Making a career transition is becoming increasingly common in the country’s dynamic job market, especially among young professionals seeking better pay packages and employment opportunities.
Still, a move to a new position has complex implications when seeking approval for credit lines such as new personal loans, credit cards, among other such opportunities. The complexities arise when a lending institution carefully scrutinises the employment continuity and job stability of an aspiring loan applicant.
How job changes affect loan eligibility
Financial institutions weigh and cross-check several factors before permitting personal loan approval. Employment stability is one of the central factors in this regard. Recent job switches tend to slow down or complicate personal loan approvals. Especially in cases where the candidate has a very poor credit score or a history of serious financial distress or EMI defaults, such as home loan defaults or education loan defaults.
- Lending institutions prefer applicants with at least six months in their current jobs.
- Frequent changes in employment may be flagged as a sign of financial instability.
- Longer tenure at one employer is a massive positive and a mark of consistency.
Mukesh Pandey, Director of Rupyaa Paisa, notes, “A first change of jobs is an interfering factor in getting a personal loan approved, as intermediaries closely scrutinise income and employment continuity. People have generally been accepted with employment rarely shorter than six months—it is thought that job-hopping can be viewed as financial instability. A good credit score, very low debt-to-income ratio, and strong repayment history could help allay some concerns that are considered in favour of approval.”
Income, credit profile, and repayment history matter
Furthermore, changing jobs does not always mean a reduction in eligibility. If the new role brings higher income or improved career prospects, it can eventually boost your chances for a larger loan amount, provided you maintain a respectable credit utilisation ratio.
- Lending institutions analyse monthly income, past loan repayment patterns, and overall credit score management of an applicant.
- A move to a respectable institution or a significant pay hike is seen in a positive light, provided it is then sustained.
- Low debt-to-income ratio and timely repayments often compensate for short employment tenures. Focus should be on avoiding missed EMIs.
Short-term vs long-term impact
Given, changing jobs can complicate immediate loan availability. Still, its long-term impact hinges on whether the career move improves financial stability and brings solidity, or it results in a string of reckless, short-lived tenures that break stability.
Demonstrating consistent income, an upward career trajectory, and responsible financial prudence will always be critical for approval of future personal loan applications. Technology-driven lending institutions are known to analyse employment trends with increasing sophistication.
Steps to mitigate approval risks
- Maintain a strong credit score and a consistent repayment track record.
- Limit unnecessary job switches within short periods.
- Update financial documents promptly after joining a new company.
- Wait six months post-job change, if possible, before applying for a new loan.
- Check your credit profile and raise disputes promptly if you find errors.