23-June-2016 written by : FSI-Team
Looking to buy your dream home? Or now that you’ve just bought one, a personal loan to do it up the way you’ve always wanted? Whatever be your dream, with the myriad loan options out there, there invariably is something for everyone. Of course, wanting to avail of a loan and finally getting one sanctioned are two entirely different things, and the latter needs more than just luck. Let’s take a look then at the factors that go into loan approval.
CIBIL score – Does this sound familiar? Yes, with the advent of four credit information companies or credit bureaus in India as on date, the awareness about bureaus and the work they do is slowly rising. Hence, you should know that the first go-to piece of information for a lender when you apply for a loan is your credit score. Essentially a summary of your credit report, a score indicates your creditworthiness to a lender, or the likelihood of a borrower defaulting on a loan repayment. Higher the score, remember, better are the chances of your loan being approved. Typically, a score of 750 and above is considered to be a ‘good’ score on one’s credit check.
Income – Your current income will play a major role in approval. A lender is likely to ask for documentation to support your income details, such as recent salary slips, bank statements, income tax returns, depending on whether you are salaried or self-employed. After all, the loan does need to be repaid!
Debt-to-income ratio – This parameter is also important, because a lender will gauge your existing outgoings versus your income. This will include any existing loan or credit card obligations, monthly household expenses and any other outgoing of a fixed nature, such as a child’s school fees. Typically, the ideal debt-to-income ratio is low, of around 36 percent.
Employment history – While you may wonder why a lender is concerned with your employment history remember that it is again a source of information for them. Someone who is stable, employed with an organisation for a significant period of time is perceived to be reliable. On the other hand, switching jobs constantly may likely prove to be a red flag to a lending institution.
Down payment – The higher down payment you can provide, the better it may prove to be. Why? Simply because this reduces the loan amount you require, and this could mean a lesser monthly repayment amount also.
Savings – While lenders are there to extend loans, given that there is always an inherent risk for them, they are glad to lend to those individuals who pose the least risk. Someone with savings therefore is likely to be more stable and financially responsible – golden words to a bank or financial institution.
By no means should you ignore your credit score (popularly known as CIBIL Score), because lenders do believe it to be crucial. But the other factors too are important and cannot be ignored. Hence when you need a loan, if you as a potential borrower check mark all of these, you’re very likely good to go!