Important Factors to Know Before Applying for a Loan

Personal loans are a cost-effective option that can help finance major purchases in life. Whether you want to get a personal loan to pay for your education, finance a home improvement, splurge on a big trip, or consolidate debt, you must have a clear repayment strategy.

In this article, we will discuss the major factors that you, as a borrower, must consider when applying for a personal loan.

What Should I Know Before Applying for a Loan?

Personal loans can be a quick way to get much-needed cash that can be used to finance home renovations, urgent medical expenses, the launch of a business, or even a vacation. 

But a crucial step in obtaining a personal loan from a bank is customer verification. Personal loans are typically not secured by any collateral, so lenders must adhere to strict eligibility requirements before approving them.

Banks, NBFCs, and other lenders factor in several parameters before finally giving the approval stamp to any borrower. The most important factors you have to consider as a borrower before applying for a loan are

  1. Credit Score
  2. Repayment capacity
  3. Credit History
  4. Terms Of The Loan
  5. Right Documentation
  6. Collateral

1. Credit Score

A credit score is an indicator of your creditworthiness which is demonstrated by the 3-digit score ranging from 300 to 900. This score could be assigned by any of the 4 credit bureaus in India. This score is based on your past and present behavior in handling credit. Your credit score takes into account many of your credit actions like

  • Number of loans and credit cards handled by you
  • Prompt repayment of loan EMIs and credit card bills
  • Number of applications to loans or credit cards
  • The proportion of unsecured and secured loans in your portfolio
  • Your overall experience in handling credit
  • Credit Utilization Ratio of your credit cards

2. Repayment Capacity

Before anything else, the bank will assess your repayment capacity. As a borrower, you must provide the bank with your credit history when applying for a loan. Banks will look at how well you've paid off previous loans as well as your current level of debt. After examining your income, the bank determines your debt-to-income ratio. 

Additionally, your salary and other loan repayments, if any, also impact your loan repayment capacity and, in extension, your current loan approval. To understand the amount of EMI you will be paying every month, use a personal loan EMI calculator to find your EMI in seconds!

3. Credit History

The length of your credit and your past credit behavior play a prominent role in loan approvals. A lengthy credit history allows the banks to be aware of your credit behavior as a borrower and increases your chances of getting a loan. However, if there are any discrepancies in the history, such as missing a loan repayment or delaying an EMI, then that would reflect poorly on your creditworthiness. 

Lenders will think twice before extending you a loan or reject your application entirely if your credit behavior isn’t satisfactory. Assess your history to make sure you are someone a lender would trust before approaching them for a loan.

4. Terms Of The Loan

Everyone desires to get a loan at the lowest interest rate possible. Besides decreasing the financial burden on the borrower, a low-interest rate allows them to repay it without any hassle. Several lenders offer your desirable loan amount with affordable interest rates. 

Do your research and understand every term mentioned by the lender before applying for a loan. Interest rates, prepayment charges, processing fees, foreclosure charges, and late fees are some of the terms that you must consider for a loan. Only when you are satisfied with every parameter, must you proceed with the application.

5. Right Documentation

Submitting the right documents for availing any loan is extremely important. For a personal loan, the generally required documents are identity and address proof and proof for income.

The documents required for income proof for business owners or self-employed individuals differ between lenders. While some may ask for the entire set of financial documents of the business, some lenders like moneyview ask for your last 3 months’ bank statements in PDF format or your last 2 years' Income Tax Returns with important details, including tax paid details being legible.

Make sure you have with you all the necessary documents the lender has requested prior to the loan application. This will help the lender process your application faster and transfer the loan amount without any hassle. 

6. Collateral

Asking borrowers to furnish collateral for getting loans is a common practice in personal loans. However, the recently established fintech lenders are no more asking for collateral, unlike banks and NBFCs.

You can easily avail of loans for any purpose easily from online fintech lenders like moneyview using the loan app or website without submission of any collateral.


Each personal loan application is unique and there is no shortcut to help you get a loan. However, most lenders check credit scores, credit history, loan repayment capacity, salary, and overall creditworthiness in a loan application. Each lender has their own loan qualification criteria. Make sure to research the eligibility criteria before applying for the loan. 

Important Factors to Know Before Applying for a Loan - Related FAQs

Your personal loan application may be rejected by a lender for a variety of reasons. If a lender rejects your application for a personal loan, find out why specifically, and check your loan application for errors or inaccuracies. Improve your credit score or history to increase your likelihood of obtaining a loan in the future.

Lenders assess your ability to make payments on time along with your credit history and behavior. Your income and employment history are also accurate indicators of your capacity to pay back outstanding debt. 

During a credit evaluation, the lender, be it a bank, NBFC, or an online lender, does a background check of the borrower to assess their loan eligibility. 

The 6 Cs are 

  • Capacity
  • Collateral
  • Credit score
  • Conditins
  • Capital, and
  • Creditworthiness

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