Why banks reject your home loan application - IndianMoney.com

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Why banks reject your home loan application?

                  

You have just made an awesome presentation. You are being applauded by your boss and colleagues. You are rewarded with a promotion and a salary hike.

Your life cannot get any better. All that is left is buying that dream home.

Simple...Apply for a home loan with a reputed bank.

Then a rude shock…The bank has rejected your home loan application.

The past has caught up with you :

A few years age you had availed a credit card from a reputed bank. Money was in short supply .Falling behind in  payments was routine (happened regularly each month).Then a great day. You made a final payment and paid back all dues on that credit card.

 

But that was long ago and in a different bank anyways. So why was your home loan rejected by this bank which was not aware of the past?

The answer lies in a 5 letter word “CIBIL”.

Banks maintain records of your loan/credit card repayments and create a report called CIR (Credit Information Report) in your name.This report is send by banks to the Credit Information Bureau of India Limited (CIBIL) each month.

 

CIBIL then assigns you a score between 300-900.If you fall behind in loan repayments your CIBIL score will be low (< 600).Your score is then shared by CIBIL with all banks, and if your score is low, banks reject your home loan application.

 

Banks have real time data on your past repayments (repayment history) and then decide whether you will make your repayments in time or not.You have not make repayments in time on your credit card in the past. Banks believe you could do so again.

 

Your CIBIL score is bad :

If you have a CIBIL score of (700 and above) banks would easily sanction your home loan. Your CIBIL score is lower than this because you had fallen back (delayed your credit card repayments in the past).

Banks believe that if you have delayed/defaulted on your repayments in the past you could do so again.A bad CIBIL score means banks would reject your home loan application.

 

You are a grasshopper …No job hopper :

You are ambitious. It’s a modern thing you know. Changing your job every year. For a bank, job hopping is a strict No. Banks expect you to have a stable job and continuous employment in your current job for at least 2 years.

This gives the bank confidence that you will make your home loan repayments in time.

You have applied for a home loan in different banks :

Applying for home loans in different banks. (Think shooting arrows in many directions hoping one will hit the target).You apply for a home loan in different banks and pay the loan processing fee (a non refundable amount paid when you apply for the home loan).

 

You hope that one of the banks will sanction your home loan.Your application for that home loan with all banks is recorded by CIBIL. Every bank that you have applied for a home loan knows which other bank you have applied to.

 

Banks believe you are desperate for that home loan because you have doubts with your repaying ability.This means banks would reject your home loan application.You need to maintain a good CIBIL score at all times so that the application for your home loan is easily sanctioned.

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How Banks Reach Out to People in Rural Areas - IndianMoney.com

About IndianMoney.com :

IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial product.

How Banks Reach Out to People in Rural Areas :

Banking is the heart of an economy. Unless banking reaches every nook and corner of our nation true progress is impossible.

Financial inclusion (Banking, Insurance and other financial services) reaching out to all sections of our Society (Rich / Poor and Urban/Rural) is a must.
Recognizing this need, small banks are being started in the country.

 What are small banks?

You can deposit your money with small banks just as in any other banks in the country. The major difference between small banks and other banks is these banks go where other banks do not.

Lending (Loans) in the rural areas are the focus of the small banks. These small banks lend (give loans) to people in rural areas who need it the most as many major banks do not have operation in these areas.

Small banks lend to small businesses in rural areas, farmers, micro and small industries and the unorganized sectors of the nation.

These banks are small in size (unlike larger commercial banks) and focus only on the basic banking (accepting deposits and lending).

You would not find demat and other stock market services in small banks.

Which banks are most suitable to become small banks?

NBFC’s (non banking finance Companies) are the most suitable to become small banks in the country.

These banks already have a presence in most rural areas as many NBFC’s lend gold loans to rural people.

The idea of a small bank is that these banks should have a local feel (People in rural areas should be comfortable with such banks).

Many NBFC’s have already set up banking operations in most rural parts of the country. If NBFC’s get small bank licenses they could easily start operations.

What are the benefits of small banks?

• These banks focus on the rural areas in the country (accept deposits and lend) to rural people and unorganized (small and rural) businesses in the country.
• 
  The small banks focus on lending to the priority sector such as agriculture, small industries, housing and education.
• 
  These banks focus heavily on technology to reduce their cost of operations. High end technology reduces the need for excess staff and saves on costs. The speed and efficiency of their services also increases.
• 
  At least 50% of the small banks loan portfolio (Lending by small banks) will be for loans/advances up to INR 25 Lakhs. This means a focus on loans of small sizes particularly in rural areas.
• 
  Small banks have at least 25% of their operations in unbanked rural areas and this means they can easily reach out to the rural sector.
• 
  All deposits made by you with small banks are guaranteed (protected) by the DICGC (Deposit Insurance and Credit Guarantee Corporation of India) up to a maximum of INR 1 Lakh for both the principal and the interest amounts.

A large population of India still lives in rural areas in spite of migration to cities. This means it is necessary for banking to reach these areas and small banks are the answer to the problem.

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