PSU employees may be lower than private sector employees.

How to increase approval chances even with a low salary?

At times, the applicant’s salary may be low. In such cases, the applicant can bring in a co-applicant or a guarantor to boost the chances of the loan getting approved. The other options include reducing the loan amount or increasing the loan tenure, which would result in a lower EMI amount. A high credit score, demonstrating a proven track record of timely payments on earlier/existing loans, can also help.

Minimum income requirement is one of the eligibility criteria

While the minimum income requirement is an important eligibility criterion for getting a personal loan, it is only one of the criteria. The other eligibility criteria include having a good credit score, age within a specified band, employment status, a low DTI ratio, etc. The bank will approve the loan application only when the borrower fulfils all the eligibility criteria for the personal loan.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.

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