Have you applied for Personal loan, Home loan, Car loan, Equity loan? Wondered what are the criteria for the institution to grant you the loan? Was your loan application rejected? Then I suggest you to read further and learn what went wrong.
The Financial Institutions such as banks, co-operative societies, mortgage houses provide loan to you or your business depending on your assets and liabilities and also they estimate your earning capability and spending habits and then they consider your loan application and go ahead with the processing of the same. These are not the only criteria for the institutions to provide loan for you, but these are the very basic ones. Some institutions also look out for your credit history and then assess you.
Whenever an institution grants you the loan, it just trusts you with the money that it has and it just lends you the same in a hope that it gets the money back from you. The bank actually takes the risk of lending you money which it has. When it lends you money, it looks for all possible ways to recover it if you default. The possibility of a person to default is high. In order to minimize the risk, the bank takes various precautions such as scrutinizing your application properly by verifying the details that you furnish to highest possible exactness, if you submit various assets then it verifies the same and also the institution checks for your credit worthiness.
Generally financial institution does not like a customer who pre-closes the loan before the loan tenure. It wants the customer to complete the loan tenure so that it earns the interest. The EMI option and return payments made to these institutions by the customer are always designed in such a way that the interest is repaid first and then the principle. If you did not make out why such a procedure is followed by the financial institution then the answer you expect can’t be anything other than to make money. The financial institutions are in business to make money and they are not doing any charity so keep that in mind when you apply for your loan.
The financial institutions when processing the loan application look for the possibility of repayment as the first criteria. If you fulfill the first criteria then the application will be processed further. Generally it is easy for you to get the loan from the currently holding credit card institution as they know your spending pattern and also they have your credit history. If they think you are credit worthy then they will grant the loan. The institutions prefer business class for higher loan amounts and the IT/Government employees for lower loan amounts say in case of personal loan 3-5 times of your take home and loan tenure of about 2 – 5 years depending on the loan amount.
These institutions when accessing your financial situation consider the assets such as various policies, mutual funds, land, surety from someone who is wealthier and trust worthy according to the institution. A person with a 10 crores loan can be a guarantor for a 1 lakh loan applicant. If a person is worthy of getting 10 crores then that person must be in a big league.
If you don’t want your loan application to be rejected then keep these things in mind.
- Make sure you show the institution a steady source of income with which you can repay your loan. A steady source can be as long as 6 months.
- If you have taken any loan previously and completed on time then get a certificate from that institution, this will help you to improve your credit worthiness.
- Have friends who are wealthy and who can guarantee your credit worthiness.
- Ensure you make regular transactions with the financial institution so that the higher officials of the institution are familiar with you and your financial status.
- Have life insurance policies of higher value and time bound. When I say time bound it means life is insured for the next 20 years to 30 years and not till you die.
- Last but not the least, have assets that can be pledged.
Engineer's Finance 