What banks look at when approving a loan is the question that comes up just before you fill out an application, and the answer is less mysterious than it seems. Lenders are not looking for a perfect customer; they want evidence that you can repay the money without financial strain. To assess this, they analyse six things: how much you earn, how stable your income is, how much debt you already have, how you have handled previous credit, what your bank transactions reveal, and what you need the money for.
What banks assess before approving a loan: The 6 key criteria
These are the factors that determine what banks look at when approving a loan, ranked from most to least influential in the decision.
It helps to know that most lenders do not make the decision manually. A credit scoring system assigns points to each of these criteria and calculates the probability of default. An analyst only steps in to review the case when the result falls somewhere in the middle. This is why a seemingly minor detail, such as two returned direct debits, can carry more weight than a strong introduction.
1. Your income and its stability
This is the starting point. When assessing what banks look at when approving a loan, income is evaluated not just by its amount, but also by its consistency:
- A steady salary: the most reassuring profile for a lender, especially with a permanent employment contract.
- Self-employment: you will be asked for your two most recent personal income tax returns and quarterly tax payments.
- Variable income: commissions or project-based earnings are averaged conservatively.
- A pension: considered a very stable source of income, although age limits the repayment term.
2. Your employment history and contract type
Most lenders want to see at least six months in your current job and one year of continuous employment. A temporary contract does not rule you out, but it often means a smaller loan amount or a slightly higher interest rate.
Recent job changes are not necessarily a problem either, provided you have stayed in the same sector without long gaps in employment. What raises concerns is an employment history with frequent gaps, because it creates uncertainty about your ability to repay over the coming years.
3. Your debt-to-income ratio
This is the most decisive calculation in what banks look at when approving a loan:
- The formula: all your monthly debt repayments added together and divided by your net income.
- The usual limit: 35%. Above this level, approval becomes considerably more difficult.
- What counts: mortgages, other loans, financed purchases, revolving credit cards, and guarantees on other people’s borrowing.
If you earn €2,000 net and already pay €400 a month towards debt, you have room for a new monthly repayment of around €300.
4. Your credit history and default registers
Here, the lender checks your track record as a borrower:
- ASNEF and RAI: Spanish default registers. Being listed usually leads to automatic rejection.
- CIRBE: the Bank of Spain’s register of outstanding debt. Hiding a loan will not work; they will see it.
- No credit history: having no previous credit is not a bad thing, but it does not provide evidence in your favour either.
5. Your day-to-day banking behaviour
Your bank statements from the last three to six months reveal a lot. Recurring overdrafts, returned direct debits, or a balance that reaches zero every month before payday carry more weight than people realise.
At CreditCheck, this is precisely the information we work with: through Open Banking, we build a credit profile using verified banking data, rather than what you declare on a form. Our Personal Loan Simulator shows you in minutes how much you could realistically borrow, without bank login credentials and with no commitment.
6. The purpose of the loan and the amount requested
A loan for home improvements or replacing a car is seen as more predictable than one without a clear purpose. And asking for exactly what you need shows planning, while rounding up raises questions.
The relationship between the amount and the repayment term also matters. Borrowing €20,000 over two years results in a monthly repayment that very few borrowers can manage, so the lender may offer you a longer term before rejecting the application. Working out those figures beforehand saves time.
Mistakes that reduce your chances of getting a loan
Now that you know what banks look at when approving a loan, these are the mistakes that cause the most applications to fail:
- Applying to five lenders in the same week, because every credit check leaves a record.
- Asking for more money than you need, which pushes up your debt-to-income ratio.
- Having overdrafts or returned direct debits in the months before applying.
- Choosing a very short term that increases your monthly repayment beyond the 35% threshold.
- Submitting an application without first checking whether you appear on a default register.
Tips to improve your chances before applying
With what banks look at when approving a loan now clear, you can prepare:
- Build up three months of healthy account activity. Avoid overdrafts and keep some money in your account at the end of each month.
- Pay off smaller debts. Clearing a debt with an €80 monthly repayment immediately frees up room in your budget.
- Adjust the term and amount. Extend the term enough to make the repayment comfortably affordable.
- Have your documents ready. ID, payslips, your tax return, and recent bank statements.
- Compare before signing. A difference of just a tenth of a percentage point in the interest rate affects the total cost.
Frequently asked questions
How long does a bank take to approve a loan?
Between 24 hours and one week. Online applications with automated data verification are often processed on the same day; if documents need to be reviewed manually, allow several working days.
Can I get a loan if I am listed on ASNEF?
It is very unlikely with a traditional bank. Some specialist lenders accept these applicants, but they charge much higher interest rates. It is usually more worthwhile to settle the debt and then request an update to your status on the register.
Do banks always require a payslip?
Not necessarily, but they do require a verifiable, recurring income. Self-employed people, pensioners, and those receiving rental income can demonstrate this through personal income tax returns or bank statements.
Does having other products with the same bank make a difference?
Quite a lot. If the lender already knows your transactions because your salary and direct debits go through your account there, it has first-hand information and can usually respond more quickly. That internal history may also help you access slightly better terms than those offered by a lender where you are not already a customer.
Does applying for several loans at once hurt your chances?
Yes. Several applications within a short period are interpreted as a sign of an urgent need for cash, which lowers your assessment. Compare first, then apply to no more than one or two lenders.
Conclusion
Understanding what banks look at when approving a loan allows you to stop guessing: you know what they will review, in what order, and what you can improve before applying. Spend a couple of months getting your finances and debt-to-income ratio in order, and the conversation with the lender changes completely.