IndiaLends Advisory

By IndiaLends Advisory

Nov 02, 2018

Things Banks Consider In A Personal Loan Applicant

Banks and NBFCs take a risk when they give approval to someone who is getting a personal loan. There is no guarantee, after all, that the loan will be repaid by the borrower. So it is obvious that they would want to do everything they can to reduce the amount of risk they are taking.

This means they would want to look for certain factors in the applicant’s profile, to ensure that he is a creditworthy individual. Having these factors in your profile ensures a quick and easy approval on getting a personal loan.

Here are some of them:

The debt to income ratio helps lenders ascertain the borrower’s ability to manage monthly payment. In simple words, it represents the amount of debt you hold, with respect to your income every month.

Let’s take a simple example: If you earn ₹50,000 a month, you can easily pay a personal loan EMI of ₹10,000 a month. However, it becomes harder to pay if you already have a car loan or home loan EMI of ₹15,000 running.

Thus, lenders look for a debt to income ratio of less than 50%. This means that if your total income is ₹50,000, you should have less than ₹25,000 in all the EMIs combined. If your debt to income ratio is more than 50%, then the lenders assume that it would be difficult for you to repay your loan. This makes it a risky investment for them.

Lenders consider your years of employment and the number of years you’ve been associated with your current company. Applicants who have a non-consistent employment history and have changed their jobs frequently are considered a huge risk for lenders.

However, this also does not mean that you need to be associated with a company for long for getting a personal loan. The lender would only check if you’ve been in the same field for a consistent period and whether your employment has been stable.

The process of getting a personal loan is more difficult for self-employed individuals. Which is why they need to give more information to establish a history of reliable income.

When you apply for a personal loan online, you should keep in mind that these factors will help strengthen your application. They will also increase the chances of getting a personal loan.