Banks use several parameters to assess a loan application. Lenders look at the industry and company the applicant works in, as well as their age, income, existing loans, credit rating, etc. “They are reassessing borrowers’ ability to repay. Income sources are more closely scrutinized than ever before,” said Adhil Shetty, CEO and co-founder of BankBazaar.com, an online marketplace for financial instruments.
According to industry experts, lenders are also looking for applicants with higher credit scores than before, and they prefer someone who has no outstanding loans or has low monthly expenses for existing loans. They are also considering loaning out to employees of top companies and avoiding applicants in industries such as travel and tourism as well as aviation.
To avoid being rejected by lenders due to tighter lending criteria, borrowers can take a few steps to increase their eligibility, especially if they are considering taking out an asset-backed loan, such as a home loan. .
DELETE EXISTING CONTRIBUTIONS
Previously, if an applicant had an outstanding loan, which was about to end in six months, lenders would ignore their monthly equivalent payment (EMI) when considering eligibility. Now they do.
Lenders look at a metric called the fixed bond-to-income ratio (FOIR). Under FOIR, a lender takes into account the applicant’s fixed obligations, such as current IMEs, to determine eligibility. If a lender gave a loan to someone with FOIR of up to 60% of their take-home pay, they’ve now reduced it. If you have the last EMIs to pay on an outstanding personal or consumer loan, prepay it before you apply for a new loan.
CHECK THE CREDIT REPORT
Download a copy of our credit report to check the credit score and if there are any issues. Public sector banks generally prefer to lend to people with a credit score of 700 or higher. The private sector credit score requirement is higher.
There’s not much you can do right away if your credit score is low due to default or missing payments. But check your credit utilization rate. “Credit usage reflects the percentage of available credit used. For example, if the credit limit on your credit card is ??1 lakh and your average monthly expenditure is ??40,000, your credit usage is 40%. However, if you had two cards with limits of ??75,000 each, and your total usage is ??40,000, your usage is 27%. Very high use is considered a potential risk. The lower your credit usage, the higher your eligibility, ”said Shetty.
Most lenders generally prefer a credit utilization rate of around 30%. Erasure of your card due to the lower rate of use of credit that lenders prefer.
Your credit score can also drop if you apply for a loan from multiple lenders. This is reflected in the credit report. Check the investigations made on your report. “Frequent requests make you feel like you’re hungry for credit and can lower your credit score. credit arbitrarily, ”Shetty said.
TAKE A JOINT LOAN
One of the easiest ways to increase the odds of getting a home loan is to apply for the loan together with your spouse. Some banks allow family members such as father, mother, son or daughter as co-applicant if they are working. A co-applicant could help you increase your loan eligibility.
CHECK IF A LENDER OFFERS AN INTENSIVE LOAN
As part of this program, banks offer loans at lower EMIs in the first few years and gradually increase the EMI as you start to repay the loan. It is generally intended for young borrowers. The lender increases the EMI as the borrower progresses in his career and earns higher income.
The interest outflow of a premium loan is higher than that of a fixed IME loan. Only use progressive EMI if you are sure that you have better earning potential in the future.
APPROACH BANK THAT RELATED WITH THE MORTGAGE GUARANTEE
The eligibility criteria for real estate loans offered as part of a merger with a mortgage guarantee company are more flexible. “A mortgage guarantee company partners with lenders to provide loan products. The two partners establish the eligibility criteria and other modalities related to the loan. Since the mortgage guarantor can take more risk than a bank, the loan products that lenders offer with them have relaxed eligibility criteria. A borrower can get 20-30% more loan amount with such a loan, ”said Sovan Mandal, business manager, India Mortgage Guarantee Corporation (IMGC).
According to Mandal, a loan product partnered with a mortgage guarantee company could have a longer loan term, higher FOIR, relaxed income criteria, etc.
IMGC has partnered with State Bank of India (SBI), Axis Bank, ICICI Bank, HDFC Ltd, Bank of Baroda, LIC Housing Finance, among others for a home loan product. Among these, SBI only offers the product to the self-employed.
Before applying for a loan, it’s best to understand your current situation and approach a lender who is most likely to lend to someone with your profile.
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