Lenders have to be careful of who to lend to based on the borrower’s credit worthiness. Else, they would face the risk of non-payment and default that can be well avoided if the spadework is done first. A lot of groundwork has to be done before a loan application evaluation is completed and the loan is considered safe to be disbursed.
Risk evaluation is important for all loans and more so in the case of personal loans because they are unsecured. Personal loans are a popular financing option because they are collateral-free. This means that the borrower need not pledge any asset as collateral against the loan. While this makes the option popular, it increases the risk of the lender. In order to reduce this risk, personal loan lenders do a thorough check of the borrower covering the following points –
- CIBIL Score
- Current Salary
- Employment Details
- Repayment History
- Amount of Loan
- Purpose of the Loan
- Savings / Extra Income
Let us examine them all, individually –
Since personal loans are processed very quickly, the first point that is checked is the CIBIL score. A CIBIL score is a numerical summary of the credit history of the borrower. It covers all the debts that the borrowing is currently holding and repaying. It gives a fair indication of the creditworthiness of the borrower. The CIBIL score is a number in the range of 300-900. A score of 750 is usually considered good enough for loan approval.
You can apply for a personal loan only if your monthly take-home salary is higher than Rs 30,000. It is important to put a minimum income in place else it will be difficult for the lender to manage the risk of non-repayment. That is why as a prerequisite the salary slips of the last three months need to be provided while applying for a personal loan.
The lender prefers to obtain details of the employment history which includes when you started working, details of previous jobs, job breaks etc. This gives the lender a fair assessment of your earnings to date and whether you are working with a stable organisation that will sustain in uncertain times too. You need to have been employed for six months for a CIBIL score to be generated.
The lender likes to understand in what capacity you are working with the organisation. If you are working in a senior professional role you get more priority as it is expected that your job is at a lower risk compared to lower grade employees. Lenders prefer extending loans to employees working in stable organisations.
The lender has a special interest in understanding your debt history and how you have been repaying it without any defaults. This gives the lender an assurance that the personal loan EMIs will be repaid on time. If there are any unpaid amounts in your repayment history, the lender may hesitate to give you a fresh loan. It is important that you fix the existing debts before you apply for a fresh personal loan.
Amount of loan
The loan approval also depends on the amount of the loan requested. If the loan amount is small, the lenders may be willing to overlook a few details if your relationship with the lender is good. In case the loan amount is high, detailed evaluation of your financial details cannot be avoided.
Purpose of the loan
The approval of the loan does depend to a certain extent on the purpose for which it is going to be used. The chances of getting a loan for a low-risk purpose like the home renovation or rental deposit is higher than getting a loan for a high-risk purpose like a business start-up or share trading.
The lender asks for the bank statement of the salary account of the last six months to ascertain the financial health of the borrower. It gives a clear picture of the inflows and outflows and indicates the surplus available in the account. This helps the lender to assess whether the borrower can bear the burden of a new EMI.
As a borrower, it is better for you to ensure that you maintain a good credit score, do not default on payments and ensure that the new EMI does not put additional pressure on the monthly budget and cash flow. The better your credentials, the easier it is for you to get a loan sanctioned.
For all your personal loan requirements you can visit the Loan ap website, fill up an online application form and submit the following documents-
- PAN Card
- Aadhaar Card/Passport/Driving Licence
- Salary slips of the last three months
- Bank Statement of the Salary account for the last six months
The LoanTap team will evaluate your application and if everything is found satisfactory your loan amount will be disbursed. The entire process takes only 24-36 hours. You can get a personal loan ranging from Rs 50,000 – Rs 10,00,000 at interest rates starting from 18% per annum for tenure from six months to sixty months. What are you waiting for? Just click on the LoanTap website and let the good times begin!