Top 5 reasons why a personal loan application may be rejected

Personal loan is the best way to finance immediate requirement for cash. Let's discuss how easy or difficult is it to get your personal loan application sanctioned. Here are the top 5 reasons why most personal loan applications get rejected. 

1.    Salary payment by cash: The way you get your salary is important. If you are earning well but getting salary through cash or cheque then banks may not give you personal loan. Bank prefer customers who receive salary directly in their bank account by direct transfer or ECS.

2.    Work experience of less than 3 years: Work experience plays an important role in obtaining a loan sanction. Most banks require minimum of 3 years experience to establish job stability. Some banks may also insist upon minimum one year stability in current job. Having sufficient experience but frequently switching jobs may also lead to rejection of your loan application.

3.    Residing in negative area: Your residence locality also matters when you  apply for a personal loan. Most banks have a "negative area list" and they don’t provide loans to resident of these areas. So it is good to check the same with the banker before handing over your document to them.

4.    Poor credit history and low CIBIL score: Bank always verifies your credit history before lending you any amount. If you have skipped EMI’s and haven’t paid your credit card bill on time, this all will affect your credit history and hurt your CIBIL score. The bank will reject your application in case of bad credit history. Check your approximate credit score estimate here

5.    Invalid Details: Bank verifies every detail provided on your application. If any detail is incorrect or if you are not reachable for verification, then your application is likely to be rejected. 

6 Smart Tips to Get Lowest Interest Rates on Personal Loan

Planning to go on a enjoy-now pay-later vacation? Here are some tips to get personal loan on lowest interest rates.

1 Check your CIBIL Score: Your CIBIL score is used by banks to check your previous loan repayment record. In case your CIBIL score is above 750, you are likely to get personal loans at lowest interest rates.

   

Check Seasonal Offers: Banks often offer special rates of interest on personal loan for limited periods. So always compare latest interest rates and schemes of multiple banks before applying for the loan. Remember that your salary bank may not always give you the best offer. Like phones, shoes and apparels, best offers are typically available online at Lowest Personal Loan Interest Rates in India

How about a gold loan instead? – Interest rates on gold loan range from 10-13% vs. 12-16% on personal loans. So, you may like to check the lowest rate available on personal loan with those on gold loan.

Hidden Charges: Some loan offers may look cheap with their low headline interest rates but come with hidden charges like processing fees, administrative fee, mandatory insurance premium and the likes. So, always check the overall costs before deciding on the loan. Many a times, these are not disclosed to the customer at the time of application. So, please check these upfront before applying for your loan.

 Prefer banks over NBFCs: Banks and NBFCs both may give same offers on loan but when you compare it in totality, most banks offer better deals on personal loans.

 Check Interest Calculation Method: Sometimes, Loans with low interest rates may be costlier than the higher rate of interest loans. It all depends on the way interest is calculated. So, don’t get carried away by such offers without understanding the details.

A flat rate would cost you more than reducing rate. In flat rate, you pay interest for the initial loan amount till end of loan tenure whereas in reducing rate, you pay interest only on the outstanding balance.

Everything You Need to Know About CIBIL Score 2.0

If you are a prospective home loan customer who is planning to apply for a loan, your CIBIL score would be one of the most important factors that a bank will consider while taking a lending decision. You might be required to check your own CIBIL report  in case you face any difficulty in getting an approval from banks.

You will, however, now receive a CIBIL TransUnion 2.0 report which is an upgraded version of the previous report. CIBIL TransUnion 2.0 follows a different approach for evaluating the past history of the borrowers and is considered to be an improved version of the earlier CIBIL credit report.

CIBIL TransUnion Score 2.0 is a score that is calculated based on various parameters on the consumer’s credit history and predicts the probability of default by the consumer. This credit score helps the banks in understanding the risk profile of its customers and accordingly take their lending decision.

One of the key changes and improvements in CIBIL 2.0  is that it also calculates a score for a new loan borrower with less than 6 months of credit history. In the previous version, any borrower who had less than 6 months of credit history would have got a score of 0. But, with CIBIL 2.0, the borrowers will get a score of 1-5, where 1 represents the highest risk of default and 5 represents the least risk of default.

The score is dependent on various parameters such as loan type (secured or unsecured), past credit seeking activities (like number of loan enquiries), 3 months overdue in any month for the past loan period, demographics (like age and location) etc.

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This feature can be especially helpful for those borrowers who have a short credit history of less than six months and need to take another urgent loan. In the past, even though the customer met the eligibility criteria, there was a possibility that his loan might get rejected by the banks for want of adequate credit history.

However, with CIBIL 2.0, even the new loan customers get a credit score, thus improving their chances of getting a new loan again within a short period.

In terms of credit score for borrowers who have 6+ month of credit history of any type/form of funding, the credit report will provide a score of 300-900. Banks may apply cut offs different from the cut-offs they used on the earlier reports while taking a loan decision. For instance, an 800+ in the previous report should now be equivalent to a score of 600-700 in the newer version.

The new CIBIL Score 2.0  is very helpful in determining a prospective borrower’s repayment capability. The report incorporates India specific factors related to customer demographics and the changing customer behaviour while calculating the score. 

CIBIL 2.0 has been tested on old data records of lenders and is being seen as an important tool in studying and modelling the behaviour of customers with high risk profile.

This article should have provided you a good understanding of CIBIL 2.0 and its implications for new loan borrowers. If you need further clarifications on CIBIL 2.0, please feel free to get in touch with us at care@myloancare.in.

5 Reasons Why I Love EPF Deduction from Salary

Do you feel depressed looking at the PF deduction in your salary slip every month? After reading this post, you will probably not feel so bad about it. Every month, 12.33% of your basic salary excluding other heads like HRA, DA, and other allowances is deducted every month towards Employee Provident Fund (EPF).

Today, in this article I will share why I don’t feel bad about the PF deduction reflected in salary slip.

1. For every Rupee deducted, your employer contributes another Rupee towards your EPF and Pension Fund. As per the EPF scheme, employers are required to contribute the same amount as deducted from your salary.  The entire amount deduced from your salary and two-third of that contributed by your employer is deposited towards EPF. The balance one-third of the amount contributed by the employer is deposited towards Employee Pension Scheme (EPS), whereby you create a corpus to earn pension post retirement.

2. EPF is totally safe, secure and tax-free:  The EPF fund is managed by the EPFO, a government of India organization and is invested only in government or government approved securities. The return on EPF is also fixed by the government every year. 
So, EPF money carries almost nil risk. The income from EPF is also totally exempt from income tax. In case your PF is managed by a company trust, even then the trust is governed by EPFO rules and investments are to be made strictly as per rules. So, even if the company goes bankrupt, it is unlikely that there would be any risk to the amount invested in your PF.

Useful Links:

•  Search BankBranches Details by IFSC Code
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3. EPF cannot be attached in case of bankruptcy: Say, if you happen to default on a loan  taken from a bank or you need to pay some government dues. Banks and tax authorities can attach your personal property and even bank account. However, balance in EPF account is exempt from being attached under any circumstances and can be claimed by you without any problem.

4. You can nominate your near and dear ones for your EPF:

EPF offers nomination facility on all accounts. Nominee will be contacted by the company or EPFO in case of death of the employee and balance will be paid to the nominee. In case the nominee is not registered, the balance can still be claimed by your legal heirs but the process may take longer.

Now, are you more comfortable with EPF deduction just like I am? 
I hope so. So, how about putting some extra money in your EPF account? Yes, you have the option of investing more in your Provident Fund in the form of Voluntary Provident Fund (VPF).  However, note that there is no matching contribution in case of VPF.

Still not convinced that EPF deduction is a good thing? Here’s what you can do. You can opt out of EPF if you want. Yes, it’s possible to opt out of EPF. It may seem surprising for many people. If you earn a basic salary of more than Rs. 6,500 per month, you have the option to out of EPF. In such case, you will not see any EPF deduction in your monthly salary slip. However, you have to opt out of EPF only in the beginning of your job. 

Are there any advantages in becoming a priority banking customer?

Being a “priority banking customer” as the title suggests is being eligible for premium or special services from your bank.  While the idea of being eligible for premium banking services is no doubt appealing, it can at time come with associated charges. So, it is good to understand the general scope of priority banking services that are offered by almost all leading banks in India.  

“Priority Banking Services” are premium services offered by banks to their customers who match their eligibility criteria in terms of level of transactions on their banking accounts, banking accounts balance, and/or number of years of association with the bank. Banks offer several additional services to retain and maintain relationship with their old high net worth customers, who can potentially offer incremental profitable business to the bank.  

Some (indicative list) of the common services/facilities provided to priority banking customers are:

1.  Premium credit cards or debt cards free of cost

2.  Zero charges on RTGS and NEFT transactions via online banking.

3.  Cheque pick-up facility.

4.  Zero charges on balance enquiries.

5.  No charges on cash withdrawals when you transact on other bank ATM in India.

6.  Completely free Cheque book payable at any bank branch in India.

7.  Concessions in locker rent

8.  Free Demand Drafts

9.  Access to exclusive lounges and other areas

10. Exclusive Relationship manager

So as you would understand, many of the above benefits are small convenience based facilities and do not offer any significant benefit to the banking customer.

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Obviously, where banks offer priority banking services free of cost, there is no harm in accepting the offer However, in several cases, a bank expects the customer to maintain high minimum amount balance in his account or pay additional annual fees to avail priority banking services.

Further, while there might not be any annual fees, one needs to be careful as what services are offered free of cost of under priority banking services as the banks may still be charging customers for some services.

One also needs to understand, that with the advent of ATMs, online and mobile banking, a rapidly growing section of regular banking customers have limited requirement for facilities such as Cheque pickups, demand drafts or a need to make branch visits quite often. Anyhow, for a large majority of customers, banking needs are basic and limited to depositing and withdrawing money with occasional requirement of a demand draft.

Hence, for these customers, becoming a priority banking customer by paying annual charges or keeping higher account balances may not make any financial sense. Priority banking services may appeal for banking customers who are not technological savvy and have a high dependence on banking to meet their business requirements such as bulk Cheque or cash deposits, cash management services and frequent requirement to make demand drafts.

It is for these customers, the additional services/features that come with priority banking may hold potential value. If you are one of the high usage banking customers, you can surely look at priority banking services to avail the extra comfort that come along. However, do remember to assess your banking requirements and do a cost benefit analysis of availing priority banking services.

Everything You Need to Know About Credit Score

What is Credit Score?

Credit score is a composite score calculated on a scale that ranges from mid-300’s to mid-800 on the FICO scale on the basis of the credit profile of the person as describe below.

1. Your Past Payment Record: - your consistency of making payments on loans and credit cards probably determines more than 90% of your credit score. Key factors that tend to be taken into account are:

a) What is your past payment record.

b) Every missed or delayed payment may lead to a lower score.

c) Recent history (Upto 2 years) has a greater impact on your score.

d) Consistent repayment record tends to improve your score over a period of time.

2. Nature of credit availed by you:

a) Higher reliance on unsecured loans such as personal loan and credit cards may lead to negative impact on your score

b) Credit card usage in excess of about 30- 40% of credit limit tends to pull down the score, more so if this is combined with revolving credit on multiple cards

3. Hard inquiries:

a) Too much loan related inquiries in the past are seen as a sign of a person badly in need of loans. This is sometimes referred to as a “credit hungry” profile. This may impact your score negatively.

What is a good credit score?

It’s more about keeping your score healthy rather than it being good or bad. It is often found that banks tends to give loan at lower interest rates and more attractive terms to those who have a credit score of more than 675. Lower scores will tend to make your mortgage and auto loan more expensive.

Main reasons for a low credit score:

There may be many reasons for a low credit score. They are classified into two main categories:

1. Low scores due to bank error

a) Errors in credit information provided by banks to credit bureaus

b) Identity theft or identity fraud where some unauthorized person has availed credit using your profile

2. Low score due to irregular past payment behaviour

a) Missed or delayed loan payments

b) Too much loan applications made in the recent past

d) High credit card dues.

Useful tips to improve your credit score:

a) Make all your monthly payments against loans on time

b) Keep away from too many credit cards. Don’t miss credit card payments.  Even if you find it difficult to pay the entire bill, make sure you pay at least the minimum due amount.

c) Moderate use of unsecured credit lines such as credit card and personal loan

Main Reasons to Choose a Top up Loan as Against a Personal Loan

Suppose you have recently taken a loan and after some time period (say 1 year), you again need some money for another purpose. Now what you do? Obviously, you can go for another loan.

But, do you know that there is another faster way to get a loan easily in case if you have a home loan which is already running? This loan is known as Top up loan. The benefit is that you can get this at a lower interest rate compared to a personal loan.

How Top up Loan Works?

When you take a home loan interest rates, you mortgage your property and the bank allows you to take a loan Upto 75 – 85% of the property value subject to your ability to pay EMI on that amount. After you make some EMI payments, the outstanding principal on the original home loan comes down and in some cases, even the property would appreciate.

Hence, the loan to value (LTV) comes below the maximum threshold of the bank.  Over a period of time, even your salary may have grown at 5- 10% per annum and hence you are now eligible for a higher loan amount.

So, at this time, you are eligible for a Top up loan. According to banks policies you are eligible for a Top up loan after paying 12 months EMI on the previous loan. Most banks offer top up loans at either the home loan rate or Upto 1% higher than home loan rate, which is still 2-3% lower than a personal loan.

Important things which you need to know about Top up loan:

1. Tax Benefit:

In Top up loan, you will get the tax benefit only when the loan amount is used for buying the home or if you use it for construction or renovation purpose.

2. No Security Required:

In Top up loan, you need not mortgage any further asset to the bank. This is because the bank is giving you top up loan on the security of your existing home which is mortgaged with the bank and all your property documents are already with the bank. Note that if you close your home loan, you also need to close your Top up loan.

                                                           

3. Processing fees:

Nearly all the major banks charge some processing fees of 0.25% to 1% on top up loans. You can sometimes get lower rates of interest and lower processing fees by opting to transfer your home loan to another bank.

4. Top up loan amount:

In Top up loan, loan amount cannot exceed 75% of the value of the property (together with the home loan) and the original home loan amount which you had taken earlier.

5. Loan tenure:

While personal loans are available for a period Upto 5 years, top up loan can be Upto 15 years, resulting in lower EMI’s.  Also, floating rate top up loans are exempt from prepayment charges unlike personal loans where you need to pay high charges for prepayment.

Is Top up Loan Good Alternative to Personal Loan?

In most cases, a top up loan is better than a personal loan. You chances of getting a Top up loan are high if you have already taken a home loan and your repayment record is good.