Why Employer Status Matters for Banks' Loan Eligibility?

Various factors find a place in a bank's loan eligibility calculator , of which the status of the employer is a significant consideration. Read on to know why it is so, and also, how those who do not meet banks' employer standards can avail a loan.

When it comes to disbursing loans, banks, look at the income source of the applicants. There are a few key factors that banks pay attention to:

• Are you in a job or self-employed? They prefer employed candidates than self-employed ones. The reason is that employee applicants have a stable monthly income, while the income factor of self-employed is considered less stable.
• Status of your company: Even among the employees, it is not as if everyone who has a job is eligible for a bank loan. Here is where the employer status comes into the picture. If the candidate is employed with a reputed and renowned company, there is a guarantee of continued income. It denotes that the candidate possesses the means to pay the interest regularly and would also repay the loan within the stipulated time.
• The type of loan: The loan type also plays a role in the bank's decision.Of the two main types of loans, secured and non-secured, banks have collateral to fall upon in the case of secured loans. In non-secured loans, there is no such option, and that is why banks prefer to be doubly sure about the loan repayment capacity of the applicant.

Not just banks, but other financial institutions also have fixed categories for companies.  The factors deciding the categories could range from the number of years the company has been in business, to the turnover or the number of employees, etc.As per the factors, companies are divided into two classes, listed and unlisted. The sub-categories are several such as Super A, Super B, Super C and then further, Cat A, Cat B, Cat C, and so on. Some banks segregate companies as Platinum, Diamond, Gold, Silver, etc.It means if you are working in a company categorized as Super A, your chance of getting a bank loan at a lower interest rate is higher than someone working in a Super C company, even though your salaries may be the same.

• Stability of the employing company is the prime factor the bank looks at when considering loan application of a person. Reputed companies do not pose the risk of closing down anytime soon, but smaller and unlisted ones do not come with such a guarantee.
• Employees of well-established companies have a job and income security and are thus regarded as low-risk candidates for bank loans. Employees of high ranked companies also get many other benefits from banks such as lower interest rate, long loan repayment period and even higher loan eligibility.
• Unlisted and low-ranking companies have a chance of closing down or facing financial troubles. The employees may lose their job, thereby without any means to pay the interest or pay back the loan.It puts the banks at a disadvantage.
• Another reason could be that reputed companies have well-established HR departments. They could help arrange the necessary documents and other paper works, making the loan process smoother.

Lenders prefer to grant loans to employees of reputed and companies for many reasons, as stated above. They also provide some extra benefits to lure applicants that are working in these companies. Some of these benefits usually are:

• Preferential interest rate
• Longer tenure for repaying the loan
• Exemption of fees and charges such as processing fee
• Higher loan amount

If you work in a reputable company, don't forget to take advantage of it when you are applying for a loan next time. Proper documentation and following the procedures can help you get finances when you need them at preferred terms.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.