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What Do Banks Look at While Sanctioning Loans for You ?

What Do Banks Look at While Sanctioning Loans for You ?

  • By Saral Credit
  • June 16, 2022

Taking a loan has become a new norm as it provides an easy option to fulfill your dream without paying total upfront. Nowadays, multiple banking firms and lenders provide you with quick loan options for various purposes like home loans, personal loans, vehicle loans, education loans, etc.. However, before you get loan approval, numerous aspects are analyzed to ensure you are worthy of getting the desired amount and having the potential to repay it back on time. Among all factors, credit plays a significant role in decision-making.

When you plan for a loan, it's crucial to know about various factors that a bank looks at while sanctioning a loan. Below are the factors that are strictly considered to ensure you are eligible to get the desired amount.


First among all is your credit score. A credit score is a three-digit number between 100 and 900 that clearly shows an individual's trustworthiness. A credit score near 100 is considered bad, and a score near 900 is considered excellent. Below is the categorization of credit scores that you must check to evaluate your credit status.


Credit Score

Very Poor






Very Good




In India, four credit bureaus are responsible for generating your Credit Score. However, they have different algorithms that result in slightly different scores from each other. Four-credit bureaus in India are:

  • TransUnion CIBIL
  • Equifax
  • Experian
  • CRIF Highmark

CIBIL Score is highly considered to evaluate your eligibility for any loan or credit facility. With a higher credit score, you have a higher probability of getting your desired loan with the lowest interest rates available.

However, with a low credit score, you might either get rejected. Even if you qualify for the loan, the interest rate will be significantly higher than the market standard. In short, to qualify for any loan type prefers having a credit score above 700.


Before you qualify for the loan, lenders always ensure you can repay the loan on time. Hence your income and employment tracking are done. Lenders check your current company and your current salary. It's important to note that the income criteria vary from bank to bank.

A salary check is done to get an overview of how much you are currently making every year and how much you expect from the banks/lenders. If you have applied for a significant amount that isn't feasible matching your current salary, you won't get the loan approved.

Your employment history is also put under vigilance as anyone with a steady job has a high potential to repay the loan on time. Moreover, anyone with a quick job switch can leave the job too often and turn into a defaulter.

That's why you are asked for at least a 6-months salary slip and Form-16 from your current employer. It gives a clear picture of how much you have served in your current company and how much you earn.

NOTE: If you don't have Form-16, you can also submit the last two years' ITR statements.


Another crucial part of loan approval is your debt-to-income ratio. It is close to your income history. Most lenders check your current monthly debts compared to your income. You might get rejected if you have more than a 43% debt-to-income ratio.

43% debt to income ratio means your 43 percent monthly income is only allocated to clear the pending dues/loan. If you are applying for additional loans, it will add to this 43% which will put a financial burden and can bring a crisis-like situation.

NO lender ever takes a risk on borrowers with a higher debt-to-income ratio. Instead, they prefer candidates with handsome income and no/least ongoing debt. Before applying for the loan, check your debt-to-income ratio and evaluate whether you should apply for the loan or work on the current credit fasciitis to lower the debts.


Before understanding the value of your collateral, it's crucial to know the categories of loans. Loans have two broad categories, i.e., Secured Loans and Unsecured Loans.

Secured loans are loans where the collateral is saved against the requested loan amount. In case of loan default, the collateral is used to recover the overdue amount. Usually, secured loans have lower interest rates. Home loans and mortgage loans are the best examples of secured loans.

Unsecured loans are those loans where you are given a credit facility without any collateral. Here the loan is offered based on your credit profile. Being unsecured, its interest rates are higher than the secured loans. Personal loans, vehicle loans, and credit cards are examples of unsecured loans.

So, when you apply for a secured loan, your collateral value is evaluated to ensure your loan amount is less than the collateral value. It means the collateral must be valued to compensate for the overdue amount if you default on the loan.


Down payment is the upfront that you pay initially. Your down payment is deducted when getting a loan, and the rest is turned into monthly installments.

The value of your down payment is vital for the lenders as it gives them the actual amount you need as a loan. Many offers include zero down payment. Such an offer allows you to turn 100% entity price into EMIs.

You must note that the EMI amount will increase with higher loans, increasing the interest amount. Hence, paying as much down payment as possible is highly recommended to minimize the loan amount and get a low monthly EMI.



The tenure of your loan also matters a lot in qualifying for the loan. You can stay assured of your financial conditions for the coming few years (2-3 years). However, life, in the long run, is entirely uncertain. Hence, no lender can predict the future and check whether the borrower stays capable of paying the loan EMI on time.

Various dependent and independent factors affect your financial journey, which makes the future completely unpredictable. That's why financial experts always recommend applying for a short loan duration. Getting a short-term loan is advantageous in two aspects. Firstly you are debt-free within a few months/years. Secorly for a short duration, you need to pay less interest rate. The low-interest amount is the prime reason why most lenders prefer customers to get a long-term loan.

However, it's crucial to note that the duration of the loan amount depends upon your financial condition and the loan amount requested. For E.g., a home loan is always taken for a longer duration, i.e., 15-20 years tenure.

These are the major factors that you must consider before applying for any type of loan. Considering these points will help you get quick loan approval. Above all, it's crucial to check your credit score to ensure you get the loan approval with minimal halts.

With that said, you can now plan of applying for any type of credit facility. Among all credit facilities, credit cards are common. However, being unsecured, they are charged with a high-interest rate if you miss out on paying the bills on time.

Among all factors, your credit score is the game-changer that helps you quick loan approval. Hence it's essential to maintain a good credit score. Below are some easy tips to improve/maintain your credit score and take advantage of low-interest rates and quick loan approval.

Minimize Your Credit Utilization Ratio: You should always maintain a credit utilization below 30%. It means you must use only Rs. 30,000 from the credit limit of Rs. 1 lakh.

Repay Your Bills & EMI on time: Make a habit of repaying your bills on time. Moreover, always maintain sufficient balance to ensure your EMIs are deducted without penalty.

Check Your Credit Score Regularly: Regular checking for credit score is important to ensure your credit score is healthy. Tracking your credit score is also essential to stay alert of any fraud on your name.

Avoid Taking Multiple Loans: Always prefer taking a single loan! Taking multiple loans will add a financial burden and increase your debt-to-income ratio.

Follow these tips and build a good credit score that will help you qualify for any loan with the lowest interest rates.