Your personal loan approval is subject to these factors
What's the story
When applying for a personal loan in India, most people focus on their credit score. While this is an important factor, lenders also consider other aspects before approving a loan application. These include the borrower's income stability, employment history, debt-to-income ratio (DTI), and repayment history. Let's take a closer look at how these factors impact your chances of securing a personal loan.
Stability factors
Why income stability and employment history matter
Lenders want to be sure that borrowers can repay their loans consistently. This is why they look at income stability and a solid employment history. A clean credit history, a good credit score, and steady income sources (salaried employment, self-employment, or pensions) are preferred. Many financial institutions now require documentary evidence such as salary slips, past income tax submission details, collateral or bank statements spanning several months/years to verify this stability.
DTI importance
Understanding the debt-to-income ratio
The debt-to-income ratio (DTI) is another important factor that lenders consider before approving a loan application. This simple ratio compares the monthly debt obligations to gross income, and ideally, it shouldn't exceed 40-42%. A lower DTI indicates that the borrower isn't over-leveraged and isn't relying too much on debt for daily financial needs.
Repayment record
Other crucial factors lenders consider
Lenders also look at a borrower's repayment history, including the bounced EMIs, unpaid bills, and missed due dates. These factors can negatively affect eligibility even if income is stable. In cases where the credit history is weak/the credit scores are low, savings and available assets become increasingly significant as they suggest a borrower's capacity to manage unforeseen expenses and down payments.
Underwriting process
How to ensure a smooth loan application process?
Modern underwriting in India uses both automated systems and manual review. In such cases, information is collected from the loan applicant in layers. Any inconsistency or gaps in documentation can prompt requests for more information, potentially delaying loan approvals. Hence, aspiring borrowers should keep these points in mind while applying for a personal loan.