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Understanding Loan Underwriting Rules

  • Highlights

  • Underwriting is an important aspect of the loan process

  • Underwriters consider your credit score as an essential element

  • Income and current liabilities play a crucial role

  • Collateral’s value is taken into consideration for secured loans

Be it a home loan, business loan, car loan or a personal loan, underwriting is a crucial aspect of the loan process. During underwriting, the lender gauges the creditworthiness of the borrower and assesses whether the applicant meets the loan eligibility criteria or not.

Loan underwriting may take either a few hours or even weeks. Protecting the interest of both the parties, understanding what goes into loan underwriting would help you avoid rejection on your loan application.

Factors affecting loan underwriting

- Credit score
This is one of the most essential factors influencing loan underwriting. A credit score reflects your creditworthiness and shows how prudent you’ve been in managing and repaying past loans. A high credit score, 750 and above, shows you as a responsible borrower.

This enhances your creditworthiness and helps you avail a loan at competitive interest rates. On the other hand, a poor score can throw the entire borrowing exercise off track. Paying bills on time and serving existing EMIs without default can boost your CIBIL score. Note that as per regulations, you can check your credit score for free once in a year from each of the four credit information companies in India – TransUnion CIBIL, Equifax, HighMark and Experian.

- Income
Just like your credit score, your income too plays a crucial role in the underwriting process. Most lenders fix a certain income below which they usually don’t lend. Since loan repayment is one of their top priorities, they want to ensure that you have an adequate income that help you serve the EMIs with ease.
Underwriters also look at your source of income. In this case, salaried individuals hold an edge over self-employed as they have a fixed source of regular income.

- Current debt and liabilities
Another essential factor affecting underwriting is your current level of debt and liabilities. If you have too much debt and liabilities to serve, it impacts your loan repayment ability. The underwriter wants to be sure that you have enough money in your kitty after serving all your debts to clear the current loan.
Ideally, your monthly EMIs taking into account all your loans, present and past, shouldn’t be more than 30-35% of your monthly income.

Additional Read: Where to check your CIBIL score

- Value of the Collateral
In case of secured loans such as home loan, car loan, etc., you need to pledge an asset you own as a collateral. Underwriters gauge the collateral’s value to ensure that it can be used to recover the loan amount in case of a default. If the collateral doesn’t have a value equal to or higher than the loan amount, it would serve little purpose.

- Property appraisal
Property appraisal forms a part of the underwriting process in case of home loans. Here, lenders get underwriters to ensure that the price of the property is comparable to similar properties to rule out chances of you saving a large portion of loan amount by buying a cheaper home.

Additional Read: Factors That Affect Personal Loan Approval

Once the underwriter is satisfied with everything, the loan amount is transferred to your bank account. Thanks to pre-approved offers from Bajaj Finserv, availing finance on home loan, business loan and personal loan is a hassle-free process. All you need to do is share your basic details to know your pre-approved offer.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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