The current economic situation of India shows a sharp increase in the number of people opting for loans to meet their needs. Some want to own an asset while others have immediate personal needs. A loan amount is directly related to the borrower’s income and therefore the key question that governs the situation is how do lenders verify income?

Customer Segregation for Loan
Loan benchmarks are not the same for all individuals. Customers are classified into a multitude of segregations. But here we will only take into account two possible and generalised differentiations of salaried employees and self-employed customers. The distinction will further make it easy for us to analyse how the dynamics of loan approval mechanism works for the end consumer. Also Read: How much credit score is needed to apply for a Home Loan?

Steps of Approval
The first step to getting a loan approved and understanding how do lenders verify income is by submitting the right kind of paperwork for the amount required. In case of a Personal Loan, the documentation required is far less as compared to a Home Loan or Auto Loans. Also for personal loans, one can upload the documents online and get a quick approval after basic checks but in the case of a more elaborated loan, the process is a little longer with more steps involved including different kind of income verifications.

So how do loan companies verify income? Below is a list of documents you must provide to the lender. Once these are thoroughly vetted, the next step is the verification of these documents which begins with checking an individual’s credit rating. Also Read: Great ways to improve your credit score in India

  1. Latest credit score
  2. Bank Statement
  3. KYC Document
  4. Registration Papers
  5. Income Statement
  6. Property Papers
  7. IT Returns
  8. Credit cards
  9. Auto Loans
  10. Home Loans
  11. Any other Loans

income-verification-test

How do Lending Institutes verify income?
Lending clubs before investing a certain amount of money in an individual ensure a person’s ability to repay. A good credit history is something that interests the lenders immensely. Your monthly / annual income, your present debts, and a clean title to the asset offered in case of bigger loans are some of the key criteria that the lender will research in detail about.

Key points that the lenders will probe into
Here are some key verification parameters that your lending organization will dig into:

  1. IT Returns: Do lenders verify tax returns? Indeed they do! Your tax return is one of the most important document (especially if self employed) in order to prove your capacity to repay. You will need to show IT Returns for the past three years. The average income of two to three years will judge the bearers ability to repay. A salaried individual also must show IT Returns.
  2. Current fiscal profit and loss statement: An in-depth analysis of the current year profit and loss account will justify if the self-employed bearer will be in a situation to repay or not. The health of your business is a parameter that your lending institution will be interested in.
  3. Salary Accounts: Do lenders verify bank statements to verify income? Yes they do! The bank will probe into the average earning capacity of a salaried personnel and their expenditure patterns to understand their ability to pay. It is mandatory to submit one’s salary statements to justify the loan that one has asked for
  4. Net worth of the bearer’s assets: The lender will assess an individual’s assets to undermine whether the loan is recoverable in case of any lapse or default. In case of self-employed, they assess the net profit, consider the value of your home, add depletion and depreciation, and calculate your income.
  5. Credit Report: The credit report is a testimony of one’s financial character and holds the records of every past dealing and present liabilities. An individual with a good and balanced credit record is a clear winner in such a case.

Banking institutions and lenders do their homework thoroughly and it is recommended that you provide documentation with complete transparency. Ensure you monitor your finances in order to pass the lender’s verification test for a quick approval as well as to qualify for a good rate of interest.

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