Answer:
Based on creditworthiness analysis (dependent on income & expenditure, saving pattern) - compared with EMI
Step-by-step explanation:
Money is borrowed to enhance future cash inflow / wealth; with cost of paying interest & repaying the loan later.
So, loan repaying capacity must be verified as a pre-requisite to borrow loan. It is done as per 'credit worthiness' analysis of the borrower. The creditworthiness is ascertained based on borrower's income sources & composition. It also takes into consideration consumption, saving proportions of income. The relative comparison of savings with 'equated monthly instalment', that comprises both interest & principal amount : establishes certainty about repaying borrowed money.