Your Loan Eligibility Depends on Many Factors

Whether you need to finance a small business or are seeking personal loan rates, your eligibility depends on many factors. Your credit score, income and debt-to-income ratio are just a few of the variables lenders consider before approving you for a personal loan.


The good news is that there are steps you can take to improve your eligibility and snag competitive loan terms.

Credit Score

The credit score is a number that lenders use to determine whether you are creditworthy. It is based on information in your credit report and takes into account your loan and credit card payment history, amount you owe and other factors. A high credit score indicates responsible credit behavior and low risk of default. It also means that you can get a loan with ease and at lower interest rates. However, if you have a poor credit score, you might have trouble getting approved for a loan or will be required to pay a higher rate.

The most important factor in determining your credit score is your payment history, which accounts for 35% of your score. It considers things like how late you have been with your payments and what the reasons were. The amount you owe is another important factor, accounting for 30% of your score. The length of your credit history also plays a role, although this is less influential than your current debt. Finally, the types of loans you have (installment and revolving) as well as new credit accounts make up 10% of your score.

You can find out your credit score for free by requesting a copy of your report from one of the three major credit bureaus. It is also a good idea to check your credit report regularly for errors. You can dispute errors on your report by contacting the credit bureau directly.


Creditors use a variety of information to determine whether or not to approve your loan application. Among the things they consider are your credit report, your income and your outstanding debts. While your credit report can provide a snapshot of your financial history, creditors often require you to submit verification documents, such as paystubs, tax returns and balance sheets. They also may calculate your income using computer models.

Your income is the money you receive in exchange for your labor or products. It can be in cash or in other valuable items, such as property or services. Typically, income is measured over a specific period of time. For individuals, it can include wages and salaries, return on investments, pension distributions, dividends and other receipts. For businesses, it can include the revenues from selling goods and services as well as interest and dividends on cash accounts and reserves.

While there is no minimum amount of income lenders will consider, they do want to ensure you can afford your EMI repayments and have enough left over for other expenses. One way they do this is by looking at your debt-to-income ratio. Generally, they will look for a DTI of 35% or less. You can improve your DTI by earning more and paying off existing loans.


Collateral is something of monetary value that you pledge to secure a loan. It makes the lender more comfortable extending the loan since it protects their financial stake if you default on the loan.

You can use various types of assets as collateral for loans, including real estate (like your home or car), investments (like stocks or bonds) and even cash. Some lenders may also accept business assets as collateral, like inventory and accounts receivable. If you’re considering a collateral loan, check with several lenders to compare their rates and terms. Be aware that securing a loan with collateral takes longer than an unsecured loan since the lender will need to verify and appraise your assets.

Collateral loans can be a useful way to get money quickly and accomplish goals that you might not otherwise be able to, such as paying off debt, making a large purchase or funding an emergency. However, it’s important to remember that if you fail to make your loan payments, the lender will take ownership of your assets or property. In this article, CNBC Select explains how loans with collateral work and what you need to consider before offering up your assets or property as collateral for a loan. Read on for more!


Lenders are required to verify employment for any borrower who is applying for a mortgage. They will contact the borrower’s employer or use a third-party employment verification vendor to confirm information like the borrower’s position, title, dates of employment and current salary or hourly rate (for hourly employees). In addition, lenders must have copies of the most recent personal federal income tax returns and any applicable schedules.

When a borrower is on temporary leave, the lender must determine whether the borrower will return to regular employment prior to the loan closing and document this date. The lender must also verify the amount of “regular employment income” the borrower will receive following the end of the temporary leave and ensure this income meets standard eligibility requirements.

The lender will also need documentation about any other sources of supplemental income, such as rental property, commissions or bonuses, in order to evaluate the borrower’s ability to afford the monthly mortgage payment. This includes the borrower’s ability to access and withdraw funds from retirement accounts, such as 401(k)s, Individual Retirement Accounts, SEP or Keogh accounts.