Everyone has had instances in their life when their expenses have outsmarted their income, or when there has been an unfortunate occurrence, or the need for a big investment has arisen, or there is simply a requirement of extra funds. In all these circumstances, and others of the sort, one looks to borrow. As banks are the primary lenders, it is well worth the time to know the basis on which they decide if someone is worthy to give a loan to or not. It is also these very factors that go a long way in explaining if and why a personal loan application has been rejected.
Employed or Entrepreneur?
Amongst other things, the answer to this question determines if at all or how easily you can get a personal loan. When you are a salaried individual, it is easier for the banks to trust you as you have a stable and adequate source of income. In this case, the loan amount approved will be directly proportional to your salary.
When you’re self-employed, they will certainly want to have a keen look at your financials and be decently satisfied before they grant you a loan.
Whether or not your salary is being transferred to bank?
Many banks insist on the applicants’ salaries to be transferred into an account with the same bank. This gives them the security that your income is going to them from which they can automatically deduct the monthly loan installments when your salary is credited into your account. In case the monthly salary transfers end in the event of you leaving the job or losing it, the bank can put a freeze on your end of service benefits to reimburse the outstanding amount of loan.
Your Debt Burden Ratio – how much are you already paying in debts?
If you are someone who has taken on a lot of debt, then I hate to break this to you but you will face hardships in getting an approval for another loan. This is owing to the stipulation from the UAE Central Bank which states that your total equal monthly installments (EMIs) from existing loans must not cross 50% of your monthly salary, implying that your Debt Servicing Ratio (DSR) or Debt Burden Ratio (DBR) should be well within 50%. If your DSR is high but contained within the 50%, banks may still lend you money but that will be at higher costs.
Your debt burden ratio is calculated by adding up all your monthly repayments on your loans and 5% of your total credit limit on all your credit cards.
If you work in a listed company?
Banks feel safe and secure in extending loans to individuals who work in listed companies – ones that have submitted their financial results to the banks. Steady profits assure banks that employees are guaranteed to receive their salaries and in turn repay loans.
How long you have been in your current employment?
Since most companies have a 6-month probation period during which the job is uncertain, most banks lend only if you have been in the same job for more than six months. This lends you credibility and them the much-needed assurity.
Banks also will often ask you for a salary certificate and do a reference check with your employer just to be double sure.
Your credit history and rating?
Your past credit record goes a long way in establishing your present creditworthiness. Banks make sure to check your credit history from the Credit Bureau, they review all the loans and credit cards that you currently have, they analyze if your payments are punctually made or if there have been any missed payments. With all this information, they arrive at your DBR and decide one of the three things – approve your application, reject it, or provide you a loan at a higher rate.
After reading this, if you’re wondering what your credit history looks like, you might want to go to the Al Etihad Credit Bureau where you can see your credit report at a cost of AED 100.