When you are a part of a diverse and progressing economy like India, it is important to understand some core financial instruments. One such financial consideration that most individuals have at least one point in their lives is instant personal loans. In the field of personal loans, there are some aspects that are crucial to get approval. One such aspect is the Gross Income.
Do you wonder why gross income is such an integral part of the personal loan approval process? Let us find out!
What is Gross Income?
Gross income is the total income earned by an individual before any type of deduction. Some of the common deductions can be taxes, insurance premiums, and provident funds. The gross income is known to span aspects like your salary, bonus, rental income, income out of interest, and other types of earnings. In simpler words, gross income is the amount of money an individual earns before any deductions are performed.
If you wish to secure a personal loan, gross income serves as one of the primary considerations. Lenders typically analyze your gross income to assess the repayment capacity. A higher gross income will imply a higher loan amount and effective loan terms. On the other hand, a lower gross income will ultimately limit your borrowing capacity while resulting in less favorable loan terms.
What is the Difference Between Gross Income and Net Income?
Gross income is the income earned before any deduction. On the other hand, net income is the amount remaining after all deductions have been executed.
For instance, an individual might have a gross income of INR 50k per month. The deductions could amount to INR 10k. Therefore, the net income of the individual will turn out to be INR 40k per month.
Usually, lenders analyze both gross income and net income while checking the ability of an individual to repay the loan amount. Still, gross income is known to play a significant role during the initial stages of your loan approval.
What is the Importance of Gross Income for Personal Loan Approvals?
Some of the pointers suggesting the significance of gross income for personal loan approvals are:
- Assessing Repaying Capacity: Gross income offers lenders a fair idea of the total earning capacity of the borrower. This, in turn, helps lenders determine the ability of the borrower to repay the loan amount. A higher gross income will indicate an improved ability to manage and repay the loan amount without any chances of a default.
- Evaluating the Loan Amount: The total loan amount that is sanctioned by the lender serves as a percentage of the gross income of the borrower. Lenders typically leverage gross income values to set the maximum loan limit.
- Determining Eligibility Criteria: Most lenders or financial institutions impose a specific gross income requirement that loan applicants are expected to meet before applying for the loan. The limit can vary from one financial institution to another. Fulfilling this eligibility criterion is the initial step of getting a loan approval.
- Determining Loan Tenure and Interest Rate: The gross income of the individual is also believed to influence the loan tenure and interest rate provided by the lender. Individuals with a higher gross income will receive lower interest rates and better loan tenures.
What are Some Additional Factors to Consider?
Some additional aspects to consider while applying for a personal loan are:
- Gross Income & Loan Approvals: Both these aspects are closely linked to each other. A higher gross income helps in improving the overall chances of loan approvals. This is because a higher gross income value assures the lender of the repayment ability of the borrower.
- Personal Loan Eligibility Criteria: Lenders tend to analyze different factors before giving approval for a personal loan. As such, gross income serves as a primary factor in determining personal loan eligibility. It assists lenders in determining the financial stability of the borrower and the respective repayment capacity.
- Personal Loan Specifications: Some leading financial institutions, including NBFCs (Non-Banking Financial Companies) and banks, feature specific personal loan requirements for approval. One of the requirements is the minimum gross income limit, along with a decent credit score and a stable repayment history.
- Impact on Loan Tenure and Repayment: Gross income is known to influence personal loan eligibility with respect to the tenure and loan amount granted. A higher gross income results in better loan amount approvals. Moreover, there is also a possibility of a better loan repayment tenure with a higher gross income.
- Loan Processing Benefits: The importance of gross income in the loan processing stage is also crucial. It influences the loan approval decision to a greater extent. Moreover, is also determines the specific terms & conditions of the loan. For example, applicants with a higher gross income will receive better interest rates and a longer repayment period.
- Online Loan Applications: With the advent of digital banking and fintech apps like Stashfin, most individuals prefer applying for a personal loan online. During the online loan application process, applicants are expected to provide their gross income details. This information is verified with the help of bank statements, tax returns, or salary slips. This is a crucial step for ensuring the online loan approval process.
Conclusion
Gross income is a crucial factor lenders consider when evaluating personal loan applications. It provides a clear picture of an individual’s earning capacity and their ability to repay the loan. By accurately assessing gross income, lenders can make informed decisions, ensuring responsible lending practices. Therefore, it’s imperative for borrowers to provide accurate information about their gross income to maximize their chances of loan approval and secure favorable terms.
