Personal loans prove to be a boon when you need instant cash for merging debts, financing a home renovation project, wedding expenditures, or other personal necessities. However, getting approved for a personal loan isn't that straightforward—you need to meet the eligibility criteria set by the lenders, which generally includes having a good credit score, a stable income source, and the ability to repay the loan.

 Here, we outline a simple three-step process to check your personal loan eligibility using a personal loan calculator and other methods. 

Step 1: Assess Your Credit Score 

Your credit score is a critical factor that potential lenders consider when you apply for a personal loan. Generally, a higher credit score indicates that you have been responsible in repaying previous loans and credit card bills, increasing your chances of loan approval at lower interest rates.

Credit scores typically range from 300 to 850. A score between 700 and 850 is seen as excellent, 650-699 is considered good, and anything below that might increase the risk of loan rejection or higher interest rates. 

You can check your credit score online for free through several credit bureaus and financial platforms. Hence, credit score assessment should be the first step in your personal loan eligibility check. Remember, if your credit score is less than what is preferred, taking measures to improve it can enhance your chances of securing a personal loan in the future.

Step 2: Evaluate Your Repayment Capacity 

The next step is ascertaining your ability to repay the loan. Lenders view this through your Debt-to-Income (DTI) ratio, which is a comparison of your monthly income against your monthly debt repayments. It helps lenders decide how much more debt you can handle.

To calculate your DTI, sum up all your monthly debt payments like your car loan, student loans, and credit card payments and divide it by your gross monthly income. Keep in mind that a lower DTI is better—typically, lenders prefer a DTI under 36%. If your DTI is over 50%, it's considered high risk, which can limit your chances of loan approval.

Step 3: Use the Personal Loan Calculator 

Now, once you have gathered information about your credit score and DTI ratio, the next step is to use a personal loan calculator. This essential tool helps you get an idea about the monthly installments you'll have to pay based on the loan amount, rate of interest, and tenure.

Most lenders provide a personal loan calculator on their website. You have to enter the loan amount you wish to borrow, preferred loan tenure, and the interest rate (which may be estimated based on your credit score). The calculator will then provide an estimate of how much your monthly repayments might be.

Keep in mind, this is not a definitive number, but it gives a rough idea of whether or not you can comfortably manage the repayments along with your other monthly outgoings. It's a prudent financial move to borrow only as much as you can comfortably pay back to avoid falling into a debt trap.

Other Factors

Beyond these steps, lenders also consider factors like employment history, the stability of income, age, and more. Therefore, having a stable job or a consistent source of income can improve your eligibility.

In conclusion, knowing your personal loan eligibility in advance helps you make better financial decisions and improves your chances of loan approval. So, don’t overlook the importance of a personal loan eligibility check. By being aware of your credit score, understanding your repayment capacity, and utilizing the personal loan calculator for estimations, you can apply for a personal loan with greater confidence and a clearer financial vision.