Have a high credit score? Your loan approval chances can still hit a roadblock

Borrowers may find it difficult to source a loan if they do not meet the minimum income criteria set by the lenders.

Credit score is a vital factor that lenders consider while assessing your creditworthiness. Lenders also offer different interest rates and loan terms on the basis of your credit score. Gradually, it is also becoming an important part of the recruitment process. While a higher credit score can improve your chances for availing a loan, there are other crucial parameters that lenders factor in while evaluating your application.

Let’s look at some of these parameters:

1. Age of the borrower

Lenders factor in the borrower’s current age as well as age at the end of loan tenure while assessing loan eligibility. Those who do not fall into the minimum and maximum age bracket are usually denied a loan. Generally, applicants who are nearing retirement often face difficulty in getting their credit application approved, given that lenders usually prefer completion of loan repayment by the time one retires. In this scenario, you can consider adding a co-applicant to boost the overall loan eligibility and approval chances.

2. Minimum income eligibility

Borrowers may find it difficult to source a loan if they do not meet the minimum income criteria set by the lenders. Minimum income requirement is determined on the basis of the borrower’s geographical location, i.e. metro, urban, semi-urban and rural areas.

Given that minimum income criterion varies across lenders, it is prudent to visit online financial marketplace to compare and choose amongst numerous loan options and lenders as per your eligibility and need.

3. Job profile and stability

Apart from your income, lenders also take into consideration the nature of your job, employment stability and your employer’s profile. For instance, lenders are more comfortable lending to government, corporates or MNC employees vis-à-vis those working with lesser-known or high-risk companies. Also, applicants having hazardous job profile may have lower chances of loan approval. Lenders also shy away from approving a loan to someone who frequently switch between jobs, given that it’s considered as a sign of unstable career and irregular income.

4. High FOIR

Fixed obligation to income ratio (FOIR) refers to the proportion of the total income being spent on debt repayment such as loan EMI (including the EMI for the new loan), credit card dues etc. Given that lenders generally prefer lending to applicants having FOIR within the range of 40%-50%, those exceeding it may have their loan application rejected.

If your FOIR is above this range, consider prepaying existing loans either partially or in entirety, as doing so would pull down your FOIR and thereby, boost your loan eligibility.Alternatively, opt for a lower EMI amount by choosing a longer repayment tenure, while ensuring the FOIR (including the new loan’s EMI) remains within the required level. Since a longer tenure implies higher interest outgo, try prepaying the loan whenever you have surplus funds.

5. Not researching before being a loan guarantor

Becoming a guarantor for someone’s loan makes you equally liable for the loan’s repayment. You will be responsible to repay the outstanding dues in case the primary borrower(s) defaults. As lenders consider outstanding loan amount of guaranteed loan as contingent liability of the loan guarantor, it is imperative to always assess your short and mid-term probable financial requirement before committing to become a loan guarantor. If you are already a loan guarantor, you must regularly monitor the repayment activity in the guaranteed loan account, as any delay or default in its repayment can negatively affect your credit score.

(By Radhika Binani, Chief Product Officer, Paisabazaar.com)

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