Lenders prefer salaried individuals with steady income for personal loans

While more than 25% of salaried borrowers have an excellent credit score of 770 and above, only 14% of self-employed consumers have such strong credit score profiles

While personal loans are expanding to different types of borrowers, salaried individuals continue to be the preferred segment for lenders, according to a report in The Times of India (ToI). This is evident by looking at the disbursal of loans to different categories of individuals. There is a clear preference for the salaried class, whose applications are cleared quickly with very few rejections. Lending institutions appear to prefer salaried borrowers compared to self-employed individuals, the ToI report said.

The newspaper report added that the scoring methodology used to assess the credit information about borrowers gives a better ranking to salaried people because of their steady flow of income.

 

Shift in the profile of borrowers

There is also a shift in the credit demand from different regions. For instance, the number of people seeking credit from non-metro cities has grown from 55 per cent four years ago to 75 per cent.

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The ToI report cited Paisabazaar and said credit score inquiries from tier-2 and tier-3 towns have grown. The share of inquiries from tier-2 towns has gone up to reach 30 per cent from 28 per cent in the financial year 2018-19. Whereas the share of tier-3 towns has increased from 27 per cent to 45 per cent.

Disparity in salaried and self-employed individuals

Personal loan disbursal data indicates a preference towards salaried employees. The ToI report said that while 29 per cent of salaried borrowers have five active credit accounts, the number of self-employed borrowers with similar accounts is 23 per cent.

Salaried individuals have better credit scores

The differences go beyond this and are reflected in the credit scores of salaried and self-employed individuals. While more than 25 per cent of salaried borrowers have an excellent credit score of 770 and above, only 14 per cent of self-employed consumers have such strong credit score profiles, the ToI report said.

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Lenders use credit score as a key parameter to assess the risk profile of any borrower. A good credit score indicates a lower chance of defaulting.