Each individual gets appraised every day on something or the other. Right from the childhood, we get used to this appraisal process when the marks of our exams, our performance in sports or on various co-curricular activities get rated. We all understand the importance of this grading and evaluation system and know that our future depends a lot on these evaluations. However, what in India, the residents are not aware of at large is that even our credit access gets appraised.
It is nothing but the evaluation of our credit profile. So whenever one applies for a personal loan or any other credit with a lender, the CIBIL score calculation comes into play. Most of the Indians while know that there is an underwriting process, the large part of them do not understand the science behind this process. What is this calculation all about? Let us try to understand it in detail.
First and foremost, let us understand the credit score which is popularly known as CIBIL score (CIBIL being the first credit bureau to have been set up, it has become the synonym for credit score). The credit score is an outcome of the credit that one would have taken. The score predicts the probability of one to default taking into account the data reported by the lenders. It takes into account five broad parameters to arrive at the conclusion. These are :
The appraisal happens taking the credit score and the above factors into account. So if a person is having a high score, his chances of getting approved on the loan are much higher. On the other hand if a person is having a low score he may continue to get rejected by regular lenders and may have to look out for a personal loan bad CIBIL score.
So what goes into the appraisal? Following is what will give you clarity on same:
The above three factors impact the outcome of any loan application.
This is nothing else but the record of the performance on the loans and credit accounts that one would have historically taken. This also includes the credit score. The above mentioned five factors form an integral part of the credit scoring mechanism and the underwriters apart from the score also consider their experience on cases that they would have approved in past.
This is an equally important factor in credit appraisal. One has to have the capacity of paying the bank the amount without any constraint. One while may have an excellent credit profile and would have shown all traits of being a responsible borrower, but in case the financial profile is week the loan will not get approved.
In general, 50 percent of the income of single or joint applicants is taken as their monthly expenditure and balance can be considered for repayment of the equated monthly installments. This 50 percent needs to include the emi of the proposed loan as well. If the amount breaches the threshold, the loan may get downsized or may just be rejected.
The profile of collateral makes a lot of impact on the appraisal of the loan application. The ease of liquidating the collateral apart from the volatility of prices determines the outcome of the loan request. A property being put under collateral will have a longer evaluation process and if is located in a so called negative area, then the same may just not be accepted as a collateral.
On the other hand, Gold is a highly liquefiable and most of the lenders may not even check the credit profile or the financial profile at the time of lending.
It is important to know that each loan application undergoes an exhaustive credit appraisal process and the above three factors impact the outcome of a request.