There has been news doing the rounds that getting personal loan has now become a tough task. Personal loan applications which command a higher rate of interest with no collateral and are sanctioned primarily on the credit history and profile of the borrower are being turned down for several people.
And similar is the case with other loan products including home loan etc. But what has gained resurgence as a loan product in such hard Covid 19 times is the gold loan and with rising demand for them interest rate on this product is also trending lower.
But not many would still like to give away their gold possession to get ready cash. So, here we tell you why despite's RBI push banks are reluctant in lending money and what you can do to avoid such a rejection:
Reason why banks are turning down loan applications for many potential borrowers:
Norms have been made stringent:
Even as the RBI gave a push to banks by lowering the reverse repo rate which is kind of a disincentive of keeping funds with the RBI, banks in the wake of Covid 19 crisis, when there has been across the board pay cut, furloughs, job losses, banks have turned extra cautious discounting higher NPAs they would already have to see.
Loans are generally sanctioned based on a potential borrower's age, income, other sources of income, credit score, sector where the person is employed etc but amid such a scenario there is a higher degree of scrutiny in terms of repayment capacity, income sources.
And the evaluation is true of even the secured loans where the loans are backed by collateral as in case of a home loan. Here in employees with large corporates are preferred and self-employed professionals are finding it difficult to crack the deal currently.
Also, as per a financial services firm, the loan to value is also on the moderate side with lower tenure.
Notably if you are a new borrower with no credit history, your loan application too might get rejected as it becomes difficult for banks to take a call on your financial credibility. Further those from the Covid 19 affected sectors typically hospitality, tourism, aviation may also likely suffer.
There is also a case for those who have availed RBI's moratorium on loans may also find it difficult to get their new loan application passed.
Now to avoid rejection of your loan, you can take on the following steps:
1.Pre-pay current loans that are nearing end say in next 6 months:
Before applying for a fresh loan application as banks have turned cautious and apprehensive at the same time, what you best can do for loans that are nearing closure you can prepay the last few EMIs. As banks now when evaluating an important parameter called FOIR or fixed obligation to income ratio are even considering the current liabilities of the borrowers i.e. loans that are about to close soon.
2. Need to keep a tab on your credit score as well as credit utilization rate:
PSUs demand a credit score of 700 and above while the number goes higher in case of the private bank. Similarly, the credit utilisation rate has to be around 30% and for keeping it low one way would be to keep clearing your credit card obligation.
3. Step-Up Loan is another option you can look up to:
Here in this loan will serve if you are in initial years of your working life and as your income progresses, so does your EMI installment against the loan taken by you over the tenure of the loan.
4. Joint loan also increases eligibility:
In instances where the second loan applicant is also working, your loan eligibility shall also be enhanced. Other than spouse some of the banks even consider father, mother, daughter or son as co-borrowers if they are working.
5. Also don't get apply for loan with several institutions and try and secure loan such as home loans that have tie-up with mortgage guarantee company:
Applying loans with too many institutions also impacts the potential borrower's credit score negatively and hence basis your current situation approach an institution that is most likely to grant you the loan.