Whether you're looking for personal loans, business loans, home loans are car loans, the process will always have underwriting as a crucial component. Underwriting includes assessing the creditworthiness of the borrower and matching the loan criteria with their profile.
Depending on the complications, credit underwriting can take a few hours or even days. In the beginning, one might not be able to predict the time. However, it is a crucial process to understand your approval or rejection of the loan. After all, giving out money from your pocket needs repayment security.
First of all, the borrower's disposable income is checked. Most lenders have a criterion of the minimum income below which they don't lend. It's to prioritize the repayment ability over anything. There should be adequate income to pay the installments with ease.
The current level of loans and liabilities affect credit underwriting to a massive degree. If you have too much, it definitely affects your repayment capability. The credit underwriter needs to ensure that you have enough disposable income to clear out all your current loans along with the new one. Ideally, the sum of your monthly installments should not be more than 35% of your income.
The predicted appreciation in the value of your property plays an important role when you take home loans. The underwriter is hired to ensure that the value of the property is comparable to others in the segment.
The value of the collateral can also influence loan underwriting. It means that you have pledged an asset that you own as collateral. Collateral security works well in cases of car loans, home loans, and other secured borrowings. The credit underwriter sees if the collateral securities value is equal to the amount of loan. If it is not, it won't solve much of that underwriting purpose.
The credit score of the borrower is one of the most influential factors in credit underwriting. The only way to check the past creditworthiness of the borrower is through a detailed credit report. One can easily have their hands on your credit report. All the credit reporting agencies of their country can provide this information to your lender. The better the creditworthiness, the more competitive the interest rates, the lesser the formalities, and the faster the approval. The only way to maintain your credit score is by paying bills on time and making any defaults in your EMIs.
Once the underwriter gives a check to all these boxes, the loan amount will be transferred to your bank account.