The application for a personal loan is an easy way to get money, however, there is no guarantee that you will be approved. By going through a strict screening process, lenders make sure they are taking a calculated risk. If you are going to apply, it will be easier to make a guess and an application with the help of these 5 crucial factors.
1.Credit Score (CIBIL)
The credit score is the first thing that a lender looks at. It functions as the digital overview of your personal finances discipline. Generally, a score of 750 and above is regarded as great and thus leads to quick approval along with lower interest rates. A score lower than that indicates a history of payment defaults or over-borrowing, which means that the application might either be denied or voted for a much higher interest rate.
2.Monthly Income and Repayment Capacity
Lenders must be confident that your salary is sufficient to pay for the new EMI along with your daily lifestyle expenses. Although each bank has its own minimum income requirement, they usually prefer a stable, repetitive source of income. It is imperative to provide your salary slips or Income Tax Returns (ITR) as evidence of your ability to repay the loan.
3.Debt-to-Income Ratio (FOIR)
In the case the applicant comes with a lot of debt already, even a good salary may lead to money refusal. To assess the actual situation of the borrower, banks compute the Fixed Obligation to Income Ratio (FOIR) that shows the share of the borrower’s monthly income consumed by previous loans and credit card payments. Usually, if the debt accounts for more than 40-50% of the applicant’s earnings, the lender considers him/her as “over-leveraged” and rejects the loan application.
4.Employment Stability and History
Stability speaks the loudest when it comes to risk assessment. A lender’s favorite is an applicant who has stuck to one employer for a minimum of 6 to 12 months and who has a combined work duration of 2 to 3 years or more. Switching jobs often or being on probation can lower the applicant’s chances, as it is seen that the risk of income interruption is higher.
5.Accuracy of Documentation (KYC)
The number of loans turned down because of simple clerical mistakes can be quite surprising. Differences in your KYC documents (Aadhaar, PAN, and Bank Statements), like a misspelling in the name or an old address, can lead to automatic rejection. It is very important to check that all your documents are consistent and of the present time before submission.
