How to ensure your personal loan application is not rejected
Despite every financial planner advising against personal loans and a high interest rate range of 14-24%, their popularity is on the rise. This is likely to be more so after the recent rate hikes by the RBI and the increase in lending rates that are bound to follow. This is because people tend to opt for the simpler route as personal loans are easily accessible. "There has been a gradual increase in the overall demand for personal loans and it has typically grown at the rate of 10-15% year-on-year," says Sumit Bali, executive vice-president of Kotak Mahindra Bank. In fact, personal loans rose to 16.2% year-on-year in February from 4.1% a year ago, according to Sonal Varma, India economist, Nomura Financial Advisory & Securities, in a report titled 'India: Credit to Households and Services Still Buoyant'.
Besides, the ticket size of personal loans that are being sanctioned is also going up, with some banks offering up to Rs.30 lakh, a steep rise from the Rs.3-4 lakh limit in the pre-recession era. However, while banks are willing to lend more, the ask-and-you-shall-get regime does not uniformly extend to everyone. Here are the factors that are likely to affect the loan amount you are eligible for and the interest rate you will be charged.
Stability quotient
Your personal profile is a determinant when it comes to dispensing such loans. So if you are married, own a house, and have been living there for over a decade, you are likely to be preferred over a bachelor who changes his residence frequently.
Similarly, instability on the job front could bring you under the scanner. For instance, if your resume boasts five organisations in two years, it might put the bank on an alert mode and more stringent checks may follow. Says Shyamal Saxena, general manager and head of retail banking, Standard Chartered Bank: "Banks are more comfortable lending to people with a standard income flow and who display residential and office stability over a period of time."
Location
Your place of residence is not only a reflection of your snob value, but also plays a crucial role in determining your eligibility for a bank loan. Mukesh Kumar, a resident of Muzaffarpur in Bihar, had applied for a loan of Rs.1 lakh in 2010, which was denied to him by ICICI Bank. He then shifted his account to HDFC Bank and reapplied for the loan, but was denied again. After a year of trying to touch base with the bank's senior officials and writing to their grievance cell, he finally landed a loan of Rs.1.25 lakh in May 2011.
Kumar's key learning was that banks are reluctant to give unsecured credit in his hometown. "The rate of interest and the due diligence required may differ from one geographical area to another, even within the same city," says Bali.
Job profile
Before the recession, banks considered salaried individuals a better bet than self-employed applicants because they boasted a steady income. This view changed after the salary cuts and pink slips in the corporate world. Says Manisha Sinha, head of consumer assets, HSBC India: "It isn't correct to say that all salaried customers have a lower risk than the self-employed. There are higher and lower risk profiles in both categories and, generally, the criteria include consistency and duration of income level."
