Does My Employer’s Rating Impact My Loan Eligibility?

Are you about to apply for a Personal Loan but are wondering if your employers’ status impacts your loan eligibility. Yes, depending on what category your employer is, it does affect your loan eligibility.

The Personal Loan Eligibility Criteria

Banks have various Personal Loan products. The standard Personal Loan Eligibility Criteria are as follows:

• Satisfy the KYC norms
• Have a regular source of income
• Be in employment for more than a year or two (depending on the lender’s requirement)
• Ensure continuity of employment
• Have a good credit score

One of the essential conditions is ‘continuity of employment.’ It indicates that your employment status impacts the approval of Personal Loans. Consider the following example.

Sanjay, an employee of a reputed company like Infosys earning a salary of 30,000 per month. He applies to his bank for a Personal Loan. The bank approves the loan at an interest rate of around 12%. A couple of days later, his brother, Vijay applies for a loan from the same bank. Vijay works in a small company but earns more than 75,000 per month. The bank approves the loan based on his income but stipulates a higher interest rate of 15%. Vijay enquires with the bank the reason for the same. The bank replies that they have separate interest rate slabs for different categories of companies.

Segregation of Companies

Banks in India have their internal guidelines. Specific banks segregate the companies into various categories based on their profiles. They name them in multiple ways such as Super A, Category A, B, C, and so on. Some of the banks name them as Diamond, Gold, Silver, and so on. The terminology can varies from lender to lender.

The idea behind the segregation is that the employees of the higher rated companies get better offers like higher loan eligibility, lower interest rate, longer tenures, and concession in processing fees and so on.

Why Is It So?

The logical perception is that a person earning 75,000 per month is in a better position to repay the loans when compared to a person earning 30,000. However, working in a listed company has its advantages. The chances of the company closing down are less as compared to the smaller companies. It guarantees the continuity of employment. Persons working in smaller companies tend to switch jobs more often than the employees of the listed companies. It places the banks at a disadvantage. Hence, they stipulate lower ceilings and higher interest rates for employees of smaller companies.

Does Everybody Follow the Same Criteria?

No, each bank has its guidelines. Similarly, NBFCs (Non-Banking Financial Companies) have their rules. Most NBFCs like Bajaj Finserve and others do not give importance to this factor. They concentrate more on the income rather than the credentials of the employer. The repayment capacity is the essential factor for the NBFCs. Therefore, Vijay would have got higher eligibility had he approached Bajaj Finserve instead of the bank.

Does the City Where You Reside Matter?

Yes, it matters a lot. People living in the metropolitan cities have different loan eligibility criteria as compared to the people living in the smaller Tier 2 and Tier 3 cities. It is because the salary structure is lower in the smaller towns as compared to a metropolitan city.

Stability of the Job is Important

Banks consider companies in the listed categories as safe employers as against the unlisted companies. Banks have products where they relax specific qualifying standards for Personal Loans to employees of listed companies. One such instance is the reducing of the present employment period.

A person working in a reputed company like Tata Consultancy Services (for example) might be eligible for a Personal Loan even if the applicant has put in six months of service. The same concession is not available to an employee of a start-up IT firm.

Similarly, a job in the Government sector is a stable one. Usually, one does not switch jobs while working in the Government or the PSU sector. Therefore, the employees of these concerns have different eligibility criteria.

Loans to Employees of the Corporate Sector

The corporates maintain various accounts with banks all over India. The employees of these corporate companies keep salary accounts with these banks. Such banks have unique loan products to cater to employees of such corporate companies. These employees get the benefit of higher loan eligibility and a better rate of interest. It is because the repayment is easy. Banks can deduct instalments before disbursing their salary.

You have seen that the employment status has an impact on the loan eligibility. One can say that an employee of a listed/reputed company can go to the banks whereas the employees of smaller companies can avail loans from the NBFCs.