Credit is basically a financial agreement between the borrower and lender (banks in most of the cases) in which lender offers money to the borrower to meet his/her objective which could be buying home/car/house renovation/bike/personal. In return, creditors charge interest and certain other fees from the borrower. Loaner may also ask to keep some form of security from the loanee i.e. the borrower in their control until the loan is fully paid-off.

Since crediting is the most profitable earning source for any lender, the market is flooded with numerous financiers ready to offer you money for almost any purpose. Check your E-mail inbox or SMS to verify this. You’ll definitely see a lot of marketing messages offering your credit card, loan (personal, car, home, etc.) within a day.

However many of these messages are actually marketing gimmicks. Because any type of credit application goes through a rigorous verification process till the money is received by the applicant (salaried or self-employed).

Few of the procedures involved are:

• Application form submission
• Documents submission to the lender
• Documents verification by the lender
• Credit bureau check by the lender
• And others on a case to case basis

In this article, we’ll discuss about the 6 most important financial documents asked by the loaner for personal loan without which getting any type of finance is almost impossible for salaried and self-employed individuals.

Financial Documents Required by Salaried Individuals

Pay Slip: No other person than a salaried can know importance of the salary slip. Whether he/she is applying for a job, any type of loan or credit card, non-availability of this proof will give sleepless nights. And especially getting finance will become next to impossible. Although there are ways to get loan without income proof document.
Based on the income mentioned in the pay slip, application is processed further and loan amount is decided.

Typically lenders will ask for last 3 months pay slip. However submitting salary slip is just the first step, lenders will then cross verify the authenticity of the document submitted:

• Employee details verified: Salary amount, PAN, designation, provident fund number, official employee-id, issuance date of salary slip, bank name in which salary was credited and the respective account number.
• Employer details verified: Name, logo, signing authority, address, phone number, etc.

Although there are many other factors taken into consideration by the banks such as CIBIL score, age, city, company worked for and so on.

Many people make a mistake of creating fake income proof. However beware that this can land the applicant in a big trouble and even a criminal action can be taken against the person by the company on whose name fake salary slip was created. And most importantly, career will be at risk.

Must Read: Impact of submitting fake documents for personal loan

Form 16: Many people think that Form-16 is required only during filing of income tax returns. But this document is also required while applying for personal loan (in fact any type of loan). Typically total income is checked by the creditor which is obtained by subtracting the deductions from the gross income.

If the applicant does not fall under the tax bracket, then he/she is not required to submit Form-16. Not falling under tax bracket also means, income of the applicant is also low. But poor income does not necessarily mean, personal loan application will be rejected, since your income is the most critical component that decides whether loan will be approved or not. And if approved what amount will be granted.

Check out personal loan for poor salaried.

Income Tax Return: This is not always asked by the salaried individuals and is typically requested when the loan amount is high. This document contains income from all the sources. For a salaried person, income is what is paid by his/her employer. And based on the total income earned, decision on loan approval is made.

Bank Statement: This helps salaried individuals especially who do not receive pay slip and are issued monthly salary in cash or cheque. By verifying the statement, lenders can check monthly amount deposited.

Financial Documents Required from Self Employed

Typically loan application from self employed businessman is high, so lenders ask for different set of documents before granting loan. Self employed also includes doctors, chartered accountant, company secretary, architects, and others.

The documents required are:

Income Tax Return: Similar to salaried individuals, self employed individuals are also required to provide ITR of last 3 years when applying for a personal loan. For this category of individuals, income is profit and gain from the business. And based on the total income reported, lenders decide on loan approval or rejection and the amount.

Balance Sheet: This is the document which specifies the financial health of any company (sole proprietorship/private limited/public limited, others). Through this document, lender can evaluate credit worthiness by checking the cash position, assets and any debts and then decide on personal loan approval and the amount.

Profit and Loss statement: Though many of the information present in balance sheet is also available in a profit and loss statement, but the net profit metric is what is typically checked by the lender in order to evaluate whether it is worth lending money to the self-employed applicant. This metric can be either positive or negative. And obviously a negative number indicates poor financial health. This is the reason last 3 years P&L statement is requested by the loaner, so that they can know what has been the financial health in recent years for better judgement.