Whenever we need a home loan, car loan, or personal loan, the first thing that comes to mind is – the CIBIL Score! And rightly so, because your credit score (like CIBIL, Experian, or Equifax) plays a major role in whether your loan gets approved or not. A good score usually means higher chances of approval and possibly better interest rates too.
But did you know that lenders (banks or NBFCs) don’t make their decision based only on your CIBIL score? Even with a high score, your loan application can be rejected. Why? Because lenders consider several other aspects of your financial profile besides just the credit score. Let’s explore the 5 key factors that influence your loan approval:
1. Your Income and Its Stability
How much you earn is important, but banks are more concerned about how stable your income is.
What they check: Your monthly or yearly income, the source of income (salary, business, rent, etc.), and whether it has been consistent over time.
Why they check: Banks want to ensure that you have a regular and reliable income to pay your EMIs. People with stable jobs (like government or reputed private sector employees) often find it easier to get loans. Business owners or freelancers need to provide strong proof of income.
2. Your Debt-to-Income Ratio (DTI)
This is a crucial factor. DTI means how much of your monthly income goes toward repaying existing debts (like home loan, car loan, personal loan, credit card dues, etc.).
How it’s calculated:
(Total monthly EMIs / Total monthly income) × 100
Why they check: A high DTI (usually above 40-50%) indicates that you’re already burdened with debt, which raises concerns about your ability to repay a new loan. A lower DTI is considered better.
3. Your Employment History and Type
Where you work and for how long can also affect your loan approval.
What they check: Whether you are salaried or self-employed, the reputation of your employer or business, years of experience, and how long you’ve been in your current role.
Why they check: A stable job at a well-known company indicates job security and repayment capacity. Frequent job changes or an unstable business may make lenders hesitant.
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4. Loan Purpose and Details
Why you need the loan, how much you want, and the repayment period all matter.
What they check: The reason for the loan (home, car, education, wedding, business, etc.), loan amount, repayment tenure, and whether you are offering any collateral (like property for a home loan or a car for a car loan).
Why they check: Secured loans (like home or car loans) are usually easier to get approved because the bank has some guarantee. The loan amount and term should match your repayment ability.
5. Your Banking History
If you are applying for a loan from a bank where you already hold a savings or salary account, it could work in your favour.
What they check: How long you’ve had a relationship with the bank, your average account balance, past loan repayment record with the same bank, and whether any cheques have bounced.
Why they check: A good banking record builds trust and gives the bank insight into your financial behaviour.
Maintain a Strong Banking Profile
So next time you apply for a loan, don’t just focus on your CIBIL score. Keep your income stable, manage your current loans wisely (keep DTI low), stay steady in your job, and maintain a healthy banking history. A strong overall financial profile significantly improves your chances of getting a loan—even if your CIBIL score isn’t perfect.
Remember, banks lend money with the goal of getting it back safely, and all these factors help them judge your risk level.