Personal loans are one of the most sought-after loans in India. People take personal loans for various reasons like wedding, home renovation, festive related expenses, or to clear existing debts. However, personal loans fall under the unsecured loans category. This requires stringent document verification process. Verification process widely differs from bank to bank. The process of personal loan verification from the bank's perspective is as follows:
Receive Loan Application: This is the first stage of the verification process. The bank needs a loan application to initiate the document collection and verification process. A borrower can directly visit a bank to fill up the loan application form or do it online.
Document Collection: After the bank gets a loan application, either online or offline, a bank representative is sent to meet the borrower to collect the mandatory documents required to avail a personal loan. Most banks require address proof, identity proof, income proof documents, a duly filled loan application form along with passport-size photographs to process a personal loan.
Documents Verification Process: The bank takes 1 or 2 days to analyse the documents provided and forwards it to the verification department. Generally, banks have a verification team of their own. A representative from the team is sent to the borrower's place of residence to verify the address in person. They also visit the borrower’s workplace and verify if the customer works with them. Verification of other documents like PAN Card, Aadhaar, or Passport is done online using various portals. After verifying all the details furnished by the borrower, the verification team forwards their findings to the personal loan officer who handles that particular account. If the verification process is successful, the bank/lender will process the loan or else the personal loan application gets declined during this stage. The bank will clearly communicate the reason for disapproval of the loan to the borrower which allows them to correct the issue from their end.
Sanctioning of Personal Loan: One may call this the last stage of the personal loan verification process. After the personal loan officer receives a positive report from the verification team, the loan agreement is drafted once the interest rate and tenure are agreed upon by the lender and the borrower. A loan agreement will have all the information a borrower needs to know before signing for a personal loan. It will include the loan amount, loan repayment period, interest rate, fees and charges, and all the terms and conditions of the personal loan offer. After the customer carefully reads and signs the loan agreement sent by the bank, the personal loan amount is credited within 24 hours to the borrower's bank account.
If you are planning on applying for a personal loan to meet your financial needs, go ahead and have all your documents ready. This will expedite the loan verification process.
- What do lenders check for when approving or rejecting a personal loan application?
What are the documents required for identity proof?
Credit score: This is a major factor in deciding whether your loan application will be approved or rejected as it represents your creditworthiness. Applicants with a high credit score usually get personal loans at competitive interest rates. Those with a poor credit score may face loan rejection.
Credit history: As personal loans are unsecured loans, lenders face credit risks by lending to borrowers who may default on loan repayment. Therefore, lenders check the credit history of an applicant to ensure he or she has a clean loan repayment record.
Income details: It is important to meet the income criteria set by the lender to obtain a personal loan. The minimum monthly or annual requirement differs with lenders and it also depends on whether the applicant is a self-employed individual or salaried employee.
Employment status: Lenders check the employment status of an applicant to ensure he or she has a stable source of income so that the loan will be repaid on time.
KYC details: Basic information about the applicant such as bank details, identity proof, address proof, and so on will be cross-verified by the lender during the personal loan verification process.
You can submit your Aadhaar card, PAN card, Passport, Voter's ID card, and Driving License as proof of identification. You will have to provide recent passport-size photographs along with the filled-up loan application form.
What are the documents required for income proof?
What are the documents required for address proof?
Salaried applicant: Employment ID card, last 3-6 months' salary slips, IT Returns with Form 16 of last 2 years, bank statements of last 3-6 months, etc. can be provided as proof of income.
Self-employed applicant: Balance sheet with profit & loss statement, business ownership certificate, partnership deed, bank statements of last 3-6 months, IT Returns with Form 16 of last 2 years, etc. can be provided as proof of income.
Aadhaar card, utility bills like telephone and electricity bills, PAN card, Passport, Voter's ID card, ration card, etc. can be provided as address proof of residence or place of business.
What are the reasons for personal loan rejection?
The rejection criteria of a personal loan application vary with lenders. If an applicant fails to meet the eligibility criteria set by the lender, then the loan application will be rejected, such as:
How do I find out if I am eligible for a personal loan?
- If you are an employee of a delisted company.
- If you have a poor credit score and credit history.
- If you don’t have a stable source of income.
- If you don’t meet the minimum income requirement.
- If you have applied for multiple loans at the same time.
- If your debt-to-income ratio is more than 40%.
- If you don’t fall between the age limit expected by the lender.
- If there is any discrepancy in the information you provided.
Some lenders may have a personal loan eligibility calculator on their official website. You can enter the basic details such as your age, income, employment status and so on into the tool to find out if you are eligible for the loan.
An alternate method of checking your personal loan eligibility is by going through the eligibility criteria mentioned on the lender's website and cross-checking if you meet all of them.
Why is the personal loan verification process quicker for pre-approved loan applications?
Pre-approved loans are usually offered to existing customers; therefore, the lender already has the banking details, income and employment details, credit score and credit history, and KYC details of the borrower in the database. This factor speeds up the loan verification process for instant loans.
Where do I check the status of my personal loan application verification process?
You can follow up on the status of your personal loan verification process by calling the lender’s personal loan customer care department.
How do I get hold of a personal loan application form?
You can apply for a personal loan online by downloading the application form from the lender's official website or by visiting the nearest branch office of the lender. You can also call the lender’s customer care department to get guidance on how to proceed with the personal loan application process.
How is the loan amount disbursed after personal loan approval?
The lender will directly transfer the approved loan amount to your bank account within a few minutes of you signing the loan agreement. Usually, the processing fee is deducted from the loan amount before it is credited to your account.
If my loan application is rejected can I reapply for a personal loan?
Yes, you can reapply for a personal loan but only after you make sure that this time you meet all the eligibility criteria set by the lender and also improve your credit score and credit history, otherwise you may face rejection again.
What happens to my credit score if my personal loan application is rejected?
Multiple personal loan rejections will have a negative impact on your credit score as lenders make a hard enquiry into your credit history every time you apply for a loan.