Factors affecting credit underwriting process of any loan applicant
While applying for any type of loan, the first step that the financial institutions will take is to check the creditworthiness of the loan applicant. Only when the loan applicant shows a strong financial capability will the financial institutions approve their loan application. Banks and AI digital lending platforms do this through the credit underwriting process. In this process, various factors of the loan applicant are scrutinized. The time taken to complete the loan underwriting process can vary, from a few minutes, hours, to even multiple days. It mainly depends upon the type of financial information you submit to the financial institutions for the credit underwriting process. Let us look at some crucial elements that affect this process.
The loan applicant’s income
Most banks and AI digital lending platforms try to make sure that the borrower can pay back the loan completely within the stipulated deadline, before approving their loans. It is the reason the income of the borrower is considered a crucial factor in the loan underwriting process. Most lending institutions implement certain limitations if you have a low income or provide additional incentives if you have a high income and are applying for a loan. Some of them can even reject your loan application if your income is below their minimum threshold. The underwriting process of loan applicants with an adequate income has a higher approval chance.
The credit score of the applicant
Every bank or AI digital lending platform checks the credit score of the loan applicant at first. It is done because a credit score is considered to be a report card of your credit history and financial habits. It shows how well you have been managing your finance and loans. A high real time credit score reflects that you have proper financial habits like timely payment of bills, spending less than thirty percent of your credit limit, etc. On the other hand, you will have a low credit score if you regularly default on loan payments or pay bills after their due dates.
Existing loans of the applicant
Most banks, AI digital lending platforms, and other financial institutions advise people not to take out more than a single loan at once, especially if they have a low income. Later, when you need to take out a loan quickly for emergency needs, it will not provide a heavy burden on your finances. Having too many loans will make it difficult for the borrower to pay back the installments on time as the EMIs will eat up a large chunk of their income. It may even lead to defaulting on loan repayments that can negatively affect the real time credit score and credit report.
Evaluating the value of the collateral you provide
When you apply for secured loans from banks and other lending institutions, they will ask you to submit some assets as collateral. Its evaluation should be equal to more than the loan amount you are taking out. Thus, depending on the type of asset you provide, its evaluation will impact the speed of the credit risk management done by the financial institutions. You may even be asked to submit documents of other assets if the one you provided before is insufficient to repay the total loan amount in case of a default. If you want to make your credit underwriting process more streamlined, provide assets that are high in value when you take out secured loans.
These are the elements that affect the loan underwriting process of every individual. If you want the financial institutions to conduct the credit risk management on your loan profile quickly, ensure that all the above conditions are favorable for you before applying for a loan.
