Worried about your loan application being rejected? Banks keep a close eye on these 7 things; know more

Taking out a loan has become common these days, but not every application gets approved. Banks actually consider your credit score, income, age, job stability, and 7 other crucial factors before approving a loan. Understanding these factors will help you get your loan approved quickly.

In today's world, taking out a loan is no longer a last resort or a sign of desperation. Whether it's buying the latest smartphone, getting your dream car, building your own house, or funding your children's higher education, loans have become an integral part of people's lifestyles to fulfill every need. This is why banks are now actively attracting customers with advertisements for "instant loans" and "minimum documentation." But have you ever wondered why, out of two friends working in the same company, one's loan gets approved in 5 minutes while the other's is rejected?

The truth is, banks don't just look at your face or salary slip. There's a whole system behind loan approval. So, if you're planning to take out a loan, it's crucial to understand these 7 major factors to ensure your application is approved on the first try.

Credit Score

It's important to know that any bank will first check your CIBIL or credit score. This score is considered good if it's between 300 and 900. This score is determined by your payment habits if you've previously taken out a loan or used a credit card responsibly.

The Numbers Game: If your score is above 750, you can become a bank's favorite and get a loan instantly. A low score, however, means you've likely defaulted on payments in the past.
Important Note: If you don't have a credit history, start building one by taking out a small consumer loan or a credit card and paying your bills on time. Your Job and Work Experience

Before granting a loan, banks want to ensure that you have the ability to repay the money you are borrowing. They assess your job stability, among other factors.

Who benefits: Government employees, employees of reputable private companies, and professionals like doctors and chartered accountants are considered "safe" by banks.

Work Experience: If you change jobs every six months, the bank may refuse to give you a loan. Ideally, spending at least 1-2 years at your current company can increase your chances of getting a loan.

How much time do you have?

Age plays a significant role in loan approval. Banks want you to repay the loan during your working life.

Young applicants: Banks easily grant loans to those aged 25 to 40 because they have many earning years ahead of them.

Close to retirement: However, if you are 55 years old and applying for a 20-year home loan, the chances of rejection increase. In such cases, you may need to opt for a shorter loan tenure.

Actual Income and Bank Balance

Having a high salary alone is not enough to get a loan. The bank looks at how much money you have left after all your expenses.

Savings calculation: If your salary is around ₹50,000 and you already have ₹30,000 in existing EMIs, getting a new loan will be difficult. The bank checks if you have enough money left after EMI deductions to manage your household expenses.

Joint loan: If your income is low, you can increase your loan eligibility by making your working spouse a co-applicant.

Loan Repayment Tenure

Before granting any loan, the bank considers the loan tenure, which directly impacts your approval.

Short-term loans: Smaller loans like personal loans, which are for 1 to 5 years, are approved more quickly. Long-Term Loans: For large loans like home loans that span 20-30 years, banks conduct very thorough checks because the risk increases with time.

Guarantee or Collateral

Loans are generally of two types: secured and unsecured.

Secured Loans: If you take a loan by pledging your house, plot, gold, or fixed deposit (FD) as collateral, the bank feels secure. Such loans are approved quickly, and the interest rate is also lower.
Unsecured Loans: Personal loans do not require any collateral, so the bank becomes very strict about your profile and credit score.

Down Payment or Margin Money

Did you know that banks don't provide loans for 100% of the value of anything?

Risk Management: You have to pay a portion (10% to 20%) of the car or house price yourself, and this is called the down payment.
Benefits: If you pay a larger amount as a down payment from your own pocket, the bank feels that you are serious, and your loan is approved immediately.

Your Existing Relationship with the Bank

If you have an existing account with the same bank from which you are taking the loan, you get 'priority'. Many banks also offer 'Pre-Approved Loan' facilities to their old and good customers, where the money can be credited to your account in the blink of an eye without any documentation.

If you have an existing account with the same bank from which you are taking the loan, you get priority. Many banks also offer 'Pre-Approved Loans' to their old and good customers, where the money can be credited to your account in the blink of an eye without any documentation.

Take loans wisely

Taking a loan is no longer a difficult task; you just need to maintain a disciplined financial profile. So, pay your bills on time, don't take too many loans, and keep a clear record of your income. Yes, if you keep these 7 things in mind, the bank will itself come running to offer you a loan. (Note: This news is based on general information; for more detailed information, please consult a financial advisor.)

FAQs related to the news

1. What is the most important factor in loan approval?
The credit score is the most important factor, as it reflects your repayment capacity.

2. What is considered a good credit score?
Generally, a credit score of 700 or more is considered good for a loan.

3. Does changing jobs affect a loan?
Yes, frequently changing jobs can raise questions about your income stability with the bank.

4. Is it possible to get a loan even with a low salary?
Yes, if you have a good EMI repayment capacity and low expenses, you can get a loan.

5. Is it possible to get a loan without collateral?
Personal loans are available without collateral, but they usually have higher interest rates and stricter terms.