If you are an NRI, chances are that you’ve been living paycheck to paycheck and constantly struggling to save money. I recently took a personal loan from a US bank and sent it to India. It wasn’t easy finding the best personal loan offer as there were many banks offering it and I had to essentially go through everything before making a choice. For NRIs, the first years in USA can be tough, as you are building everything from scratch. Your credit score is low, your bank account doesn’t have much saved, you have expenses to take care of and bills to pay. Finding that extra cash is tough. But thanks to US banks, getting a personal loan isn’t as hard as in India. However, one has to know the fine print and the details involved, or else it’s easy to fall into trap.
How much personal loan can NRIs get?
This depends on various factors such as your job, credit score, number of years on visa etc. Before getting into the details, let me tell you a few basic things to know.
Getting a personal loan of up to $25,000, from a US bank is not difficult. Of course, the more amount you need, the more you have to convince the bank. I know folks who got up to $100,000 personal loans from US banks easily. So, amount of loan is not a big deal. What is important is how credit worthy you are to the bank. If found credit worthy, any US bank will be willing to give you a personal loan, then it’s just a matter of choice for you, as to which loan is best for you. Let me tell you how to become credit worthy and get the best personal loan rates from US banks.
How to convince US banks for personal loans?
Like I said, it’s not about money but showing how credit worthy you are. And this is easy, provided you know how the system works. Unlike in India, your bank balance does not make any difference in the US. In India, your value is based on how much money you have saved and how bulky your bank balance is. In USA, this does not matter. For US banks, the only thing that matters is how credit worthy you are. Your credit worthiness is based on the following factors. Your credit score, your debt-income ratio, your credit history, your repayment history.
How to get approved for personal loans in US banks?
1. Keep a good repayment history.
This is extremely important. Make sure that you pay your bills on time. Simple things like electricity bill, water bill, rent, credit card etc. Ensure that once you land in the US, you don’t skip any of these bills. Pay them on time, always. Lenders and banks check for all your repayment history, via credit reports in which everything from your TV cable payments to bankruptcy will be reflected. If you don’t know how your credit report looks, it’s good to get the free credit report done. But again, thumb of rule is keep paying your bills on time.
2. Keep a good credit score.
Extremely important, because this not only affect your eligibility, but also affects your interest rate when approved for a personal loan. Credit score is based on various factors such as your payment history, the amount you owe to various banks or lenders, the length of time you’ve had various credit accounts open (when did you start your account), credit inquiries made, and the types of credit used (such as credit cards, mortgages, installment loans). It will also take into consideration your credit utilization, which is how much credit you’re using compared to your limit. Credit score is a three digit number and is scored by two different agencies. Trans Union and EquiFax. You can get to know your credit score from a free service like CreditKarma.
Anything from 700+ is a good credit score. So, before applying for a personal loan, ensure that your score is above that. The more the better. You can read here on how to improve your credit score.
3. Debt – Income ratio.
Many people under estimate this factor, but this is as important as the above two factors. Your debt-income ratio is the measure of how much debt you own versus how much income you have. As a thumb rule, you should not have more than 36% debt-income ratio. Which means, the amount you pay toward your debt should not exceed 36% of your income. Your debt includes mortgage, loans, credit card etc. The thumb rule here is that, keep some debt purposefully. Don’t be debt free completely. Because in the US, having little debt is good. It only adds to your credit score. In India, lot of people don’t like debt and keep their portfolios zero debt – which isn’t good. It does not help banks figure out if you are credit worthy or not. However, if you keep a minimum level of debt (under 36%), then it becomes easier for lenders and US banks to assess your credit worthiness and approve personal loans.
NRIs – Which bank to apply for personal loans?
So, this is the next major question. Once you have your credentials and finances under control, it’s only a matter of choosing whom to take personal loan offer from. Honestly, if you walk into any bank, almost all of them will be ready to give you a personal loan. The only difference is which one is beneficial for you. Obviously, you don’t want to go for the one that gives you a high interest rate. You should only select the bank that will give you better interest rates and ease of repayments.
From my experience, the banks that will give you best interest rates are credit unions. Credit Unions are different from national banks like Chase, Wells Fargo etc in that they operate locally and are flexible with interest rates and other facilities. They may not have ATMs all over or impressive online banking systems like the most popular banks, but they will have a more personalized banking and offer products based on your requirement.
There are many credit unions available in the US, just check your locality and you’ll notice many. Most credit unions will ask you to open an account with them, and if they are providing good interest rates, I will recommend going with them – it’s worth it. Just ensure that they don’t charge too much money for maintaining a checking/savings account. Most of them require a minimum fee (like $100/year) which shouldn’t be a big deal. Banks like Wells Fargo and Chase are heavy on cross selling and sales, that they can’t give you the lowest interest rates.
My personal tip is that, you dedicate one week for this, get all your documents ready (Salary slip, Credit report if any, Identification documents, Rent/Lease Agreements, Visa documents, Passport, Bank Statement for the last 6 months etc) and get an estimate from every bank possible first, then take it to the credit unions and show them the estimate. Credit Unions can get competitive if they see solid evidence of interest rates Wells Fargo or Chase (or whatever bank you’re banking with) is giving, and will generally go a point or two lower.
So, all the best. Getting personal loans from US banks is not difficult if you are prepared well. Despite whether you are taking a personal loan or not, ensure that you have a good credit history, good repayment history, good credit score and keep your options open. Get the best quote from the best bank or credit union and take the maximum loan as possible. I’ve seen a lot of NRI Indians make use of the low interest personal loans from US and send the money to India, for purposes like buying a property etc. It’s a good idea since personal interest loan rates are lower in the US than in India. So why not make use of it?