Chandralekha Mukerji | ECONOMICTIMES.COM | Jun 17, 2014, 01.44PM IST
Be it for your first car, home or a casual credit card swipe, loans have become a part of our routine lives. RBI data shows bank credit grew at a CAGR of 21.4% between March 2007 and 2013, while NBFCs witnessed a 24.3% growth in credit during the same period. On the other hand, the bad loans, or non-performing assets (NPAs), have tripled, a 320.50% increase from Rs.39,000 crore to Rs.1,64,000 crore, between 2008 and 2013. Therefore, it is only reasonable for the lenders to become extra cautious and follow stringent procedures before they disburse credit.
All banks scrutinize each and every detail of the prospective borrower and in case of even a single red flag, the loan application is promptly rejected. “Overall, banks only approve about 40%-60% of the loan application that they receive,” says Rishi Mehra, founder, Deal4loans.com, an online loan comparison site.
Apart from cases where the borrower is not meeting his/her regular eligibility criteria-income level, credit score, etc.-he/she is often not given any specific reason as to why his/her application was turned down. Here is a list of lesser-known questions the banker would ask before issuing you the loan:
1. Are You a Serial Job Switcher?
Job stability is an aspect banks place a lot of importance on. Some banks even insist that the applicant should be employed in a particular job or for a particular number of years in order to be eligible for a loan. So, if you have been job hopping too frequently or have started a new business, you might not get the loan. “Professionals with non-regular streams of income or businessmen who report low profits will also find it difficult to get credit,” says Anil Rego, CEO, Right Horizons, a wealth management firm.
2. How Big is Your Business?
If you are a salaried employee, the bank would want to know the nature and size of your employer. How old is the organization? The number of employees it has, public or private enterprise, industry and nature of business, etc. are some of the parameters. If the bank feels that you are employed in a company whose future looks unstable, your application would most probably get rejected.
“Based on their experience, banks often prepare a negative list of companies as well as professions such as call center employees, people with political associations or specific legal profiles. The list differs from bank to bank, but if you are in the list, the lender will be skeptical,” says Mehra of Deal4loans.com.
3. Is Your Address on the Defaulters List?
Banks conduct a verification drive of the residential and office address of the applicant before giving a loan. If either of the location is in area where the bank feels they can’t approach a customer or is in their negative record for past defaults, they reject the application. “If the loan applicant lives with someone who has a poor credit record, banks would probably have that address in their database. In such a case, the chances of rejection of the loan application are high as that residential address will pop up as a match on the defaulters list,” says Mehra. In some cases, you may also find it difficult to get a loan in case you have recently moved to a new city and are not on the electoral roll of that area or the information has been added to your credit report yet.
4. Have Too Many Prior Commitments to Meet?
You know you’ll not be eligible if you do not earn enough. But income is not the only variable to calculate your loan affordability. In fact, some parts of your income won’t be considered in this math. For instance, variable components in salaries and rental money are often not included in your income. Also, apart from household expenses, what are your other regular commitments? “If you are already repaying multiple EMIs, credit card bills or have high regular payments like insurance premiums, etc., and the total amount paid each month is more than 50% of your monthly income, you risk being denied,” says Adhil Shetty, founder and CEO, BankBazaar.com.
Source : http://goo.gl/D1xb9P