What are the Factors Influences Bank Lending

Access to capital plays a critical role in the operations and success of businesses, so business owners must understand the factors influencing bank lending decisions. Banks determine whether or not to lend money based on a variety of parameters such as an applicant’s credit score, collateral offered, repayment capacity, liquidity ratio, and history with other banks. By understanding these factors and perfecting the loan application process, entrepreneurs can make sure their chances for success are increased when seeking financial assistance from lenders. In this blog post, we will explore how these factors influence bank lending decisions.

5 Most Important Factors for Banks to While lending You

Credit Score (CIBIL)

When you apply for a personal loan as a salaried professional, lenders evaluate several criteria to determine if you’re eligible. The first thing they look at is your credit score.

Generally, prospective borrowers with a good credit score – above 700 – are considered eligible for loans at attractive rates of interest.

The credit score reflects the customer’s financial history and serves as an indicator for his or her ability to repay the loan taken. Data such as existing debt balance, past record of loan repayment, payment pattern of credit card debts, etc., are all taken into consideration while computing the overall credit score.

Nowadays, lenders prefer candidates who have a higher credit score since it is often substantially connected to their financial proficiency and discretion.

Income Source

When it comes to loan applications, banks take a variety of factors into account. In addition to your credit score, they examine your current source of income and any existing expenses you may have each month.

This includes any debts you may possess such as a home loan, auto loan or other bills.

Banks then determine if the total amount due each month is more or less than 50% of your gross monthly income by calculating your debt-to-income ratio.

Although this number is generally regarded as an ideal benchmark across all banks, private establishments tend to be more willing to provide larger loans comparatively.

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Like every business, there are some risk but business always tries to minimize risk by ensuring comparative risk value like that only banks also ensure that if in any case, you are not able to return the loan amount then they can use your property or collateral as recovering debt.

Although the type of collateral required depends on the borrower’s demand for the amount & type of loan.

The borrower can use their assets, such as properties, business equipment or vehicles, and savings stored in current or savings accounts, FDs, etc. as collateral.

A lien may then be placed on the collateral to give the bank rights over it; if the loan cannot be repaid by the borrower, then these assets could be sold to compensate for losses.


Banks are more likely to consider a loan application from applicants in the age range of 30-50 years, as this age group is seen as financially stable and secure.

The person in this range has, for the most part, gained several years of experience on the job and still has plenty of time left to pay back the loan.

Conversely, if you are above 60 years of age it becomes a lot more difficult to secure a personal loan without having certain assets to provide as collateral security.

Repayment History

A great deal of emphasis is given to a borrower’s credit and loan repayment history when assessing their loan application.

Banks look closely at an applicant’s financial standing, as a negative score can lead to denials for certain loans, or higher interest rates.

Unpaid debts can damage your credit score for up to 7 years, so maintaining a positive repayment history is essential if you wish to be seen as an ideal candidate for personal loan approval.

To ensure that lenders consider you favorably, it is key to work on showing evidence of a reliable loan repayment record about past debt commitments and borrowings.

All these are general factors & nowadays every bank considers these factors as primary checks before granting a loan. But then also these factors get affected by time, place, state policies, etc. So do consult your bank before making any opinion.

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