Question

What is the importance of an appraisal in loan processing

Answer 1

Appraisal is very important in loan processing from the lender's perspective. Under this process of credit appraisal, the lenders (like banks) determine the credit worthiness of the potential borrower i.e. they try to determine whether the borrower will be able to pay back the loan amount and the interest. If this appraisal process is not followed or is followed improperly, the lenders can be at a high risk of not only losing out the interest income but also their principal capital as well.

Banks usually check many aspects of a prospective borrower such as his credit history, source of income, assets, existing outstanding loans etc. All these steps of appraisal help the lenders to minimize their risk exposure which is essential for the continuity of business.

Also it is indirectly helpful for borrowers as well they are less likely to end up taking a loan that they find hard to repay.