Getting a loan approved from banks in India is a cumbersome process for most of us. The strict rules imposed by banks, long list of paperwork and the endless wait for approval is nothing less than a nightmare. But trust me, the whole process will seem like a cakewalk with a little planning and guidance. In this article, I will talk about how to get your loan application approved easily at Indian banks.
Ask yourself these key questions before applying for loan:
-What is the purpose of my loan?
-How much money do I really need?
-What type of loan should I go for? (Secured or Unsecured)
-How long will I take to repay the loan?
-Do I have enough cash flow to repay the loan?
Related: Best home loan rates in India.
First, let’s understand the broad classifications of loans in India:
A secured loan is one, which is backed by an asset typically a car, home, jewelry, stocks or bonds. The lender in case of non-repayment of the loan will seize the asset. Some examples of secured loans are-Car loan, housing loan, jewelry loan etc.
Unsecured loans are not backed by any securities. Examples are- personal loan, education loan, credit card etc.
Now, let me share with you some tips to get your loan applications approved faster in India:
Related: Best personal loan rates in India.
1. Know your credit score
So, what do the banks do after they receive your application? The answer is –Credit score check!
A credit score is the most important parameter for bank’s to judge your credit worthiness. It’s a three digit score (ranging 300-900), which represents your credit history. Having a good credit score puts you in a better position to get the loan approved. Refer the illustration below to understand how credit decisions work in banks:
How do I check my credit score?
In India, the credit score is generated by The Credit Information Bureau of India ltd (CIBIL). You can check your credit score here after paying the required fee. It’s always good to get a copy of credit report from CIBIL well in advance to verify them carefully and correct wrong entries if any.
What is a good credit score?
Any score above 700 is generally considered to be good. Most loans in India are granted for anyone with CIBIL credit scores above 750.
2. Approach your primary banker first
Banks love to have long-term relationships with their customers. Before you start running from pillar to post looking for good interest rates, make sure you inquire with your primary banker (bank you have been dealing with or having an account with a long time).
-Banks offer competitive rates to their existing customers
-Faster loan approval with reduced verification process
Also, check with your banker if you qualify for a pre-approved loan (Most banks pre-approve their customers because of the long relationship).
Related: Free Online Loan EMI calculators
3. Get your documents ready
A startling number of loans are declined by banks because of incomplete documentation. The list of documents required may vary from bank to bank depending on the loan type, loan amount, tenure, rules & regulations etc. Prepare the documents in advance to avoid last minute delay.
Here is a general document checklist:
– Photo identity proof-PAN card, passport, voters ID card or driving license
– Residence address proof-Passport, ration card, rental agreement or utility bill
-Employment proof- Official ID card, Salary slip or letter from HR
-Income proof-latest three months salary slip, bank statements with salary credits, last three years tax return.
– 3 recent passport size photographs
4. Do your research
There are plenty of banks and loan options to choose from. Don’t go for the first affordable rate you find. Research a lot until you find the best one at a price reasonable for you and your wallet. Go through the steps below to ease your research process:
– Visit the bank websites and understand the loan options, interest rates, other charges and terms & conditions involved.
– Understand which type of loan works best for you. For example, if you are looking for a car loan, consider comparing the interest rates with personal loan.
– Compare your loan options on websites like bankbazar.com, apnapaisa.com, paisabazar.com, creditnation.in, andromeda.com, indiadeposits.org, deals4loans.com etc.
– Don’t be credit hungry! Make sure not to place loan inquiries in multiple banks because every inquiry may result in a slight reduction of your CIBIL score. It would also caution the lenders about your financial insecurity.
– In case of secured loans, make sure that the bank accepts the security.
Related: Tips to get personal loans in India
5. Calculate your Debt to Income Ratio
Dust off those math skills and calculate your DTI (debt to income) ratio! Debt to income ratio is one of the ways banks measure your ability to make payments towards the loan. It can be calculated by dividing your total debt by income. DTI ratio helps you evaluate how much debt you can handle and how much credit risk you pose. Ideally, it should not cross 40% of your income.
6. Make yourself available for verification
To keep a check on fraudulent customers, banks follow a stringent verification process.
Unsecured loans-Apart from document checking, most of the banks employ external agencies that would physically verify:
– Your residence/ office address and check if you actually work/stay there
– Checking your lifestyle (type of building/locality/visible consumer durables etc.)
– Telephonic confirmation on both residence /office landline
– Official mail ID confirmation
– Secured loans-After scrutinizing your legal documents banks also:
– Verify the asset’s title, technical evaluation, maintenance, age, fair market value etc.
– If the asset is under construction- stage of construction, quality progress, locality etc. are checked.
– Residence/Office verification both physical and telephonic.
– Banks take verification process very seriously so try to assist the representatives by being available at home/office when asked for.
7. Be honest with your banker
Remember, honesty is the best policy! Be accurate and truthful with every bit of information you provide. Check the points below before approaching your banker:
– Assess your present and past loans repayment record.
– Inform the banker about all your existing debts.
– Confess the real reasons for payment default if any.
– Let the banker know if you are a joint applicant or guarantor for your friends/relatives loan.
– In some cases, repayment default by your co-applicant/guarantor can also affect your credit report, in such cases provide satisfactory supporting documents to the banker.
– Do not over or under report your income.
8. Keep your parents in the loop
Banks do extra background check on those who are/have:
– First-time borrowers.
– Low or no CIBIL records.
– Singles staying away from family.
– Job hoppers.
In such cases, the bank may either visit your parents to verify details or you’ll be required to provide them as a co-applicant. In either case, it’s better to inform them in advance about your loan to avoid last minute delays.
9. Follow up with your banker/sales team
Remember, communication is the key to make your loan process move along quick and smooth. Stay in touch with your banker/sales team during the process and be responsive with information/document when needed. Ask them questions and clarify your doubts if any.
10. Create a list of referrals
Sometimes a little push from a regular, dependable customer can encourage banks to give a green signal for your loan. So, create a list of people that you have a good relationship with, and who are able & willing to vouch for you.
11. Do’s and Don’ts
Here are some Do’s and Don’ts for you to follow to ensure smooth loan processing with Indian banks:
– Pay your existing loans, credit cards and other bills on time.
– Continue work for the same employer.
– Stay at the same residence address.
– Enquire about the processing fees, loan disbursal charges, penalty for late payment, foreclosure charges etc.
– Ensure there are no prior charges on the mortgage property (in case of mortgage loan).
– Check your e-mail regularly for questions or updates from bank.
– Set a regular saving plan.
– Save money in advance to pay at least 20% down payment of your home loan.
– Make any major purchase (car, house etc.).
– Apply for a new loan or credit card.
– Plan a vacation during your loan processing without informing your loan officer.
– Apply for more money than what you need.
So, there you have it. Follow these rules and you shouldn’t have any issue getting approved for your loan with a bank in India.[box type=”bio”] This article was written with inputs from Soumya Vinay – She’s a finance professional from Bay area with experience in varied financial fields like credit and non-profit accounting.[/box]