Bank Statement is one of the first documents that lenders ask for when taking decisions on loan applications. It is the single most important document that can decide if one will get a loan or not. It can prove to be more important than even your CIBIL score in deciding whether one’s loan application will get approved. Poor banking behaviour can override even an excellent credit score in decisioning of one’s loan application.
Why is a bank statement so important while availing credit?
Indicates income of an individual
Bank statements reflect the income earned by an individual. Income is one of the key factors in determining the amount of credit one is eligible for. Also, credit is granted to individuals having a steady source of income. Bank statements help lenders to assess both the consistency of income as well as the amount of income earned by an individual.
Lenders look for how much funds do you maintain in your bank account on an average. This provides insights to them with respect to income being sufficient for managing regular expenses. Individuals who maintain a good bank balance are looked at in a positive light as it indicates income level of an individual is more than sufficient to manage regular expenses.
More insightful than credit bureaus
Bank statements reveal a lot more than credit bureaus when it comes to recent credit behaviour of an individual. Bank statement provides details on EMIs not being honoured on due dates which credit bureaus do not provide. Bank statement provides up to date information (up to the date of loan application) whereas credit bureaus generally have a 30-day lag. Recent borrowings are more likely to show up in bank statements than credit bureaus.
Banking transactions and where the money is spent also provides great insights to lenders. Regular transfers towards investments & insurance premiums showcase prudent financial behaviour and helps one tick the right boxes with lenders. On the other hand, spending on discretionary purchases and not maintaining sufficient bank balances indicates financial indiscipline.
Validation of Personal Information
Bank statements also provide details like Address, Unique Identification number like PAN, Email ID which can be cross checked with details provided in a loan application form.
A bank statement reveals more about an individual than any other document or data that a bank uses to process a loan application. Thus, it is an important document while applying for a loan.
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