3 MIN READWhat Do Banks Look For In A Loan Application


Here’s the scenario: you’ve decided to take a loan for your dream home or maybe for that car you’ve always wanted. You make your application to the bank and then wait for the approval, hoping that it comes through, and then sadly you’re loan application is rejected. Why?

There are certain points that prospective lenders look at carefully when they review your finance applications. As long as they approve of these, you have nothing to worry about. In this article, we will discuss these points and certain steps you can take that will support your loan application and realise your dream.

3 Main Areas Lenders Focus On

1. Income and Employment Type

An important factor that banks look at is how much you earn. The amount you earn compared to the debt you have shows an ability to repay a loan. However, they will also look at your employment type, because this indicates the stability of your income. So even if you have a high income as a freelancer compared to an employee with a fixed salary, you’ll most likely appear as a higher risk applicant. In addition, the status of your employer will be taken into account. For example, a MNC or public-listed firm will have a higher status in the eyes of the bank compared to a new-incorporated sole-proprietor.

2. Savings and Assets

Having a good reserve in your accounts and having other assets like property, stocks and bonds, indicates you have collateral and a way to pay lenders back. In addition, if your accounts are in the bank you intend to borrow from, it will give you a definite advantage in the eyes of the bank and make securing a loan more likely.

3. Credit History

Your credit history is perhaps the most important factor that lenders will look into. Any small infraction such as leaving multiple savings accounts dormant or being blacklisted by a utility company can count against you when you apply for a loan. This is why it is important that you review your credit history, and clear any remaining debts. Also, dispute false complaints made against you as soon as possible.

Other factors that lenders may look into include your age, professional qualifications, titles held, and community ties.

Things That Can Support Your Loan Application

1. Select the Lending Bank Carefully

Make your loan application with a bank with which you already have a good relationship, like one where you already have an active account or with which you have undertaken a loan in the past. Knowing a lender beforehand can be beneficial, especially if your previous interactions were positive.

2. Time Your Application

Timing is crucial to a loan application. Avoid making multiple loan applications at the same time as it may indicate a desperate need for funds and could raise unwanted red flags in your credit report. If your loan has been rejected by more than one bank, then it is best to wait for a year before reapplying. Also, make sure to give yourself enough time to gather your assets and clear your credit history before you re-apply.


3. Have A Guarantor

A guarantor is someone with good credit, who can support your loan application and can help you secure better loans. Anyone who has a relationship with you can be a guarantor, like a parent or a spouse. You can even consider getting a reference from your employer to give you an advantage for your application. If you’re a business owner you can consider getting a recommendation letter from reputable creditors who are willing to help you.

Want to know more about loans and loan application? Talk to us, send us a message at hello@iqiglobal.com or call us at 012-299-6155 or 03-7450-6655.

Liked what you read? Check out this article next: How To Prepare Your Credit When You Are Buying A Home

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