Those who never borrowed a loan before must be wondered, how loan amount is lend by banks, what is the criteria, what are the deciding factors, how tenure is decided, and many more such questions.
Here is the briefed process of bank loans:
1. Credit appraisal - As the words says, in this part - A lender(bank official) appraises the credit worthiness of borrower. Credit worthiness of a borrower lies in calculating whether the borrower is liable to repay the amount in stipulated tenure or not. This calculation is based on following factors:
i) Incomes of applicants and co-applicants,
ii) Age of applicants,
iii) Educational qualifications,
iv) Profession and experience,
v) Additional sources of income,
vi) Past loan record,
vii) Family history,
viii) Employer/business,
ix) Security of tenure,
x) Tax history,
xi) Assets of applicants and their financing pattern,
xii) Recurring liabilities, other present and future liabilities and investments (if any).
*Actual norms, however differ from bank to bank but source income is always the top criteria while lending loans. Further based on these parameters loan maximum amount is calculated.
2. Ratios Calculation: Based on above parameters and EMIs, different ratios are calculated which decided whether the loan amount is to be sanctioned or not.
i) EMI to Income Ratio: It should always be 33% but some bank gives relaxation up to 40%, if your loan history is good. Since in normal conditions, it is assumed that a person can pay an installment of 33-40% of his income.
iii) Fixed obligation to Income ratio: This is in contrast to above ratio that insures how much borrower can repay the installment amount on regular basis. If a borrower is already paying EMIs or has applied for other loans too, then that loan amount is deducted from his/her 33-40% of income and then a new EMI is re-calculated which tells the borrower's capacity to repay the loan. Statuory deductions like PF, PPF, Insurance premiums, RD etc. are exempted from fixed obligations. For eg.
If a borrower's income is Rs.36000/- per month, he is eligible to pay a loan amount with EMI as Rs.12000/-(33% of his income) but if he is already paying total loan amount for personal loan(or any other loan) with EMI of rs. 5000/-, he is eligible to pay Rs. 7000/- as EMI only. So his new maximum loan amount is decided on this ratio.
iii) Loan to Cost ratio: It tells the eligibility to pay on the basis of total cost of property and sets upper limit to maximum loan amount. If from any of the above two ratios, max loan amount turns higher than the cost of property, max loan amount will be downgraded to property cost. The ratio for comparison is set to 70 to 90 percent of registered value of property.
It is cleared now, that bank relies on these three ratios to calculate the maximum loan amount and eligible maximum loan amount is lowest of all from these three ratios.
3. Credit Profile: Before sanctioning of loan, Banks create this profile for each person approached to them for borrowing any kind of loan. This Credit Profile is duly submitted with Credit Information Bureau (India) Limited (CIBIL) for comprehensive credit information by collecting, collating and disseminating credit information pertaining to borrowers.
No comments:
Post a Comment