Lenders prefer salaried individuals with steady income for personal loans
While personal loans are expanding to different types of borrowers, salaried workers remain the preferred segment for lenders, according to a report in The Times of India (ToI). This is evident from the disbursement of loans to different categories of individuals. There is a clear preference for the salaried class, whose applications are processed quickly with very few rejections. Credit institutions appear to prefer wage earners over self-employed people, the ToI report said.
The newspaper report added that the scoring methodology used to assess credit information on borrowers gives employees a better ranking due to their steady income stream.
Shift in the profile of borrowers
The ToI report quoted Paisabazaar as saying that the number of credit score inquiries from tier 2 and tier 3 cities has increased. The share of questions from the second category of cities has increased from 28 percent in the 2018-2019 financial year to 30 percent. While the share of third-tier cities has increased from 27 percent to 45 percent.
Inequality between employees and the self-employed
Personal loan disbursement data indicates a preference for salaried workers. The To me The report shows that while 29 percent of salaried borrowers have five active credit accounts, the number of self-employed borrowers with similar accounts is 23 percent.
Salaried individuals have better credit scores
The differences go further and are reflected in the credit scores of employees and the self-employed. While more than 25 percent of salaried borrowers have excellent credit scores of 770 or higher, only 14 percent of self-employed individuals have such strong credit score profiles. To me report said.
Also read: How to get a pre-approved personal loan from Kotak Mahindra Bank?
Lenders use the credit score as a key parameter to assess the risk profile of each borrower. A good credit score indicates a lower probability of default.
First print: November 2, 2023 | 11:27 am IST