Per­sonal Loans

Things to Know and Deals to Go for

Consumer Voice - - Front Page - Subas Ti­wari and Gopal Ravi Kumar

Sev­eral banks of­fer loans for per­sonal use and choos­ing the right bank to avail of the most suit­able scheme be­comes dif­fi­cult for a gen­eral con­sumer. He ei­ther asks friends who may have only par­tial knowl­edge or re­lies upon agents of the banks whose fo­cus is ei­ther to meet his own monthly tar­gets or to sell loans that can get him more com­mis­sion. Hence, in or­der to make the com­par­i­son prac­ti­cal for con­sumers, Con­sumerVoice con­ducted a com­par­a­tive study of per­sonal loan schemes of­fered by popular banks. The com­par­isons were based on pa­ram­e­ters that in­flu­enced the common man’s decision while choos­ing the bank or the loan scheme.

With loan-avail­ing pro­ce­dures be­com­ing le­nient and the RBI man­dat­ing loan dis­bur­sal within a month of com­ple­tion of formalities for el­i­gi­ble in­di­vid­u­als, the de­mand for loans for per­sonal use has seen an up­wards trend. More of­ten than not, many of us con­sider a per­sonal loan as the best op­tion to meet con­tin­gen­cies, be it a for­eign trip, a mar­riage, or other cer­e­monies con­sid­ered to be un­avoid­able. How­ever, opt­ing for a per­sonal loan with­out study­ing its terms and con­di­tions and ser­vices can turn out to be an im­pru­dent step and cost dearly.

Sev­eral banks and fi­nan­cial in­sti­tu­tions of­fer at­trac­tive deals on per­sonal loan of­fers with lu­cra­tive in­ter­est rates. Each per­sonal loan-lend­ing in­sti­tu­tion

has dif­fer­ent el­i­gi­bil­ity cri­te­ria, rates of in­ter­est, and re­pay­ment tenures, which should be re­viewed and com­pared to make an in­formed and smart decision be­fore ap­ply­ing.

Per­sonal loans are also called ‘clean’ or ‘un­se­cured’

GEN­ERAL EL­I­GI­BIL­ITY CON­DI­TIONS

For salaried class

where salary is be­ing cred­ited reg­u­larly. The bank ac­count need not be with the bank where one is ap­ply­ing for a per­sonal loan. How­ever, banks pre­fer to con­sider such loans to be given to their own clien­tele on pri­or­ity. as banks would not give a loan to a per­son with­out job surety. loans as they can be ob­tained with­out any tan­gi­ble se­cu­rity like prop­erty, fixed de­posits or bonds. Only the per­sonal sureties are re­quired to be fur­nished to con­firm that you are a de­pend­able per­son and will not de­fault on the loan.

part in ex­pe­dit­ing the loan sanc­tion.

rented with a lease agree­ment. pass­port and Aad­haar card, and iden­tity proof like em­ploy­ment iden­tity card and PAN card have to be pro­duced duly self-at­tested along with bank ap­pli­ca­tion form. At least two photographs of ap­pli­cant are re­quired. loan is not manda­tory, the bank will like you to state some rea­son (any one of the above or other pur­poses, which can be vague – for ex­am­ple, meet­ing un­planned do­mes­tic ex­penses). or home loan, those de­duc­tions will be taken into ac­count to cal­cu­late to­tal de­duc­tions out of the salary and ar­rive at the el­i­gi­ble loan amount. part in the bank’s decision in grant­ing a per­sonal loan.

el­i­gi­ble loan amount, as in­di­vid­ual banks have dif­fer­ent meth­ods of cal­cu­la­tion. The gen­er­ally ac­cepted prac­tice is to fix a ceil­ing of about 50 per cent of de­duc­tions from salary in­clud­ing the re­pay­ment of the loan to be granted. If you are within this ceil­ing, then the el­i­gi­ble amount could be about 10/12 times the gross monthly salary or 6 times the to­tal tax­able in­come as de­clared in Form 16 or in­come tax re­turns (ITR). This can vary among na­tion­al­ized banks and also among

pri­vate banks (pri­vate banks com­pute on the take-home pay).

For the self-em­ployed

For those who ei­ther do business or are free­lancers, ad­di­tional con­di­tions may ap­ply. in­come as re­flected in the in­come tax re­turns will be the ba­sis of as­cer­tain­ing his to­tal

For pro­fes­sion­als

For pro­fes­sion­als – doc­tors, lawyers, char­tered ac­coun­tants, ar­chi­tects, etc. – the fol­low­ing could be ad­di­tional con­di­tions to be ful­filled. will have to be sub­mit­ted along with the ap­pli­ca­tion form. loan schemes for such pro­fes­sion­als of­fer­ing lower rates of in­ter­est, the bank may ask for some de­tails on the pro­fes­sion as also copies of re­ceipts/pay­ments and/or in­come/ex­pen­di­ture ac­count. in­come. He may be re­quired to sub­mit de­tails of his en­ter­prise/na­ture of in­come. a fac­tor that in­flu­ences the loan sanc­tion. In case of a new en­ter­prise, banks can in­sist on col­lat­eral se­cu­ri­ties like bank de­posits and bonds, in ad­di­tion to pro­vid­ing one or more per­sonal surety of ad­e­quate net worth.

Ad­van­tages

quick­ness with which the loan ap­pli­ca­tion is ei­ther sanc­tioned or dis­posed of (re­jected). banks do not in­sist on any col­lat­eral se­cu­rity or in some cases even per­sonal guar­an­tee/surety. So it is ad­van­ta­geous for the loan seeker, as he need not be un­der any obli­ga­tion to his col­leagues or friends for pro­vid­ing per­sonal surety. com­po­nent (bor­rower’s stake in the risk). Hence, there is ab­so­lutely no need for the con­sumer to run around to ar­range for mar­gin money. cases. The con­sumer need not take pains to ex­plain the gen­uine­ness of the pur­pose and sub­mit proof for such pur­pose.

no elab­o­rate pro­ce­dures.

con­sumer-friendly with banks agree­ing to take post-dated cheques (PDCs) for the amount of each in­stall­ment and pre­sent­ing the same on due date. The con­sumer need not visit the bank at all for such work. Where the loan in­stal­ment payable is to be taken out of the sav­ings ac­count of the cus­tomer, the banks ob­tain writ­ten in­struc­tions and act on them.

Dis­ad­van­tages/Lim­i­ta­tions

type of loan. It is a costly af­fair as this is an ‘un­se­cured’ loan as com­pared to home loans that are ‘se­cured’. months. Banks do not favour or take ex­po­sure for a longer ten­ure. This may be lim­it­ing with re­gard to the con­sumer’s re­quire­ments. carry a higher risk and can end up as a non­per­form­ing as­set. There is the risk of re­pay­ment get­ting stopped mid­way due to change of job/ tem­po­rar­ily un­em­ployed sta­tus/death of the bor­rower/change of ad­dress with­out trace, etc. Hence, many banks do not con­sider giv­ing a loan to non-cus­tomers – that is, in­di­vid­u­als

who have no pre­vi­ous bank deal­ings with the lender. This se­verely re­stricts the op­tions avail­able to the con­sumer-bor­rower to seek a loan from any bank in the vicin­ity of their res­i­dence or place of work. loans of more than Rs 15 lakh even though their web­site/brochure claims the max­i­mum amount to be much more. So, the con­sumer-bor­rower will not get the ben­e­fit of more loans even if they are oth­er­wise el­i­gi­ble. guar­an­tor for the loan trans­ac­tion to add trust­wor­thi­ness to the loan con­tract.

AND WHEN MAY THE LOAN BE

RE­JECTED?

Poor Credit Score

Most banks and other fi­nan­cial in­sti­tu­tions have vol­un­tar­ily joined the credit in­for­ma­tion agency called Credit In­for­ma­tion Bureau of In­dia Limited (CI­BIL), wherein they share their credit de­tails that in­clude in­for­ma­tion on all bor­row­ers’ present/pre­vi­ous loan trans­ac­tions (even though they are closed and there is no out­stand­ing with the bank).

Banks for­ward their own in­ter­nal credit re­port on a cus­tomer’s credit per­for­mance and CI­BIL then awards marks based on that as­sess­ment (any­thing be­tween 300 and 900 marks). CI­BIL up­loads the same on their web­site. The in­for­ma­tion is re­quired to be up­dated (ad­di­tions/dele­tions) at reg­u­lar in­ter­vals by the banks who are ad­mit­ted as mem­bers of CI­BIL.

Banks in­vari­ably call for CI­BIL re­port as soon as you ap­ply for a loan. If your past trans­ac­tions with a par­tic­u­lar bank/FI ei­ther in loan re­pay­ment or credit card re­pay­ment were not up to the mark (termed as poor CI­BIL scores, less than 700), then there is ev­ery chance of your present re­quest for per­sonal loan get­ting re­jected.

Any­one can seek their CI­BIL score by vis­it­ing the CI­BIL web­site (www.ci­bil.com), filling in the form and pay­ing Rs 470 on­line for one re­port. The CI­BIL score is de­liv­ered at the given email ID. It is to the credit of this in­sti­tu­tion that 80 per cent of ap­proved loans (and sanc­tioned by banks) are of in­di­vid­u­als with a CI­BIL score of more than 750.

Past De­fault

Banks draw up a list of their own de­fault­ers and up­load in their com­puter sys­tems for any branch to look into and ver­ify the past record of a loan seeker. This is in ad­di­tion to the CI­BIL re­port that con­tains credit in­for­ma­tion on the loan seeker with other banks.

Loan Guar­an­tor

You may have stood as per­sonal surety by guar­an­tee­ing re­pay­ment to the bank in case of de­fault by your friend, who was the bor­rower for a bank loan. You may have for­got­ten it, but the CI­BIL re­port will show you as a de­faulter for the loan, even though you were only a guar­an­tor. You could be in for a shock, but that is how the sys­tem works. So, think twice be­fore of­fer­ing to stand as per­sonal surety to any­one.

Many Loans

While cal­cu­lat­ing your el­i­gi­bil­ity for a loan, banks will nor­mally add all the ex­ist­ing out­stand­ing loans from banks, pri­vate bor­row­ings, etc., be­fore ar­riv­ing at the el­i­gi­ble amount. The loan-to-in­come ra­tio is cal­cu­lated (banks gen­er­ally say that the to­tal de­duc­tions –in­clud­ing the re­pay­ment of the present loan – should not ex­ceed 50 per cent to 70 per cent of your take-home/gross salary) by the bank be­fore ex­tend­ing a loan.

Job Sta­bil­ity

If you shift jobs fre­quently or shift your lo­ca­tion a num­ber of times, it be­comes pub­lic knowl­edge and might go against you, as the bank could be ask­ing search­ing ques­tions on this score. A sta­ble em­ploy­ment track record plays a favourable role in bank’s decision to give you a loan. Since this loan is not se­cured by any col­lat­eral se­cu­rity and is given based on a good track record of em­ploy­ment (loy­alty fac­tor) and credit pro­file (good or ac­cept­able CI­BIL score), sta­bil­ity in one’s life is of prime im­por­tance in the eyes of the bank.

Tax Record

Banks could make a thor­ough as­sess­ment of your tax pro­file by ask­ing for the ITR copies of pre­vi­ous as­sess­ment years or could ask for de­tails of tax de­ducted at source/pro­fes­sional tax paid against your salary in the past. Fail­ure to give them or sub­mit sat­is­fac­tory an­swers could come in the way. So, the ad­vice is to ob­tain in­come cer­tifi­cate/TDS cer­tifi­cate/Form 16-16 (A) from your em­ployer and pro­duce the same when nec­es­sary.

Past Loan Re­jec­tions

If you have ap­plied for a loan or credit card in the past and got re­jected (for what­ever rea­son), ap­ply­ing again could get you a re­jec­tion.

RBI De­fault­ers’/Wil­ful De­fault­ers’ Lists

If your name is here, then you must worry. The Re­serve Bank of In­dia main­tains the ‘wil­ful de­fault­ers’ list, which is up­dated and up­loaded on its web­site. The RBI Wil­ful De­fault­ers’ List is culled from the banks on the ba­sis of wil­ful de­fault (de­lib­er­ate at­tempt to hood­wink the lenders in spite of ad­e­quate net worth).

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