Manage Money

5 Ways to Guarantee Loan Approval in these Tough Times

Right now, it is a very tough time for those looking for personal loans. While not impossible, getting a personal loan now is an uphill battle. Personal loan applications which have a high interest rate and need no collateral, and which are sanctioned mainly on the basis of the credit history profile of the borrower, are being denied or turned down.

Other loan products such as home loans have the same story. Try asking for a home loan now. Chances are getting one will be tough.

However, all this does not mean that you won’t get any form of loans.

Gold loans are doing quite well right now. Gold loan as a product is seeing its resurgence during this pandemic when all other forms of loans and lines of credit are not performing as before. During this time, the demand for gold loans has increased manifold. Another good news is that their interest rates are notably lower than other personal loans. 

However, many people are still reluctant to give their gold to get a loan. In this article, we are going to tell you why despite RBI’s push, banks are still quite reluctant in lending out money, and what you can do to avoid a lender’s rejections.

Why are banks turning down loan applications?

Norms are more stringent now

From the beginning of this year, the RBI cut the repo rate several times. After such actions from the RBI, banks are now much more cautious of discounting higher NPAs.

Generally, loans are sanctioned based on income, age, secondary income sources, credit score and even location of employment. However, in this economic situation, banks have a higher level of scrutiny when choosing borrowers. There are now more stringent policies on income sources and repayment capacity. Right now, banks can’t afford bad loans and non-repayments. The same is true even in case of loans where there is collateral. Instead, banks are preferring employees of large companies, in the light of which self-employed individuals are finding it hard to get loans.

Even if you get the loan with security, the Loan to Value ratio will be moderate.

If you are a new borrower who has no credit history, you can bet your application will be rejected. After all, banks cannot yet trust your capacity to repay. Others who’ll suffer in this situation are those from industries like aviation, tourism and hospitality, and those who availed the RBI’s moratorium.

How to avoid loan application rejection

1. Pre-pay current loans ending in a few months: Banks are now more cautious, as we have seen. Under these circumstances, the best thing you can do is to pre-pay the last EMIs of current loans. Banks are now paying more heed to the FOIR parameter, or fixed obligation to income ratio. This means those loans which are about to close soon.

2. Importance of keeping an eye on your credit score and credit utilization rate: As before taking any loan, you need to keep your eyes more on these parameters now. You need a credit score of 700 and above if it’s a private bank. Your credit utilization rate needs to be around 30%. These shall help in clearing away all your credit card obligations.

3. Consider step-up loan: If you have just started your career, you know that down the line your income will increase, just like your EMI installment against the loan over a fixed tenure. This is what happens in case of a step-up loan.

4. Take a joint loan to increase loan eligibility: If the second applicant is a working professional, you have more chances of getting accepted.

5. Don’t apply for loans at too many lenders: Try secured loans like home loans instead. These have tie ups with mortgage guarantee companies. Applying at too many lenders makes your credit score go down. 

If you use these 5 tips, you have more chances of getting your loan application accepted.


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