Ability to Repay means a borrower’s financial strength to repay a loan on time without facing financial stress, based on income, expenses, and existing debts.
Ability to Repay is one of the most important factors lenders check before approving any loan such as a personal loan, home loan, car loan, or credit card. It helps banks and NBFCs ensure that the borrower can comfortably manage monthly EMIs.
To assess repayment ability, lenders review monthly income, regular expenses, existing EMIs, credit card bills, job stability, and overall cash flow. This analysis helps avoid loan defaults and promotes responsible lending.
A good ability to repay increases loan approval chances, helps secure lower interest rates, and allows higher loan eligibility. On the other hand, weak repayment capacity may lead to loan rejection or a reduced sanctioned amount.
"If a person earns ₹50,000 per month and already pays ₹15,000 in EMIs, a lender may approve a new loan only if the total EMI remains within a safe limit, ensuring the borrower’s ability to repay."