There are so many
instances where we are bombarded by messages promoting ‘easy and pre-approved
loans.’ While one is compelled to think of these loans as simple, a lot of
grunt work happens in the background. The traditional process of proposing a
loan to a potential borrower has several stages of due diligence that have to
be mandatorily completed by lenders and customers. Lenders must do so to ensure appropriate underwriting can be done. Especially when the
ticket size of a loan is large, the number of checks and references increases
to ensure the borrower’s creditworthiness and whether they will be able to
repay the money without defaulting. One of the critical checks put in
place by banks to help do this is credit underwriting. In the simplest terms,
credit underwriting can be understood as a process wherein the lending party
assesses the borrower’s creditworthiness. This helps them make the important
call of granting or not granting a loan to the borrower. As for the lender, the
loan underwriting process ensures that the quality of their loan book is
top-notch, and the amount of risk in granting the said loan is minimal.
Irrespective of the nature of the loan, credit underwriting is an indispensable
part of loan processing. It includes mandatory check-boxes that need to be
ticked off, which helps the lenders understand the risk. Some factors used by
lenders to do this include Credit score: A good credit score indicates that
the borrower has a history of timely loan repayments. Debts and liabilities:
Lenders ensure that you save enough money after considering your current debts
and liabilities to pay your loans without defaulting. Income: Mandatorily, you
need to have proof of stable and adequate income. Collateral: Most conventional
lenders will ask for collateral equal to or higher in value than the loan the
borrower seeks.