Banks decide whether they can sanction personal loans to individuals based on the following factors:
Nearly all lenders look at your credit report and credit score, as it gives an idea about an individual's creditworthiness. It indicates whether the person has made repayments on time. It shows the lender whether the borrower has handled finance with discipline or has defaulted.
Your Income and Employment History:
Lenders want to know that you pay back what you borrow. For that, you require a consistent income and should have a stable employment history. The income requirements vary based on the amounts you borrow.
Your debt-to-income ratio:
Your debt-to-income ratio looks at your income as a percentage of your monthly income. A low debt-to-income ratio helps in the easy sanction of loans.
Value of your collateral:
If the value of the collateral pledged is equivalent to the loan you have applied to, then your chances of loan approval are higher.
Size of the down payment:
Lenders feel comfortable to lend when your down payment is bigger.
When lenders see that you have some cash in your savings or money market account, they would feel safe to give you a loan. Because, in this way, they do not have to go behind money to recover their loan.
Lenders feel more comfortable to lend you a loan over a shorter period of time. This is because nothing much may change over a shorter period of time. But, in the case of longer loan tenures, drastic financial changes could occur, some may be for good, but others may be bad. So, lenders feel comfortable to lend for shorter loan durations.
Thus, banks rate individuals for personal loans based on the above factors.