Loan Based on ITR: Benefits, Eligibility and Steps to apply

In India, securing a loan often hinges on presenting a solid financial profile, which can be challenging for individuals without a regular salary slip or collateral. However, loans based on Income Tax Returns (ITRs) provide a viable alternative for self-employed professionals, business owners, and freelancers.

These loans consider an applicant’s income and financial stability, as demonstrated through their ITR filings. This blog explores the benefits, eligibility criteria, and steps to apply for a loan based on ITR in India.

Benefits of Loans Based on ITR

1. Accessibility for Self-Employed Individuals:

One of the primary benefits of loans based on ITR is that they are accessible to self-employed professionals, business owners, and freelancers who might not have a regular salary slip but can demonstrate their income through their ITR filings.

2. No Collateral Required:

Many loans based on ITR do not require collateral, making them an excellent option for individuals who do not possess significant assets to pledge.

3. Higher Loan amounts:

Depending on the income demonstrated in the ITR, borrowers may qualify for higher loan amounts compared to other unsecured loans.

4. Flexible End-Use:

These loans are typically unsecured personal loans, meaning they can be used for a variety of purposes, including business expansion, debt consolidation, home renovation, medical emergencies, or education expenses.

5. Quick Processing and Approval:

With the availability of digital platforms, the processing and approval of loans based on ITR have become quicker, often completed within a few days.

6. Improved Credit Score:

Timely repayment of the loan can help improve the borrower’s credit score, making it easier to access credit in the future.

Read more: What is credit score and its importance?

Eligibility Criteria for Loans Based on ITR

Eligibility for loans based on ITR varies among lenders, but common criteria include:

1. Stable Income:

The borrower must have a stable and regular income, which is clearly reflected in their ITRs for at least the past two to three years.

2. Minimum Income Requirement:

Most lenders have a minimum annual income requirement, which can vary depending on the loan amount and lender policies. Typically, this amount ranges from ₹2 lakhs to ₹5 lakhs per annum.

3. Age Criteria:

The borrower should generally be between 21 and 65 years of age. Some lenders might have slightly different age brackets.

4. Good Credit Score:

A good credit score is essential. While the specific requirement varies, a score above 650 is usually considered favourable.

5. Valid ITRs:

Borrowers must provide valid ITRs for the past two to three years, showing a consistent income.

6. Business Vintage:

For self-employed individuals and business owners, a minimum business vintage of 2-3 years is usually required.

7. Additional Documentation:

Besides ITRs, lenders may require additional documents such as bank statements, business financial statements, identity proof, and address proof.

Read more: Mini loans or small personal loans – all you need to know

Steps to Apply for a Loan Based on ITR

Applying for a loan based on ITR involves several steps, each crucial for ensuring a smooth application process.

1. Evaluate Your Financial Needs:

Before applying, assess your financial needs and determine the loan amount required. This will help you choose the right lender and loan product.

2. Research Lenders:

Research various banks, NBFCs, and fintech companies offering loans based on ITR. Compare interest rates, processing fees, repayment terms, and other loan features.

3. Check Eligibility:

Review the eligibility criteria of different lenders to ensure you meet their requirements. This includes checking your credit score and ensuring your ITR filings are up to date.

4. Prepare Documentation:

Gather all necessary documents, including:

• ITRs of the last 2-3 years
• Bank statements for the past 6-12 months
• Identity proof (Aadhar card, PAN card, passport)
• Address proof (utility bills, rental agreement)
• Business proof (registration certificate, GST filings)
• Recent photographs

5. Fill Out the Application Form:

Visit the lender’s website or branch to complete the loan application form. Provide accurate details to avoid delays or rejections.

6. Submit Documents:

Upload or submit the required documents along with the application form. Ensure all documents are clear and legible.

7. Verification Process:

The lender will verify the provided information and documents. This may include calls or visits to your business premises if you are self-employed.

8. Approval and Disbursement:

Once verified, the lender will approve the loan and disburse the amount to your bank account. The entire process, from application to disbursement, can take anywhere from a few days to a week.

Read more: Minimum salary required to get a personal loan

Loans based on ITR are a boon for self-employed individuals, business owners, and freelancers in India. They provide a practical solution to access funds without the need for collateral, provided the borrower has a consistent income history and a good credit score. By understanding the benefits, meeting the eligibility criteria, and following the application steps meticulously, borrowers can effectively leverage their ITRs to secure the necessary financial support.

FAQs

What is a Loan Based on Income Tax Returns (ITR)?

It is a loan where lenders assess your income and repayment capacity based on your filed income taloanns (ITR) for the past few years.

What are the benefits of getting a Loan Based on ITR?

Benefits include higher loan amounts, lower interest rates, longer repayment periods, and easier approval for self-employed individuals or those with irregular income.

Who is eligible for a loan based on ITR?

Self-employed individuals, freelancers, professionals, and business owners who file income tax returns can typically qualify. Lenders assess income stability and repayment capability based on ITR.

How to apply for a loan based on ITR?

Gather your income tax returns for the past 2-3 years, along with other financial documents (bank statements, business financials). Approach banks, NBFCs, or online lenders, submit your documents, and complete the application process.