What does Banks take into consideration before loan approval?
- The credit history of borrower
- Cash flow analysis of the business
- Character of the borrower
- Documentation of the loan
What does the bank check for during the loan evaluation process?
Taking up a loan is a long and complicated process. The steps that the bank undertakes before accepting or rejecting a loan request, they are:
- Any suit recorded or written off cases informed in the Credit Information Report (CIR). This is then indicated under the ‘Account Status’ section of the borrower’s CIR
- Any default or amount overdue – payment history trend. This is then indicated under the ‘Days Past Due’ field of the borrower’s CIR
- Company Profile – the banks usually have a permitted list of all the companies under whose employees they can extend loan/credit card.
- EMI to Income ratio: if the current total EMI surpasses the borrower’s salary by more than 50% then the probabilities of receiving the loan are reduced.
What is the loan approval process?
Every bank undertakes a certain number of steps to approve a loan request. These steps may vary according to the banks. The common steps are:
Step 1: Application for request for loan
All the relevant documentation that is essential for avoiding unnecessary problems and delays relating to the approval of the loan request. These documentations are necessary to keep a record of the request made and make the approval process even easier.
Step 2:Ordering the documentation
Within the 24 hours of applying for the loan, the bank may request the borrower to provide them their credit report, property appraisal, employment verifications, and the funds to close, landlord or mortgage ratings and other necessary things that will support the documentation. These documents become the basis on which the loan request will be accepted or not.
Step 3:Awaiting the documentations
When the banks receive the supporting documents, they check for possible problems that can arise and request all the additional items needed. During this time, the banks keep the applicant as well as the realtors informed about the loan’s progress through reports every week.
Step 4:Loan submission
Once all the documents are provided with, the loan officer reviews the entire bank’s current programs to assure client’s best rates and terms. Whilst the loan processor puts the loan package altogether and then forwards it to the underwriter for his approval.
Step 5:Loan approval
Loan approval takes almost 24 to 72 hours. Then all the parties are notified of the approval. The loan approval is the commencement of the closing process.
Step 6:Documents are drawn
Within 1-3 days after the loan approval, the loan documents are finished and forwarded to the title company. The borrowers are called for final signatures. Now, the borrower is informed about the total amount of money they need to fetch to close the loan deal.
Once all the parties sign the loan documents, they are returned back to the lender, who now will review the loan package. If everything is in place, a cheque is issued towards the borrower to fund the loan.
When the borrower receives the cheque from the lender, the title company makes the lender’s security for the loan a matter of public record.
This process takes quite some time and the results are unpredictable. After the economic turmoil, banks have become stricter with money lending. Before approaching a bank, the borrower must do a little bit of research and know precisely what they want and how can they afford. Only after clearing all the presumptions, the borrower must approach for loan request.