What Do Banks Really Look For In Your Loan Application?

Desiree Nair

5th November 2020 - 4 min read

It’s never easy to get rejected when it comes to love or job applications, and loan applications are no different. You’ll be waiting, hoping, and praying that your loan comes through and if it doesn’t, cue the crushing blows.

To reduce your chances of being a loan-reject, your application needs to be a solid one. But how exactly do banks measure your financial status? What do they look for when it comes to approving loans? Here are the three main areas that prospective lenders will focus on when reviewing financing applications:

Annual Income and Type of Employment

The amount of money you earn in comparison to the debt you have indicates your loan repayment ability, but it is also tied to several areas of your employment. Thus, your earnings are not the only point of contention as stability of income is also crucial to your application as well.

Therefore, even if you are making big money as a freelancer or a sole-proprietor, when compared to a permanent employee with a fixed monthly salary, you’re likely to appear as the higher-risk applicant. Don’t worry though – just like look for loans that welcome applicants by both salaried and self-employed employees, like the RHB Easy-Pinjaman Express and Alliance Bank CashFirst Personal Loan.

In addition, the high status of the company you work for i.e. MNC or public-listed firm could help bolster your application, whereas a newly-incorporated sole-proprietor may not hold as much sway.

Savings and Other Assets

Having a healthy reserve in savings accounts and fixed deposits or owning other assets like property, stocks and bonds indicate that you have the means to repay your prospective lenders.

Furthermore, if your accounts are tied with the bank you intend to borrow from, you might just have a leg up in securing a loan. Your application could be deemed as less risky because of their ‘right to set off’ your dues from the savings accounts (and other assets) you hold with them.

Credit History

While this is an obvious one, you might not be familiar with the exact aspects of your credit history the banks are concerned with. Did you know that being blacklisted by a utility company or leaving multiple savings accounts dormant could have an effect on your loan application?

It certainly can and while these very common infractions may not even ring a bell to you, it could be listed by credit reporting agencies and raise red flags on your report.

This is why it’s necessary view your credit report before making any loan application so you can clear off your remaining debt beforehand. All the same, you can also take out a personal loan with the aim of consolidating all your previous debts – such as the Standard Chartered CashOne Debt Consolidation Plan – so it varies from situation to situation.

Bonus Tip: Don’t know what your credit health is like? There are many ways for you to get a credit report or health check instantly and online!

Apart from these factors, banks may also look at a borrower’s status, as in their age, professional qualifications, titles held, community ties and the like.

More Things You Can Do To Get Your Loan Approved

Support your application with these handy tips:

1. Get a Guarantor

A parent or spouse with good credit standing can improve your application and perhaps even secure better loan terms. If you’re running your own business, try to get a recommendation letter from reputable creditors who are willing to help you.

2. Choose Your Lenders Carefully

Apply to at least one bank with which you have a good relationship i.e. one that you have actively maintained an account with or promptly repaid any credit issued or loan undertaken in the past. Not being a stranger can be beneficial especially if the prior conduct was positive. For example, you could even get better interest rates for the Citibank’s Personal Loan if you have a credit card with Citibank.

3. Time Your Application

Avoid making numerous loan applications at the same time as it might indicate desperation for funds and could raise unwanted red flags on your credit report. If your loan has been rejected by more than one bank, wait at least a year before you reapply. Also, good planning can give you time to gather assets and clear your credit history before you start reapplying.

Bonus Tip: The simple truth is that banks have different metrics for evaluating loan applicants, so if you’ve been turned down by one prospective lender – chin up, because another might approve your loan when you apply later on down the road!

Find all the relevant information that you need about personal loans and financing all in one place on RinggitPlus.

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