25-Jul-2018 written by : FSI-Team
In the past few years there has been a lot emphasis on credit score and its importance in getting a loan application approval. A bad score could lead to the loan application being rejected right at the initial level. However does a good score guarantee the loan application being accepted? Obviously no, as creditworthiness is only one of the aspects that lenders consider when approving a loan application. Though a bad score could mean that the loan application does not go beyond the first stage a good score is not a guarantee for getting the loan application approved.
So when you apply for any loan there are loan eligibility criteria as laid down by each lender for different types of loan. This may vary across lenders and also may be different for different types of loans. Some other things apart from credit score that impact loan approval are:
Income Level: Lenders want to be sure about getting their money back, for this they want to ascertain the repayment capacity of the borrower. Looking at the income levels of the applicant helps them to be sure if the borrower will be able to bear the EMI burden every month. Car loan eligibility will be different from home loan eligibility, similarly the income levels acceptable for each type of loan will vary and it may vary from lender to lender too! Some lenders may specify a minimum income level; for some type of loans.
Current Debt: Apart from the income levels another aspect that determines the repayment capacity of the applicant is the current debt level of the applicant. Lenders want to assess the debt to income level of the applicant; it should ideally not be more than 30%. This means not more than 30% of your monthly income should be utilized in paying EMIs. If you already have a high level of debt then lenders are not likely to look at your loan application favorably as you will find yourself stretched to repay your monthly installments.
Employment Records: Lenders also look at the employment records of the applicant before accepting a loan application. Some lenders may specify a minimum time frame for the applicant to be employed in the current job or for the business to be running when applying for a loan. Obviously any bank will prefer people who are employed with well reputed organizations or with the government. Those who are working in lesser known small organizations or those who are self employed or those who switch jobs frequently may sometimes find it difficult to get their loan applications approved.
Age: Banks have minimum and maximum age criteria for each type of loan. The minimum age level is to ensure that no minors apply for loans and also that one applies for a loan only after reaching the age of employability (except in the case of an education loan). The maximum age is generally linked to the loan tenure; banks want to ensure that the loan is fully repaid before the borrower retires. Thus if an applicant aged 45 years applies for a home loan for 15 years then his application is likely to accepted if all other aspects are in order. However if for the same applicant the loan tenure is 20 years then the application may not get accepted as by the loan completion tenure the borrower would be 65 years and hence retired.
Other Aspects: Apart from the aspects mentioned above lenders do consider some other aspects also. The applicant must have all the required documents for getting the loan approved. Banks also consider residence address and the length of stay, there may be some places that may be on a negative list and staying there could get your loan application rejected despite a good credit score. In certain cases lenders may also consider the spouse's income too.