The Criteria for Disbursing Unsecured Loans

When applying for an unsecured loan, several criteria must be met to ensure the loan is disbursed efficiently and securely. This guide outlines the key factors considered by banks and lending institutions, including the necessary documents and processes involved in obtaining an unsecured loan.

Understanding the Disbursement Criteria

Before any unsecured loan can be disbursed, a series of checks and verifications are undertaken to confirm the borrower's eligibility and risk profile. This article explores the essential criteria and steps involved in securing an unsecured loan.

Necessary Documents and Conditions

To apply for an unsecured loan, the following documents and conditions must be satisfied:

KYC Documents

One of the primary requirements for any loan application is the production of KYC (Know Your Customer) documents. These documents verify the borrower's identity and address, ensuring the lender can accurately identify the individual they are dealing with. Acceptable KYC documents include:

Aadhar Card PAN Card Driving License Passport

Source of Income

Borrowers must demonstrate a stable source of income. Depending on the type of employment, different documents are required.

Salaried Individuals: Need to provide 6 monthly salary certificates and at least two years of Income Tax Returns (Form 16). Self-employed Individuals: Must present their most recent 3 years of Income Tax Returns along with a computation of the Income sheet.

These documents help the lender assess the borrower's ability to repay the loan, which is crucial for risk management.

Quantum of Loan

The quantum of loan is based on the borrower's income and creditworthiness. The eligibility and the maximum amount that can be borrowed are determined using specific yardsticks, such as:

Based on salary: Up to 2 times the average monthly income.

For example, if an individual has an average monthly income of Rs. 50,000, they might be eligible for a loan up to Rs. 1,000,000.

Loan Term

The term of an unsecured loan typically ranges from 1 to 5 years. The duration of the loan is determined by the lender based on the borrower's financial situation and needs. Shorter terms may be offered for lower-risk borrowers with strong credit scores, while longer terms may be available to those with a less favorable credit history.

Risk Factor Assessment and Purpose of the Loan

In addition to the above criteria, the following risk factors and purposes are also considered when evaluating applications:

Gross Income

The total income before any deductions is a critical factor in determining the loan amount. Lenders will closely scrutinize the gross income to ensure it supports the loan amount being applied for.

Take Home Income

The income after all deductions, often referred to as take-home income, provides a clearer picture of the borrower's disposable income. This figure is crucial for assessing the ability to service the loan.

Satisfactory CIBIL Score

The Credit Information Bureau of India (CIBIL) score is a numerical measure of the borrower's creditworthiness. A satisfactory CIBIL score indicates a history of timely repayments, which is seen as a positive risk indicator.

Your Banking Track Record

The bank's track record with the borrower is another important factor. Regular and consistent banking activities, such as timely payments, can strengthen the application.

Purpose of the Loan

The intention behind the loan is vital for risk assessment. Unsecured loans are often used for personal or business purposes. Providing clarity on how the loan will be used can help the lender make an informed decision.

Surety/Guarantors

In some cases, the lender may require a surety or a guarantor to co-sign the loan agreement. This ensures an additional layer of security for the lender in the event of default.

Conclusion

Securing an unsecured loan requires meeting several criteria, including producing necessary documents, demonstrating a stable income, and meeting eligibility and quantum requirements. By understanding these key criteria, potential borrowers can better prepare and increase their chances of loan approval.

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