CIBIL Score: Whenever we need a home loan, car loan, or personal loan, the first thing that comes to our mind is - the CIBIL score! And this is right too, because your credit score (like CIBIL, Experian, Equifax) plays a big role in getting or not getting a loan. A good score means more chances of getting a loan and maybe at a better interest rate too.
But do you know that loan lending companies (banks or NBFCs) do not make decisions only by looking at your CIBIL score? Despite having a good score, many times the loan application gets rejected. Why does this happen? Because banks or loan lending institutions look at many other things about your profile apart from your score. Let's know the 5 important things that decide your loan approval:
1. Your income and its stability
How much you earn is important, but how stable your income is matters more to the bank.
What to look at:
Your monthly or annual income, source of income (salary, business, rent, etc.), and whether your income has been coming in continuously for some time or not.
Why to look at:
The bank wants to ensure that you have sufficient and regular income every month to pay the loan EMI. Those who have a stable income (such as a job in a government or reputed company) often find it easier to get a loan. Those in business or freelancing have to provide solid proof of their income.
2. Your debt-to-income ratio (DTI)
This is a very important factor. DTI means how much of your total monthly income is going into paying the EMI of existing loans (such as home loans, car loans, personal loans, and credit card dues).
How to calculate:
(Your total monthly EMI / Your total monthly income) * 100
Why we look at it:
3. Your employment history (Employment History & Type)
Where you work and for how long you have been working also affects loan approval.
What we look at:
Are you a salaried person or do you run your own business? Which company do you work for (its reputation)? How many years of work experience do you have? How long have you been in your current job?
Why we look at it:
A stable job (such as working in a good company for a long time) shows your job security and loan repayment capacity. The bank may be a little hesitant to give loans to people who change jobs frequently or have unstable businesses.
4. Loan Purpose & Details
Why you are taking the loan, how much you are taking, and for how long, is also considered.
What is considered:
Reason for the loan (house, car, studies, marriage, business?), loan amount, repayment period, are you keeping any guarantee or collateral (like house in home loan or car in car loan)?
Why is considered:
Getting a secured loan (like a home loan, or car loan) is easier than getting an unsecured loan (like a personal loan, or credit card loan), because the bank has a guarantee. The loan amount and period should be according to your repayment capacity.
5. Banking Relationship & History
If you are taking a loan from the same bank in which you have an old savings or salary account, then it can be beneficial.
What is considered:
Why check:
A good banking record increases your credibility. The bank gets an idea of your financial behavior.
Maintain a good banking record
So the next time you apply for a loan, don't just focus on the CIBIL score. Keep your income stable, keep existing debts under control (keep DTI low), maintain stability in your job and maintain a good banking record. A strong overall financial profile greatly increases your chances of loan approval, even if your CIBIL score is not great. Remember, the bank wants to get its money back safely by giving you a loan, and all these factors help it assess your risk.
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
