Applying for a personal loan, home loan, or business loan? Before approving your request, banks carefully assess your financial profile to determine whether you’re a low-risk borrower.

Understanding what the bank looks for can increase your chances of approval and help you secure better loan terms.

If you had to ever lend money to someone, you would want to know that they can pay you back. Banks have a similar concern. This is why they have systems in place to make sure you will be a good borrower.

Here’s what banks evaluate when reviewing your loan application.

1. Your credit history and score

🏦 Why it matters:

• A strong credit score shows you have a history of repaying debts on time.

• A low score may indicate financial struggles, increasing the risk for lenders.

2. Your income and employment stability

💰 Why it matters:

• Lenders want to see a steady source of income to ensure you can meet repayments.

• Self-employed individuals may need to provide additional proof of income stability.

3. Your debt-to-income ratio

It’s generally advisable to only have a certain portion of your income allocated to debt repayment. In Mauritius this amount is recommended by the Bank of Mauritius.

📊 Why it matters:

• Banks calculate your debt-to-income ratio (DTI) to see if you can afford more debt.

• If your current debts are too high, you may be declined. In this case, you may need to prioritize paying off existing debt before you can be cleared for a new loan. 

💡 Pro Tip: Try to keep your DTI below 40% for a better chance of approval.

4. Your loan purpose

📄 Why it matters:

• Some loans (e.g., home loans, business loans) require specific documentation.

• Banks may have different lending criteria based on the reason for borrowing.

💡 Pro Tip: Be clear about your loan purpose to increase approval chances.

5. Your collateral (for secured loans)

🔐 Why it matters:

• If applying for a secured loan, banks assess the value of the asset used as collateral.

• A property, vehicle, or investment may be required as security.

💡 Pro Tip: For unsecured loans, expect higher interest rates due to increased risk.

Final takeaway: How to improve your chances for loan approval?

✔ Check your credit report before applying.
✔ Maintain stable income and employment.
✔ Reduce existing debt before taking on new loans.

Understanding what banks look for can help you position yourself as a strong loan applicant.