12-Jan-2018 written by : FSI-Team
For some time now a lot of emphasis has been given to credit scores and their utility for the borrower and the lender as well. It is well known now that credit scores can get loan applications accepted or rejected; thus this number is definitely important when we think about the borrowing process.
However, this is not only statistics that needs to be focused on when taking a loan. Lenders base their decision on a lot of other numbers before deciding who to give a loan to and how much loan to sanction. Let's see what other numbers are important when it comes to loans.
When you take a loan that is asset backed like a home loan or an auto loan then you are sanctioned an amount that is a specified proportion of the value of the asset and not the entire cost of the asset. This is known as the loan to value ratio, thus for a car, you may get a loan that is 85% to 95% of the car value and for buying a home you get a loan ranging from 75% to 90% of the house cost. Home loan interest rates and the amount of down payment required varies with the lender policies and also the home value. The rest you have to pay from your own savings and this is known as a down payment. Without the adequate amount of money saved for a down payment, you cannot get a loan.
The number of loans you have running also impacts your chances of getting a new loan sanctioned. If you already have a few loans running and they still have a long time before they finish then lenders will not be sanction you a fresh loan. Closed loan that are done and over with will not be a problem on the other hand.
Your income is not a part of CIBIL score calculation but it will determine how much loan you can get. For some loans like a personal loan, your net income (salary or profit) is directly linked to the amount of loan you can get. Many lenders put the figures on their website where the minimum salary or annual profits is specified for you to get a loan sanctioned. For other loans like a home loan etc it is taken into consideration along with a few more factors when the loan eligibility is being calculated.
Though the income level of the applicant is important, it is also important to judge how much of the income is being used to service the existing loans. The debt to income ratio lets the lender judge if the applicant will be able to pay the installment for the new loan that he/she is applying for. The amount of debt as a ratio to the income is used as a parameter to judge to eligibility of the applicant. Other monthly expenditures made by the applicant are also used to assess the suitability for taking a fresh loan. Obviously lower the ratio, better are your chances of getting a loan sanctioned but generally, a debt to income ratio above 40% could make things difficult for the applicant.
Lenders will always like to ensure that they get their funds back. For this continued flow of income is required. Years of service and number of years a business has been running let the lender judge the stability of the person who is employed or the self employed and professional. Some lenders specify the minimum number of service years or the number of years a business has been running for the applicant to be eligible for the loan.
Thus the CIBIL score is important for taking a loan but apart from it, some others are also important as we have discussed above.