Avoid home loan rejection this way.

Real estate is the most coveted investment instrument in the country. Buying a home, whether for investment or residential purposes, can take years to materialise and given the prices, few can afford to pay the money upfront. In such situations, buyers inevitably turn to banks for home loans.

Although the norms for approving home loans have eased in the recent past, don't expect it to be a cake-walk. One small mistake can result in you merely dreaming of the house, and never actually owning it. 

We look at factors that can play a crucial role in getting your loan approved or rejected.

                         

BAD OR LOW CREDIT SCORE

You cannot build a house if the foundations are flimsy, right? When it comes to loan approvals, banks use a similar analogy. If you have a low credit score, you will be denied a home loan out rightly even if you fulfill all other conditions. Credit score is considered to be the most important factor by the banks while disbursing a loan. 

Credit score reflects a consumer's behavior towards the financial transactions. In some ways, it is a mirror to his financial habits and underwriters base their decision and develop risk-based pricing based on the credit score.


So, if a person has defaulted or delayed the payment on any kind of loan or credit cards, it will have a negative impact on the credit score. Other factors like being guarantor to a person who defaults on payment of his loan can affect your credit report too if you fail to repay his loan. So, be very sure before taking up the role of a guarantor. There are credit rating agencies like CIBIL, Experian Credit Information Corporation of India, Equifax Credit Information Services and High Mark Credit Information Services that provide credit score to individuals. Once you submit your loan application, the lender seeks a copy of your credit report from the bureau. They analyse this not only for the credit score, but also to review the extent of existing loans / credit cards, performance of ongoing and closed loans. All these go in to the final assessment of your loan application.

A credit score provided by CIBIL is a three-digit TransUnion score which is derived from the credit history found in credit information report (CIR). A CIR is an individual's credit payment history across loan types and credit institutions over a period of time. It ranges between 300 and 900. It indicates the probability of default of a borrower based on their credit history.

To maintain a healthy credit score, one should ensure timely dues payment and avoid taking too many unsecured loans as it may be considered negative. But if the damage is already done, you can work towards improving it slowly. 

INCORRECT PERSONAL DETAILS IN CREDIT REPORT

Your credit information report contains your personnel detail, so wrong information can lead to a mismatch between the details on your loan application and credit report and hence lead to your loan rejection. If there is any change in the personal details, you must update your lender so that it is reported to the credit information bureau and is reflected in your credit report. Any individual can get the credit report for a nominal fee from the credit bureaus.

However, it is important to check the report for anomalies like a credit card listed in your report but not owned by you, or a loan on their name which they had never taken. Prospective borrowers can also apply directly to the credit bureau for their credit report for a nominal fee. This allows you to review the facilities listed against your name, seek corrections if you spot any anomalies like a credit card listed in your report which is not yours and to know your bureau score. All bureaus have dispute resolution forms on their websites which aggrieved customers can fill and send with relevant identification documents.

REJECTION OF LOAN BY OTHER BANKS

Some people tend to apply to multiple banks at the same time. However, remember that if your loan is rejected from one bank then it can have an impact on your credit score and hence lead to the loan being rejected by other banks too. It is better to wait for the reply from one bank before applying to another so that you know why your loan is rejected and get the same rectified.

NEW OR UNSTABLE JOB

Since the repayment of loan is of utmost priority to the lender, they would like to ensure that you have timely repayment capabilities when he disburses the loan. In case of salaried person a steady flow of income is determined by the stability of job. Since repayment of home loans is normally sanctioned for 15-20 years, stability of income in future becomes a necessary criterion to be assessed at the time of loan sanction. For example, if the borrower has a contract of employment with just eight months left in it, it is natural for the lender to enquire if the contract has been renewed in the past or whether the borrower holds any professional qualifications which would give comfort that alternate employment would be forthcoming.

It is a similar story when it comes to changing jobs. While it may give the buyer a higher income level, it gives a negative impression to the lender. It is generally advised not to change your job if you are planning to take a home loan in the near future. In fact, the financial strength of the employing company is also considered as one of the factors for the evaluation of the application. People working in a proprietorship company, having less than 50 employees & not having provident fund facility, face issues in getting a home loan.

AGE FACTOR

Age is one of the most important factors considered by the lender while disbursing a loan. Typically, they put a minimum age bracket of 23-24 years and maximum limit of 60-65 years for loan applicants. Assuming a 22-year-old, who has been working for the last three years, applies for a home loan and the qualifying criterion for that lender is a minimum age of 23 years with at least two years of continuous work experience, the lender would in all probability turn down such an application.

APPLYING WITH RELATIVES OTHER THAN SPOUSE/PARENTS

If you want to get a home loan of a higher amount, clubbing the income of your spouse is a good option. But while banks allow clubbing of income of the spouse, father and son, the same does not extend to every family member. Some banks are skeptical of clubbing the income of the siblings because in case of a dispute, the EMI could be delayed. Clubbing the income with any other relative is not allowed. Also, a co applicant can't be a minor.

LOCATION OF THE PROPERTY

Banks also make their decision to disburse loans on the basis of the project's location. Take for instance, Noida Extension, where a number of projects suffered due to lack of clearance and acquisition disputes in 2011. As a result, a number of public sector banks stopped sanctioning fresh loan sanctions in the area, as per news reports. All lenders have limitations with the geographic locations. If the property is beyond such limit, the loan will get declined. The technical valuation of properties in remote locations may also be lesser than the purchase cost; banks do try to cover the risk of funding in an under-developed area on case-to-case basis.


UNSATISFACTORY EVALUATION OF THE PROPERTY

You must ensure that you are buying a house at a price which is close to the market price. This is important because the bank does the valuation of the property itself and will give a loan of upto 80% of the property value after considering other factors like your repayment abilities.

UNCLEAR PROPERTY TITLE
In the event that the property does not have a clear and marketable title, or there are issues connected to the approvals from the relevant authorities, normally banks or home finance companies keep the loan sanction letter valid till the customer finds another property which has clear title and approval. So, before buying a property you must ensure that it is not involved in any dispute.

LACK OF REPAYMENT CAPABILITIES

Banks ascertain your repayment capabilities before disbursing the loan. It depends on the disposable income that is left in your hand after paying off existing EMIs. Banks generally give a loan which amounts to an EMI of upto 50% of the disposable monthly income. So, first assess your repayment capabilities before applying for a loan.

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Loan Against Insurance Policy

Loan against Insurance Policy is not so very common in India. One of the major reason is that the most of the policyholders are not aware of this option. Secondly, the penetration of insurance is very low in India. In fact, if we remove Income Tax benefits attached to the Insurance Policy then penetration will be negligible. Insurance Premium is either considered as a waste of money or is paid for investment purpose. Both, India psychic and Insurance industry are responsible for this sorry state of Insurance products. 

What is Loan against Insurance Policy?

You can avail Loan only against Life Insurance Policy. Only exceptions are Term Insurance Plan & ULIP. Pre-condition is that Life Insurance Policy should have completed 3 years. In short, traditional insurance policies like Endowment Plan, Money back policy etc are eligible for Loan against Insurance Policy provided policyholder is paying the premium for 3 years. IRDA banned loan against ULIP in 2012. Some insurance companies do provide loan against ULIP but it depend on the fund you have selected & NAV of the ULIP. For ULIP, the loan amount is 40%-50% of Fund Value. As a thumb rule, for any life insurance policy which has the surrender value, you can take Loan against Insurance Policy. Surrender Value is basically the amount which the policyholder will get if he/she decides to close the insurance policy before maturity. The surrender value of policy keeps increasing with the policy term depending on your insurance product as you accumulate bonus over a period of time. Normally surrender value of the policy is 30% of the Policy Value. Loan against Insurance Policy is one of the best way to raise funds during emergency situation. You can avail loan from your insurance provider or pledge the policy to banks. 

Loan Amount: Its a complex calculation which depend on Surrender Value of the Policy, No of Premiums Paid & No of years Completed / Remaining. There is no scientific calculation to arrive at Loan Amount. As a thumb rule, you can assume that 80%-90% of the surrender value can be availed as Loan Against Insurance Policy. For example, if your insurance coverage is Rs 10,00,000. The surrender value will be Rs 3,00,000 therefore you can avail a loan of between 2.4 Lakh to 2.7 Lakh. If you have accumulated an additional bonus of Rs 1 lakh then Loan eligibility will be approx 3.2 Lakh to 3.6 Lakh. Another method which is used by LIC to calculate loan amount is approx 50% of the premium paid. Assuming, for a policy of Rs 10 Lakh, you have paid a premium of Rs 8 lakh at the time of availing Loan Against Insurance Policy. You can get a max loan of Rs 4 Lakh. Normally, Insurance provider will not share how they have calculated loan amount but it is the FINAL WORD.

Rate of Interest: The interest rate charged by the insurance company is variable and depend on the existing interest rates. Currently, it is around 10% – 12%. Interest is payable every 3 months, 6 Months or yearly basis. In some cases, there is minimum commitment period of say 6 months. The borrower has to pay interest for min commitment period even if the loan is cleared before 6 months. Please note that Interest Rate is variable and is revised annually. 

Documents Required: You need following documents to avail Loan against Insurance Policy

(a) Original Insurance Policy

(b) Deed of Assignment: Under Deed of Assignment, the benefits of life insurance policy against which the loan is taken will be assigned to the bank or insurance company. The policy will act as collateral or security till the loan is repaid. The assignment can only be executed by the policyholder and it has to be endorsed on the policy document. In short, you transfer the title of the policy till the loan is repaid. Future premiums are paid by the policyholder only.

(c) Payment Receipt for the Loan Amount: Normally, the Loan is disbursed through NEFT therefore advance receipt is required

(d) Cancelled Cheque

Repayment Options: Repayment options also vary. For example, in case of insurance provider like LIC you need not pay the Principal amount provided you are paying the interest on time. Now you must be wondering how will insurance company recover the principal amount. At the time of maturity or claim, principal outstanding will be deducted from the policy value. Balance amount will be paid to the beneficiary or policyholder. If the policy is pledged to a bank then you need to pay the principal amount as per amortization schedule. Normally, the repayment period is 6 months.

Loan Processing Fees: A nominal fees of Rs 250 is charged.

Time Taken to Process Loan: Banks and Insurance provider claim that the loan will be processed in 2 days time, but it may take up to 7 days time.

Default on Repayment of Loan / Future Premiums: In case of default in repayment or payment of future premiums, the insurance policy will lapse. The insurance company also reserves the right to recover the principal / interest due from the surrender value of the policy. The threshold is surrender value of the property i.e. if principal + interest outstanding equals to surrender value then your policy will be terminated.

Loan Closure: Upon the repayment of Loan, Insurance Provider or Bank will reassign the policy to the policyholder by an endorsement in the policy.

Insurance Provider or a Bank?: Some people are in a dilemma whether to avail Loan against Insurance Policy from a bank or Insurance Provider. It is suggested to avail Loan against Insurance Policy only from the insurance provider. The reasons are:

(a) You need not repay Principal which will be adjusted from Maturity / Claim amount. Though it is not advisable but still, it can be an option in case of emergency.

(b) Banks charge higher interest rate

(c) The loan from a bank is basically overdraft facility against the pledging of an insurance policy. Any overdraft facility is reported to CIBIL. If you default on Loan against Insurance Policy from the bank then it will impact your CIBIL score negatively.

Benefits of Loan against Insurance Policy

(a) CIBIL Score:  People with low CIBIL Score can also avail the loan.

(b) Alternative to Personal / Consumer / Short Term loan: Loan against Insurance Policy is best alternative to low-value loans like Personal Loans etc. Reason being, interest rates are lower compared to unsecured loans. The interest rate on a personal loan is average 14%, but the interest rate on Loan against Insurance Policy is 11%.  

(c) Chances of Application Rejection: There is no fear of application rejection except on technical grounds like signature mismatch etc. Whereas in unsecured loans income details, credit worthiness etc are checked therefore chances of rejection of an application are high.

Summary: Insurance policy provides financial security to dependents in case of any unfortunate event. Loan against Insurance Policy should be the last option for a policyholder. It should be availed only for emergency situations. Even if the loan is availed, it should be repaid within 6 months – 1 year so that benefits of the policy can be restored.
Visit: www.cibilconsultants.com
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Lenders Respect Financial Discipline !

An individual’s credit score provides a loan provider with an indication of the ‘probability of default’ of the individual based on their credit history. What this means in simple English is that the score tells a credit institution how likely the loan applicant is to repay a loan (should the credit institution choose to sanction your loan) based on the individual’s past pattern of credit usage and loan repayment behavior.

Given that the credit score is a loan evaluation tool developed to help loan providers, the first logical question that comes to mind is “what difference does it make to me?”

Well, the obvious answer is that the higher your credit score (i.e. the closer it is to 900) the more likely you are to get your loan application approved. The reason being, closer the score is to 900, the more confidence the loan provider will have in the individual’s ability to repay the loan.

While, this is what is claimed it is always useful to analyse the underlying data, which serves as the foundation based upon which such claims are built.

So what exactly does the data say?

The best way to analyse the impact the credit score has on an individual’s loan application is to observe the lending behaviour demonstrated by credit institutions over time. The table below shows us a comparison of new loans sanctioned by loan providers based on an individual’s credit score in 2008 as compared with those in 2011.

The data tells us that 90% of new loans sanctioned in both 2008 and 2011 were to individuals with a credit score of 700 or more. 

However, the data also indicates that over three years, lending institutions showed a change in preference from individuals with a credit score ranging from 750-799 in 2008 to individuals with a credit score of 800 and above in 2011.

Hence, you will have to maintain greater financial discipline in order to secure credit in the future.

It is important to note that loan providers also consider your total income, overall debt burden and fit with their internal credit policy before deciding upon your loan application.  Hence, if your EMI to income ratio is over the set cut-off percentage your loan application may get rejected despite having a credit score of 847.

Simply put, the Cibil TransUnion Score is like the marks one earns on school examinations. Higher marks (credit score) do increase the chances of your being accepted to college (getting a loan approval) but don’t guarantee your admission. A more overall evaluation of your extracurricular activities (income level, overall debt burden) is required before you admission is secured.

Similarly, different colleges will have different cut-offs with regards to the marks (credit score) required to gain admission (loan approval).

Renew, Revamp and Retain your credit score with packages available at www.cibilconsultants.com

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Factors affecting credit score !

You are probably aware that it is imperative for you to have a good Cibil score in order to qualify for a loan with an attractive rate of interest. In order to obtain a good Cibil score you need to maintain a good credit history.Now that you know the link between your credit history and credit score you are naturally keen to  do all you can to keep your Cibil credit score as high as possible. But have you ever wondered what goes into the constitution of your Cibil score? let us read through the points below :

• Your repayment history:  The first and most important thing that impacts your credit score is your repayment history. You need to clear all your bills and loan repayments well within the dates stipulated in order to maintain a good repayment history.Even a single default has a negative impact on your score.

• What you owe your lenders:  There are two basic considerations when it comes to calculating what you owe your lenders which is referred to as credit utilization. First, is the total of your credit card limits sanctioned to you and secondly the percentage of your money you are utilizing. Hence your credit utilization ratio is calculated as balance outstanding on all your credit cards as a percentage of total credit limit on all your credit cards.

• How long have you been servicing debt:  This may come as a surprise, but the amount of time you have been using credit also has an importance. Therefore, if you have been servicing debt for a longer period of time and handling it responsibly, i.e. by making timely repayments etc., it is going to have a positive impact on your Cibil score.

• The amount of new credit you have taken or applied for:  Everytime you apply for a new credit such as a loan, credit card etc, the banks and other financial institutions run an inquiry on your Cibil report to check your credit history to find out about your financial health and repayment capability.If there have been too many such inquiries on your Cibil report, it has a negative bearing on your credit score.

• The mix of credit:  Even though ours is primarily an EMI led generation, Indians are by nature averse to the idea of credit. So if you have been avoiding credit like the plague and have a single type of credit, you cannot have a good credit score, especially if you have only unsecured loans like credit cards or a personal loan. In order to score high on this ground, you must have a healthy mix of credit comprising of secured and unsecured loans and have the ability to service them well in time. Those with a mix of various credit types such as mortgage, personal loan, car loan, credit card etc. is likely to score higher than those who have a single type of credit.

A good credit score will ensure that you get a loan without any hassles at best interest rates when you really need one.
For assistance on maintaining and repairing your credit score just book an appointment with our experts at www.cibilconsultants.com

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Commonly asked questions about Cibil score !!

To have an impeccable credit history is of utmost importance these days. The way you handle your finances will impact your Cibil report and Cibil score. While a good Cibil score is your ticket to easy access to loans when you are in need of it, irresponsible credit behaviour and thereby a bad Cibil score may even harm the prospects of you attaining your dream job! Confused as to how that might transpire? Read on to find out more.

• What is a Cibil score?

Cibil Score is a numerical expression that predicts the likelihood of default of a person in the next 12 months. It is mainly influenced by your past repayment track record captured in your Cibil report. This means, if you have made payments on time on all your loans on or before the due date, it is very likely that you have a good credit score, and hence banks look at you as a good customer.

• Why is my Cibil score important?

When you apply for a new loan or a credit card, it is now mandatory for a bank to access your Cibil score to assess how creditworthy you are. A good Cibil score (above 750 out of 900) puts you in a vantage position as lenders would vye amongst themselves to offer you the best interest rates. This is because your Cibil score conveys that the chances of your turning delinquent are nearly nil. On the other hand, a poor Cibil score may lead to the rejection of your loan application altogether.

That's not all. Your Cibil score also has an important role to play if you happen to apply for certain jobs, especially in banking and finance sector, ITsector and other multinational companies as well. It has been found that those who are financially disciplined make diligent and disciplined employees in their workplace as well. Therefore, while performing a background check on you, your employer may ask you to submit your Cibil report among other documents. If your prospective employer finds that your credit behaviour is unsatisfactory, you may even be rejected as a candidate outright. It may be noted that if you are trying to find a job in a bank, a Cibil score of less than 750 will not do. However, if you approach the bank as a customer, the same bank may still consider giving you a loan if your score is between 700-750.

• What determines my Cibil score?

Your Cibil score is based on the information in your Cibil credit report. There are primarly five factors that go into the composition of your credit score. In order of their importance they are, your repayment history, utilization of credit , average age of credit accounts , your mix of credit and the number of inquiries that lenders make each time you apply for a new loan or a credit card. To maintain a good Cibil score, make all repayments of your loans and credit card outstanding on time, keep the balances on your credit cards low, keep the overall utilization of credit below 30% on your credit cards, have a healthy mix of secured and unsecured credit and finally apply for credit only when you are in dire need of it. 

• How can I access my Cibil score?

Your Cibil score is literally just a click away. You need to log on to www.cibilconsultants.com and follow the simple instructions to procure your score. You will need to fill out your personal details, make a payment thereof and authenticate your identity. Once your authentication is complete, your Cibil score will be generated.

• Does checking my own Cibil score impact my score negatively?

No. When you request for your own credit report it is considered a "soft" inquiry as opposed to that of a lender's inquiry which is considered a "hard" inquiry. Too many loans applied for in quick succession will lead to many hard inquiries which will then lead to negative impact on your Cibil score.

• How often should I access my Cibil credit score?

As a prudent practice it is good to check your Cibil score and Cibil report at least once every year. If you haven't done so, make sure you access your Cibil score and report at least six months prior to applying for a new loan. This is to ensure that your Cibil score is satisfactory and your Cibil report is free of any discrepancies.

Now that you know how important your Cibil score is and the way in which it impacts your life, it is highly recommended that you keep a check on your financial health by accessing your Cibil score periodically. Always bear in mind that it is not your income level that  important to maintain a good Cibil score, but your attitude towards handling credit! 

For availing credit related services contact us at www.cibilconsultants.com

Develop great habits for an excellent credit score !!

Don't let your financial dreams suffer due to low credit score. Maintaining cibil score is a necessity so as to avoid loan application rejection.

Here are some great credit habits you should follow:

Spend less that you earn

"Never spend money until you have earned it" - Thomas Jefferson

You have heard your parents and grandparents give this advice often enough. It is the simple truth of being credit-wise. Living within your means and spending only what you have earned not more than that. This does not mean that you do not spend on credit cards or do not take a loan but limit the amount to one you will be able to repay according to your current spending capacity. For instance, if you are taking a home loan ensure that the loan size and EMIs that will follow are manageable and do not end up putting you in debt.

Put credit to work but do not rely it

"Expectation is the root of all evil" - William Shakespeare

While credit is necessary for asset building, it should a tool in control, Credit is not cash, It is loan that has to be repaid. While shopping it is all too easy to whip out the credit card and pay. However, the fact remains that the bill will need to be paid at the end of the credit period which is usually a few days away.

Keep paperwork in order

"I am a believer that orderliness begets wealth" - SuzeOrman

Make sure your financial information and records are organized and up to date. Set up alerts on your calendar to ensure that do not miss a payment even if the bill does not come on time.

Have an emergency fund

"By failing to prepare you are preparing to fail" - Benjamin Franklin

An emergency fund keeps you afloat in tough times when there is an abnormally high need for funds or even when there is a gap in earning. It is like a safety net that prevents you from falling into debt. Without an emergency fund, you would fall behind in your regular payments resulting in a poor credit score.

On time, every time

"The bad news is time flies. The good news is you're the pilot."-Michael Altshuler

It is important to make your repayments on time not just most of the time but each and every time. Even one late repayment will have an adverse effect on your Cibil score. One of the easiest ways to ensure timely payments is to set up an auto debit system linking your bill payments to your credit card.

Renew, Revamp and Retain your CIBIL credit score with our power packed service packages !!
Book an appointment and get desired services with an ease.
visit www.cibilconsultants.com

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Secured vs unsecured loans and their Impact on Cibil score !!

It is not uncommon for people to ask about the difference between unsecured debt versus secured debt and how they two types of debt may affect credit scores.Some loans can have the opposite effect and actually damage your score.It is important to for us to understand what a secured and unsecured loan is in the first place. 

If a loan is unsecured, it does not have any collateral. Personal loan and credit cards are the most popular unsecured loans available today.

Any loan that has collateral is considered secured loan for example, a home loan or car loan or gold loan.Any default or delay in the repayment in both kinds of loans is bound to affect the Cibil score of a person. The banks report credit limit and balance on credit card and the loan amount for personal loans. The banks also report repayment information to the credit Information companies.The same is the case with secured credit. The banks repayment all the secured loans held by and also the repayment history.

Secured loans have the largest positive impact on your credit when they are repaid. If you have never taken a secured loan, your credit may be low despite your good record of repayment.

"Non-payment of or serial delays in repayment of credit card dues negatively impact the credit score. Possession of too many credit cards and little or no secured loans can negatively impact the credit score," said Sridhar K, vice-president, Highmark Credit Information Service Pvt Ltd.

So before you decide any changes in the repayment schedule, be aware of the impact of each loan has on your credit score.

For any assistance regarding credit score and loans contact us at www.cibilconsultants.com

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Financial decisions impacting your credit score !!

It is not just your investments but also your spending habits that impact your financial future. Most of us are worried about the investments we make and are least bothered about the EMIs that go out of our pay cheque on a monthly basis. It is important to take care of your liabilities as much as you take care of your assets and here is why -

Locking away credit cards: If you have overused your credit card during holiday season so now live a  "cash only lifestyle" for some months and pay minimum amount due on the cards.

Our verdict: Poor! - High interest payments and high utilization. Though on the surface the move to pay minimum amount due looks good, but you need to realize that credit card is the most expensive form of debt and not only you pay huge amount of interest payments, you also have a high utilization on your cards and it can hurt Cibil score. However, locking away your credit cards is definitely a smart financial move!

Using debit card for purchases: Just decide that from now on if you were to make a purchase, use only debit card - Be aware that purchases on debit cards weren't reported to the bureau.

Our verdict: Good! - Yes, the debit cards are not reported to the bureau.Make a smart financial lifestyle choice by using debit card to make a purchase, and be aware that the debit card purchases weren't reported to the bureau. Only your liability accounts - accounts where you are borrowing money from the banks such as - credit cards, home loan, personal loan, overdrafts etc. get reported to the Cibil or other bureaus in India.

Enquiring too often for loan application: The first time you got your loan application rejected,  anxiety took over and you applied to three other financial institutions through a third party. The third parties guaranteed you that they would get home loan approved.

Our verdict: Poor! - No third party can get a home loan when you are not qualified to get one. When you got your home loan application rejected from the leading private bank, you should have looked into the cause of application rejection rather than trying your luck elsewhere. Like everything else in life, the easy route is never successful. You should have approached the bank, gotten a copy of your Cibil Report and taken corrective measures before approaching a different bank.

 we find many customers struggling with their loan application rejection. Don't wait till you are impacted because of your low Cibil Score. Get it repaired with the service packages we offer at our website www.cibilconsultants.com.
Hurry book an appointment now !!

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