Pre-Requisites for a Loan

There are always some pre-requisites or terms and conditions that are necessary for us to get a loan. Let us learn what they are-

Collaterals

It is a form of security we sign off to a bank for a loan more than 2 lakh to ensure that if we are unable to pay back the loan amount, then the bank or lender can seize the property or assets we have provided in place of cash.

Credit Score

It is your rating number between 300 and 900, which banks look at to decide whether to give a loan to an individual. Credit information bureau records our credit history and assigns us a rating.

Consistent Income

The bank evaluates savings history to determine if the loan bearer will be able to pay back the loan

Quick Tip

The conditions under which loans are given differ from lender to lender. Thus, a private money lender can ask for collateral for a small amount as well.

Case Study

Let us look at a case history of how your credit score can impact your loan application-

Case 1	Case 2
Income: 50,000	Income: 1,00,000
Total EMIs being paid: 10,000	Total EMIs being paid: 50,000
EMI to Income Ratio: 20%	EMI to Income Ratio: 50%
Rule of Thumb EMI to Income ratio: 50% (lenders assume you will need half of your salary for living expenses)	Rule of Thumb EMI to Income ratio: 50%
Total borrowing capacity: 50%	Total borrowing capacity: 50%
Total Incremental EMI that the individual can afford: 25,000-10,000= 15,000	Total Incremental EMI that the individual can afford: 50,000-50,000=0
Basis this EMI total additional loan that may be sanctioned at an interest rate of 10% over 20 years =15,00,000	Basis this EMI total additional loan that may be sanctioned at an interest rate of 10% over 20 years
Loan Application is likely to get Approved	Loan Application is likely to get Rejected

To track your progress