According to several financial experts, the Indian credit market is in an incredible growth phase. The number of accounts related to credit facilities, especially loans against property, personal loans, and credit cards has surged considerably over the past few years. Currently, loan against property (LAP) is the superlatively-performing segment of all personal loans in India.
Loans against property in India facts
- 33% – Growth in the number of LAP accounts until September 2018.
- 1.6 million – Number of loan against property accounts until such period.
- Rs. 34.93 Lakh – average balances held by individuals in their LAP accounts in the same period.
- Delinquencies in the LAP segment increased to 1.77% till January 2019.
While the financial sector is witnessing impressive growth in borrowers’ sentiments to avail credit facilities, the rate of delinquency has also seen a rise. Consequently, financial institutions are exercising marked caution when assessing a borrower for a property loan.
Factors which lead to application rejection
Delinquency is when a borrower defaults on repayment for more than 90 days. It exposes lenders to considerable loss. Statistics suggest a large portion of delinquencies have been noted on account of high-value credit.
Here are 7 reasons on account of which a financial institution can decline your mortgage loan application –
- Credit score
First and foremost, the lender will assess your credit score. The score is a quantitative representation of you as a borrower. It helps the borrower assess your credibility as a borrower and whether you would be likely to default in repayment. In case your credit score is below 650, lenders assume you to be a prospective liability and might decline your application for a loan against property on that ground.
- Repayment history
It is an essential attribute which shows your past repayment behaviour borrower. In essence, it is similar to credit score; however, while credit score is the quantitative implication of your entire credit history, its expression of your current creditworthiness is limited. In case, your repayment capabilities have deteriorated in the recent past or have shown trends of sporadic deterioration across your credit history; lenders hold the right to decline your application. One of the ways to ensure you don’t default on your payment is to properly assess your financial capacity before applying for a loan.
Fixed obligations to Income ratio is the percentage of your income that is spent towards certain fixed expenses. It also includes any existing credit on your name. Lenders prefer if the FOIR is within 40%. It assures the lender of your financial capability to repay on time. If your FOIR is anywhere above 50%, chances of loan application rejection are considerably high.
- Job stability
It is imperative to have a stable employment history when applying for a loan against property. It represents a steady source of income which is essential for successful and consistent repayment. If your applicant profile shows frequent employment changes, it might result in disapproval of your application.
- Multiple applications
One of the things you should avoid when availing a loan against property is applying simultaneously at multiple financial institutions. You should wait for approval or disapproval of your application in one institution before you decide to apply elsewhere. CIBIL records your application history and concurrent applications might negatively affect your credit score.
Lenders also consider your age to determine your repayment capability. In case you are starting on your career, you are more likely to be approved for the loan. However, if you are nearing retirement, lenders might hesitate to approve your application. It is because an individual towards retirement would not have a regular income source in the future, which might compromise their financial capacity. In which case, lenders can either approve of a short-term loan or reject such an application.
- Collateral asset
Financial institutions do not accept all kinds of assets as collateral. Your mortgaged property should be constructed by a trusted builder. It should also be easy to sell, and its sale value should compensate for losses suffered by lenders on account of default in repayment.
A loan against property is one of the most easily available credit facilities. With governmental bodies and financial institutions pushing the credit market to prime, you can avail a high-value credit at convenient terms, provided you adhere to the factors mentioned above. Refer to leading lenders like Bajaj Finserv for beneficial terms like no charge part prepayment and foreclosure charges, high LTV loans, easy eligibility, etc.
They also provide pre-approved offers on loans to minimise time and hassle on loan processing. These offers apply to a host of loans such as loan against property, personal loans, business loans, etc. Provide your name and phone number to check your pre-approved offer.
Therefore, carefully manage your credit in compliance with your financial capacity, lead a financially sound career, and adhere to certain mandates as employed by lenders to ensure your loan against property process for application easily leads to approval and disbursal.