Loan Application Process

Loan Evaluation Process

Taking a loan can be a complicated process for most people. The illustration below indicates what to expect at every step during the loan evaluation process. It helps understand how the credit decisioning works in banks and the steps they take before deciding to accept or reject a loan/credit card.


applicant fills an application form
 

Hands it over
to the bank
 

bank checks with cibil for credit score and credit report
 

high credit score leads to eligibility check basis documentation
Loan credit score leads to rejection
 
Banks then proceed to check your Credit Information Report along with income demographics and other documentation
 
A Credit score 750 is
generally considered a good score

79% of the loans or credit card disbursed are to individuals with a CIBIL TransUnion Score greater than 750.


Non eligibility leads to rejection of application
 

Eligibility will lead to loan approval

What do the banks broadly check for?

  • Suite filed or written off cases reported in the Credit Information Report [CIR]. This is indicated in the 'Account Status' section of your CIR
  • Payment history trend - if there has been any default or amount overdue. This is indicated in the 'Days Past Due' [DPD] field of your CIR
  • Company profile where you work - the banks generally have an approved list to whom they extend loan / credit card.
  • EMI to Income ratio: if your current total EMI exceeds your monthly salary by more than 50% then chances of getting loan are reduced. Let's take the help of an example to understand this further.
determination of eligibility
 

Case 1*

  • Income : 50,000
  • Total EMI's being paid : 10,000
  • EMI to Income Ration : 20% [10,000 / 50,000]
  • Rule of thumb EMI to Income Ratio: 50% [lenders assume you will need half salary for living expenses].
  • Total Borrowing Capacity : 50% *
    50,000 = 25,000
  • Total Incremental EMI that individual can afford : 25,000 - 10,000 = 15,000
  • Basis this EMI, total additional loan that may be sactioned at an interest rate of 10% over 20 years = 15,00,000
loan application is likely to get approved
 

Case 2*

  • Income : 1,00,000
  • Total EMI's being paid : 50,000
  • EMI to Income Ration : 50% [50,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50%
  • Total Borrowing Capacity : 50% *
    1,00,000 = 50,000
  • Total Incremental EMI that individual can afford : 50,000 - 50,000 = 0
  • Basis this EMI, total additional loan that may be sactioned at an interest rate of 10% over 20 years = 0
loan application is likely to get rejected
* indicative example