Underwriting is a crucial aspect of the loan process: a home loan, business loan, car loan, or personal loan. 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 parties, understanding what goes into loan underwriting would help you avoid rejection on your loan application.
Factors affecting loan underwriting
Here are the factors that affect loan underwriting.
This is one of the 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 of 750 and above indicates you as a responsible borrower.
This enhances your creditworthiness and helps you avail of 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. As per regulations, you can check your credit score for free once a year from each of India's four credit information companies – TransUnion CIBIL, Equifax, HighMark and Experian.
Just like your credit score, your income 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 to help you easily serve the EMIs.
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 ensure that you have enough money in your kitty after paying your debts to clear the current loan.
Ideally, your monthly EMIs considering 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 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 will serve little purpose.
Property appraisal forms a part of the underwriting process in case of home loans. Here, lenders get underwriters to ensure that the property's price is comparable to similar properties to rule out chances of you saving a large portion of the loan amount by buying a cheaper home. 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 of finance on home loans, business loans, and personal loans is a hassle-free process. All you need to do is share your basic details to know your pre-approved offer.
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