The role of income proof in two-wheeler loan approval

Your employment and income proof provides insights into your financial stability, ongoing liabilities, debt-to-income ratio, and repayment capacity. To assure timely repayments from borrowers, lenders ask for adequate income proof for two-wheeler loan approval.

Have you wondered why banks and NBFCs ask for your income proof when you apply for a two-wheeler loan? A motorcycle loan is a secured loan, and the bike itself serves as the collateral. So, what role does your income proof have in the loan approval process?

In this article, we are going to understand the loan eligibility criteria in terms of income for employed as well as business professionals. The next time you decide to finance your two-wheeler through a loan, you would be better poised to receive the approval.

Why do lenders check income proof before approving a two-wheeler loan?

Whether you take a secured or unsecured loan, creditors expect timely payments through EMIs from you. They prefer lending to clients with a stable source of income so that they receive timely payments. Unemployed people or those with unstable incomes sometimes falter while making EMI payments. This makes income a crucial aspect of the loan approval process.

The monthly income flow of borrowers largely determines the ease at which they can pay off the loan. That’s why banks and NBFCs verify your income before loan approval and disbursement. When you furnish your income proof, banks evaluate your loan repayment capacity and disburse the loan.

What documents do you need to furnish as income proof?

Whether you are employed or a business professional, lenders would require you to submit bank statements for the previous 6 months as your income proof. Your TDS certificate would serve as employment proof, while business professionals need to submit their income tax return (ITR) documents for the last three years. 

Besides, the lender would look out for your tenure of employment or business. Typically, borrowers who have been employed or in some kind of business for at least 3 years would have a preference for loan approval.

Why is income verification important for loan approval?

Income verification is important for loan approval since it determines your loan repayment capacity. Besides, banks and NBFCs factor in several other factors before disbursing the two-wheeler loan. These include:

• Your credit score
• Proposed monthly EMI
• Debt-to-income ratio

Individuals with a healthy credit score, preferably over 720, stand a better chance to qualify for the two-wheeler loan. A high credit score also helps borrowers qualify for lower interest rates.

Next, your proposed monthly EMI should be in terms with your expenses. This is where your debt-to-income ratio comes into play. This refers to the proportion between your debt and current income. Banks and NBFCs want to verify that you would have adequate funds at your disposal after clearing your ongoing liabilities to pay off the new two-wheeler loan. Most creditors expect borrowers to have their debt-to-income ratio under 40%.

However, if your debt-to-income ratio is higher than 40%, you can still qualify for the two-wheeler loan. In these situations, banks expect borrowers to make a higher down payment. Alternatively, if your credit score and repayment history look exceptionally good, your loan approval becomes easy.

What do lenders check in your income proof?

Banks and NBFCs offering two-wheeler loans usually ask for bank statements for the last six months. Scrutinizing your financial statements, they get to know three aspects that influence loan approval.

          1) The applicant’s monthly savings

Lenders readily disburse loans to financially sound borrowers. On evaluating your bank statements, NBFCs and banks get to know about your monthly savings. Even if you are earning a decent income, you may have ongoing liabilities. Besides, poor spending habits and extravaganza may prevent you to save money. 

Ultimately, your bank statements reveal where you are spending your money and how much you are saving. Accordingly, banks find out your creditworthiness which largely decides whether or not you can make timely loan repayments. A stable income, along with adequate savings happens to be crucial loan eligibility criteria. By comparing your monthly net income and expenses, banks find out whether you would have adequate savings to clear the EMIs.

          2) Your financial status

Bank statements reveal whether you have any record of cheque bounces. If you are financially sound, your bank statement should look neat. Any record of bounced cheque work against borrowers when it comes to obtaining two-wheeler loans. Financial instability may lead to delayed EMI payments or non-payment of the dues. 

Your bank statements also reveal your repayment habits. In case you have an ongoing credit card loan or other loans, the lender checks whether or not you made the repayments on time in the last six months. Therefore, income proof turns out to be a crucial determinant of your loan approval.

         3) The borrower’s ongoing liabilities

Your bank statements also reveal your ongoing liabilities. If you have any other loan, you must be paying your EMIs. This amount gets deducted from your bank account every month on a specified date. On analyzing your bank statement for the last six months, lenders get to know your ongoing liabilities. Accordingly, they calculate your debt-to-income ratio and find out whether you are in a position to repay the new two-wheeler loan.

Besides, creditors check the duration of your ongoing loans. If any of these loans are going to be closed soon, you stand a better chance for loan approval.

Wrapping up

To ensure a fast loan approval for your two-wheeler, make sure that your income proof fulfills the loan eligibility criteria. Here are some tips that can help you qualify for the loan easily.

• Make sure to have all your documents for income proof in place.
• Check your wage documents, pay stubs, and Form 16 for accurate information.
• Try to make a sizable down payment for easy loan approval.
• If you have existing debt, choose a longer loan tenure to pay smaller EMIs.

With your income proof ready, obtaining a two-wheeler loan shouldn’t take too long. Reach out to a reputed bank or NBFC for low-interest loans to finance your two-wheeler.