Banks don’t look at salary alone: Here’s why loan offers may differ for people drawing similar incomes

Two people may earn similar monthly salary, work in the same cities and apply for a loan of the same amount, yet one may receive quick approval while the other gets a lower loan amount, a higher interest rate or even rejection. For many borrowers, this can feel unfair but banks look at many more factors other than the salary figure mentioned in the application.

Before approving a loan, banks run a detailed assessment of an applicant’s financial profile to understand how likely they are to repay the loan on time. Though income plays an important role in this assessment, it isn't the only determining factor. These checks can sometimes change the outcome even when two applicants appear similar on paper.

Borrower’s credit score matters

One of the biggest factors lenders look at is your repayment track record. Someone who has paid every EMI and credit card bill on time is generally viewed as a lower-risk borrower than a person who has missed or delayed payments in the past. Even when two applicants earn the same monthly salary, the borrower with a stronger credit history is more likely to receive a better loan offer, a higher eligible amount or a lower interest rate.

Banks and other lenders report details of a member's loans, credit cards, payment history, outstanding balances and defaults to credit bureaus such as CIBIL, Equifax, and CRIF High Mark. These records are used to calculate your credit score, which ranges from 300 to 900.

An individual can check their CIBIL score through the official CIBIL website, and other such platforms. Hence, reviewing the report before applying for a loan can be prudent decision to know where your financial profile stands.

Existing EMIs are also considered

If you are paying EMIs for an existing loan, that can also make a significant difference to a loan application when when the applicant's salary looks comfortable on paper. Banks usually check not just how much you earn, but how much of that income is already being used to repay other loans.

For instance, if two individuals are each making ₹60,000 a month, but one of them is already paying ₹20,000 towards a car loan and a personal loan, the bank may view this person as having less room to comfortably handle another EMI.

Why job stability is a crucial factor

Job stability is another important factor that banks consider while approving a personal loan. Lenders review an applicant's employment history to see how steady and predictable your income is.

A borrower who has been with the same employer for several years is often seen as financially more reliable than someone who changes jobs frequently.

You job type affects this too as government employees are viewed as very stable due to secure public-sector jobs while new businesses take time to be recognised as stable by lenders. Meanwhile MNC employees are also favoured due to their structured payment cycles, according to a report by DMI Finance.

Credit card usage is also checked

Your credit card’s utilisation ratio is a crucial metric that lenders and financial institutions check when assessing loan applications. A high utilisation ratio can significantly reduce your chances of approval.

Credit utilisation ratio or CUR is a percentage of the credit that you are using now compared to the total credit that is available to you.

Hence, maintaining a low credit utilisation ratio not only improves your credit score but also signals responsible financial behaviour. This enhances your eligibility for personal loans, new credit cards, and can help you secure lower interest rates from lenders.