Lending is a tricky affair. It is always essential for lenders to be very careful about whom they are lending the money. There are a lot of risks associated with lending, and one of the most significant risks is that the borrower may not be able to repay the loan. That’s where bank statements come into play.
One of the most important pieces of information that lenders request from borrowers is bank statements. These statements are used to ascertain the financial health of the borrower and to check if they have the capacity to repay the loan.
But what exactly should lenders look for in bank statements for loan approval? Let’s break it down!
Types of Information That Can Be Gleaned From Bank Statements for Loan Approval
Bank statements offer a great deal of information about the financial history of a borrower. This information can be used by lenders to make a decision about whether or not to approve a loan.
Here are a few things lenders should look for in bank statements for loan approval:
1. Account Balances
This is perhaps the most critical information that bank statements can provide. Lenders use this information to understand an individual’s financial stability and ability to repay the loan. Here is what lenders should be looking for:
- Are the account balances consistent?
- Do the account balances fluctuate a lot?
- Are there any significant, unexplained changes in the account balances?
These are all important questions that you, as a lender, should ask yourself when looking at an individual’s bank statements for loan approval.
2. Income and Expenditure
Income and expenditure are two other key pieces of information that bank statements can provide. Not to mention, they are also two of the most important factors that lenders consider when approving a loan.
Here, lenders will want to see:
- How much the borrower earns each month
- How much the borrower spends each month
- What kind of expenses does the borrower have
Ideally, lenders want to see that a borrower has a healthy income and that their expenses are not too high. This shows that the borrower is capable of making loan repayments on time and in full.
3. Saving Pattern
A person’s saving pattern can be deduced from their bank statements. As a lender, this information can be useful to ascertain the financial health of the borrower.
You would want to see that the borrower has consistently saved a fixed amount of money each month. This is a good sign that the borrower is financially disciplined and will be able to make their loan repayments on time.
4. What Kind of Transactions Are Being Made?
Every transaction made through a bank account is recorded in the bank statement. This information can be beneficial for lenders as it can provide insight into an individual’s spending habits.
With a thorough analysis of an individual’s transactions, lenders can understand things like:
- What kind of items does the borrower spend their money on?
- Do they make regular payments on time?
- Do they have any outstanding debts?
- Are they using their credit card wisely?
All of these are important factors that can help lenders decide whether or not to approve a loan.
5. A Proof of Identity
Not only can bank statements provide lenders with a wealth of financial information, but they can also serve as proof of identity. This is because bank statements provide detailed information about an individual’s name, address, Unique Identification Number, PAN number, etc.
This information can be cross-checked with other documents to verify an individual’s identity. This is an essential step in the loan approval process as it helps lenders confirm that they are lending money to the right person.
Now that we know what bank statements can provide let’s look at how to make the process of reviewing bank statements for loan approval as smooth and efficient as possible.
How to Efficiently Review Bank Statements for Loan Approval?
As a lender, it is essential to have a system for reviewing bank statements for loan approval. This will help you save time and ensure you do not miss any important information.
Manual analysis of bank statements can be very tedious and time-consuming. One of the best tools you can use to automate the process is Precisa. It is an online financial analysis tool that is used by lenders to process and review the bank statements of potential loan applicants.
Precisa also has a built-in security checks feature that provides lenders with a loan repayment probability score called Precisa Score. This helps lenders quickly and easily understand an individual’s financial situation before approving a loan. Sign up for a free trial to see how Precisa can help you make smart lending decisions.
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