Taking a home loan? Here’s the mantra!
You may have worked hard for a number of days to put together money for the down payment of a particular loan, but in today’s date, doing that is not enough. Unless and until a prospective bank or financial institution thinks that you are loan worthy by taking a look at your Cibil score and Cibil report, your plans of getting access to easy credit, may just get squashed. So what do you do to ensure that your loan application gets a fair chance?
To check how credit worthy you are, you must put yourself in the shoes of the lender and see whether or not you are meeting the essential credit criteria.
With the RBI cracking down on credit appraisal processes of financial institutions, it has become very important for prospective lenders to judge one’s creditworthiness appropriately. Towards this end any lender will also comb through your Cibil report to see whether or not you meet the their requirements. So if you are applying for a loan, or intend to do so in the near future, here’s the mantra you should know –the six C’s of credit.
Character
Your credit report is a reflection of whether or not you have good credit character. Good financial credit character is displayed by someone who meets his financial obligations on time such as paying credit card bills and other loan EMIs on time. Even if you are sure that you are doing so, it is a prudent practice to check your Cibil report at least once annually to see whether everything is in order and your financial obligations appear as they exist in your credit report.
Capacity
When you make your home loan application, your lender will ask you to submit a whole lot of income related documents such as your salary slips and IT returns. This is to judge whether you have adequate capacity or the ability to make a timely repayment of the loan. A bank will only process your loan application after it is convinced that you will have enough cash left after paying off your current fixed monthly financial obligations.
Cash flow
How much of your income is left once you meet your other debt obligations and paying off your bills? This portion of your income stream will qualify as your cash flow, and the lender needs to be assured that you have enough of it before it approves your loan.
Capital
While assessing your loan eligibility, the lender will also look at your capital or the amount you have left after you have met your debt obligations. If you have a property in your name, it will work in your favour. The lenders needs to be assured that you have enough capital to fall back on to be able to handle a new credit.
Collateral
Once again your property, if you own any, can be shown as collateral when you are applying for a loan. In case you cannot make your debt repayments, your collateral will then go under the possession of the bank which will sell it off to repay your loan.
Conditions
In order to assess your loan eligibility the lender will also scrutinize other conditions such the stability of your employment. If you have been job hopping too often, your instability will work against you. A prospective lender essentially looks for stability in your job profile and will not be impressed by frequent jumps in your career.
Thus as you see, in order to get timely credit at competitive rates of interest you must meet the credit criteria that have been set by the prospective lender. While each lender has his own methods and criteria to assess whether a willing borrower is credit worthy, following this mantra of six C’s of credit will put you in good stead.
Rajiv Raj, Director & Co-Founder, creditvidya.com
The views expressed in this article are author´s own
