Salaried Employees Should Know 6 Important Things Before Applying Bank Loan

After completing probation period, employee gets confirmation which will give pleasure and happiness to the life. The next step thinking to enhance life by adding facilities. It may be a new car or a new house or home appliances like home theater or something else. In normal case, most of the employees depend bank loan to meet their shortfalls of fund. Before going to bank for applying loan, following 6 important things to be checked whether you have met those points speeding up loan process:

1. Organization / Company

Every employee are not eligible to get bank loan. Nationalized banks and scheduled commercial banks will give bank loan to those who are working either of Govt. or Public Sector Undertakings (PSU) or a reputed Private organizations. Bank may not give loan if you are working with an establishment run by proprietorship or partnership firms.

2. Salary Certificate / Salary Slip / Form 16

Bank verify employee's earnings and repayment capacity through one or more of the three documents listed below:

1. Salary certificate: It should be latest and original duly stamped and signed by Drawing & Disbursing Officer (DDO) / Employer.
2. Salary Slip also known as Wage Slip: for latest last three months duly stamped and signed by Drawing & Disbursing Officer (DDO) / Employer.
3. Form-16: 1 to 3 years depending upon bank and amount, duly stamped and signed by Drawing & Disbursing Officer (DDO) / Employer.

3. Genuineness of Signature of Drawing & Disbursing Officer (DDO) / Employer

If you are requested to produce more than one document listed above, make sure all the signatures are same. If there is any discrepancy or mismatch, documented justification to be produced.

4. Take Home Salary

Take home salary should be more or less 50% of gross salary and must be enough to live comfortably with out borrowing further. When your EMI set this criteria should be met.

5. Inflated Income

All income shown in the documents listed above (item 2) should be verifiable and can be recorded. You can't get loan based on unverifiable inflated income.

6. Check Off Facility

Check Off Facility means where the employer undertakes to deduct monthly installment from the employee's salary and remit the same amount directly to the Bank (lender) towards adjustment of the loan till its liquidation and also confirm / undertake attachment of terminal dues of the borrower employee. The genuineness / authenticity of the said confirmation / undertaking from the authorized salary disbursing official (DDO) of the employer organization must, however, be ensured for remittance of EMI and attachment of terminal dues of employee.

You have to provide Check Off Facility for repayment of loan. Facilitating salary transfer account to the bank and giving Standing Instructions (SI) may override Check Off Facility if bank accepts it. In case, Check Off Facility or SI is not available, Post Dated Cheques (PDC) should be considered for repayment.

Frequently Asked Questions About (FAQ) Salary Certificate

FAQ-1. How Many Salary Certificates Issued to an Employee

Answer: Normally an employee is entitled to get Salary certificate once in a year. In some organization, it will be given upto 4 in each quarter year gap. It depends the policy of the company / organization, nothing else. Many financial institutions accepts Salary slip instead of Salary Certificate as a supporting document for loan application. In such cases employee can apply for 12 loan applications! This does not mean that employee will get loans from all those institutions.

Differences Between Salary Certificate and Salary Letter

Salaried employees must know the differences between Salary certificate and Salary letter. In most cases, salary certificate or salary letter come into picture when an employee thinks about how to overcome current or forthcoming financial crisis - personal debt, purchasing a car, buying a house are the common occasions.

When you contact a financial institutions like bank, they give you a list of documents required for processing loan application. Some institution wanted salary certificate while others wanted salary letter. What are the main objectives and differences of these two documents - salary certificate and salary letter?

What is Salary Certificate?

Salary certificate is a document issued by an office head to their employee upon request made by an employee. The request must have a reason which should mention in the certificate as to own purpose or relatives' / friend's purpose. If approved by management, a certificate will be issued to employee in the subject line of "Salary Certificate". This certificate can be submitted for Loan application to any financial institutions depending upon the relationship and interest. Usually its validity may remain for one year or less.

Format of Salary Certificate and Sample Salary Certificate For Bank Loans

Image of Salary certificate template for bank loans

In most of the cases salary certificate issues without a format. Salary Certificate letter must contain some necessary information related to an employee's salary break-up including the tenure. Generally, Salary certificate uses for submitting to financial institutions sanctioning loan request made by salaried employee. It will give a basic assessment of an employee's repayment capacity prior sanctioning loan amount.

Sample Application for Employee Salary Certificate

Once you feel that your job is secure and it gives financial stability and security, the next step you may think to enhance life style further high. Probably the chances are either want to buy a new car or want to construct new house or sometimes, want to have some good furniture and home appliances to your house. Whatever, you need money or financial assistance from a reliable institution like banks.