Banks approve loans based on your entire financial situation, not just salary. Learn the 5 key factors that can determine your loan amount and increase approval chances.
The question often arises: why does a bank approve a larger loan for one person and a smaller one for another, even when both have the same salary? The answer lies in your financial habits and profile.
It's important to understand that banks don't decide the loan amount based solely on your monthly income. They conduct a thorough analysis of your entire financial situation. Based on this analysis, it is decided how much loan you can get.
Besides your salary, several other factors directly impact your loan application. Let's explore these five important aspects in detail.
The first thing a bank checks is whether you already have any outstanding debt. If you are already paying installments for a car loan or a personal loan, it affects your ability to repay a new loan.
For example, if two individuals have the same salary, but one has no debt and the other is paying a car loan EMI, the bank will consider the first person less risky. This is because a larger portion of their income is available to pay the installment for the new loan.
Your payment habits reflect your financial credibility. Banks check the records of all your past loans and credit card bills.
If you have always paid your EMIs and bills on time, it's a positive sign. However, if you frequently delay payments or default, the bank may be cautious about lending to you or may approve a smaller amount. A delay once or twice might not have a major impact, but consistent delays weaken your profile.
How regular your income is also matters a lot. Banks consider people who have been working with the same company for a long time to be stable. The chances of such applicants getting a loan increase.
Conversely, those who change jobs frequently might be considered slightly risky by the bank. In the case of self-employment, the bank assesses your income stability by examining your Income Tax Returns (ITR) and business-related documents.
How you use your credit card shows your financial discipline. If you exhaust your credit limit every month or only pay the minimum amount due, it indicates that you are heavily dependent on credit.
On the other hand, a person who uses their credit card responsibly and pays the full bill on time is considered a reliable customer by the bank. This increases your chances of getting a larger loan amount.
Sometimes, the delay in loan approval is not due to your financial profile but incomplete documents. It is crucial to ensure that all your documents, such as salary slips, bank statements, and tax-related papers, are completely accurate and updated.
If there is a significant difference between your stated income and the amount deposited in your bank account, the bank may conduct an additional investigation. This doesn't lead to the rejection of your application, but it can cause unnecessary delays in the process.
*Edit with Google AI Studio
जोगेन्द्र सिंह शेखावत
