Published on 8 September 2016

How lenders assess loan applications

The purpose of loan applications is solely to establish your eligibility and to assure the lender that you would pay back, with interest and on time. Hence, only two things matter in loan applications: your financial health and personal profile.

  • Financial health pertains to present income, assets or savings you have, financial liability and source of income or employment history. The income determines how much you can spend and your financial liabilities will determine how much you can save or have to spare. The loan amount you are applying for will be repaid in instalments, which would most likely be monthly. The lender will check if you can afford to pay that instalment every month. The general approach is deducting all existing financial liabilities including monthly expenses from the income. The result should be considerably higher than the instalment that must be re-paid.
  • Source of income and employment history will be quintessential factors as that would tell the lender if an applicant has a steady income and if one has been employed long enough to consider it as a secured job or profession. Lenders are not concerned about your entire professional future. They just want to be reassured that you wouldn’t be out of job or be unable to repay the loan because of fluctuating income. If you are self-employed or have a business, then the history of your self-employment or history will be considered.
  • Both financial health and personal profile are assessed relatively. The type of loan you are opting for, the loan amount you apply for, the purpose of the loan, term and the instalments that you would have to bear will be kept under consideration while assessing your financial health and personal profile. The personal profile includes everything from your professional experience to your academic qualification. Not all lenders ask for these details but high loan amounts will call for increased scrutiny.
  • Your credit score will be the next checkpoint, followed by savings and investments. Your existing liabilities or loans will also be considered. Credit score obviously tells a lender if you have re-paid your past loans or have been good at repayment. Savings and investments will assure the lender that the applicant is bankable. Existing loans and other liabilities will tell the lender if you will be able to manage an additional financial obligation.


Lenders look for clarity, accurate details, truthful declarations and honest conversations.

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