The CIBIL Score and credit history have become significant due to the increased use of credit for secured and unsecured loans. Lenders rely on individuals’ credit usage records to maintain their margins and refer to the data compiled by agencies. Before issuing credit, customer data is verified with CIBIL (Credit Bureau of India Ltd) to confirm an individual’s credit management skills. If an individual’s Credit Score meets the bank’s eligibility criteria, the request is processed otherwise, it is denied.

The data recorded is based on the details of the individual primary, which include:

The Name:
Aadhaar Card Number:
PAN Card Number:
Mobile Number:
Address:

Maintaining score records in our country is not easy with our mammoth population. Customer details are manually entered and forwarded to CIBIL bi-monthly per the Reserve Bank of India norms. There is room for error that can lead to customer details being wrongly updated, which can further lead to credit being denied based on a record of unpaid dues or delayed payments.

At Yourloanadvisors.com, we have assisted customers who were denied credit. Below is one example of a customer who was denied credit due to her CIBIL being wrongly updated, and how we assisted her in rectifying the situation.

The Customer’s Predicament was as Follows: Reena Applied for a Credit Card with ICICI Bank. Although her request was declined, it did not upset her or raise any alarms, as it was not a pressing need. The next time she needed credit and Applied for a Personal Loan to renovate her home, her application was denied. The reason given was that her CIBIL Score was 640 points, which is significantly lower than the required benchmark of 730. The rejection was concerning since Reena could not understand why her CIBIL Score had declined.

The Profile Details: She is a salaried employee of a limited company (listed as Cat B in the Company Category List of HDFC Bank), earning an income of ₹ 55k per month. Reena was married and lived in a family-owned residence.

Reena contacted us after applying to other lenders, such as YES Bank, and facing rejections. By now, she was in despair and urgently seeking a solution to her problem.

Steps to Finding a Solution

Retrieving her CIBIL Report: The first step was to ask her to retrieve her CIBIL report directly by applying for it on the CIBIL Transunion website. Most lenders accept this authentic credit record when issuing a personal loan. Each time a bank sends an inquiry to CIBIL to retrieve an individual’s score and credit history, the score decreases by 10 to 15 points. Unaware of this fact, Reena unknowingly damaged her CIBIL Score further by applying to various banks.

The Credit Entries According to her CIBIL Record:

6 inquiries were listed in her account for loans and Credit Cards.
An auto loan that she had repaid was reflected as closed.
A loan for a home appliance that was repaid over 6 EMI.
A Personal Loan of ₹ 1 Lakh from an NBFC for which an amount of ₹ 10k was pending.

As she had never Applied for a Personal Loan, she realised that an error had damaged her CIBIL Score. An NBFC issued a Personal Loan for a tenure of 12 months, which was included in her account. The last instalment for the loan was pending, with an outstanding interest amount.

Raising a Dispute with CIBIL: If there is an error, individuals can contact CIBIL to raise a dispute at and fill out an online dispute form. CIBIL will assist the customer to follow up with the lender to solve the issue.

Contacting the Lender Who Had Reported the Personal Loan Dues: We advised her to make an official complaint to the NBFC, citing her details and the disputed Loan entry in the CIBIL report and asking for further information on the loan’s registration.

To her surprise, she was listed as the loan holder. Her name and personal details, such as her address, matched the NBFC data, but her mobile number was missing. When she called the mobile number, she reached someone in another location who said the number belonged to her deceased brother. With a registered complaint in hand, she approached the NBFC again to verify the loan taker, who, after further investigation, admitted to the error in the report that was sent to CIBIL.

Coordinating with CIBIL for Rectification: Reena then obtained a certificate from the NBFC stating that she was exempt from any financial obligation and that no amount was due to the NBFC on her behalf. This certificate was forwarded to CIBIL, which acknowledged it and disputed the status of the Personal Loan. Finally, there seemed to be an end in sight as the NBFC agreed that the loan had not been awarded to her.

Updating the CIBIL Record: Reena felt eligible to apply for her personal loan with all the relevant proof. However, this was not the end her CIBIL Score had increased slightly but remained below the required benchmark. The CIBIL Score would only be corrected when the NBFC sent the amended report to CIBIL, after which the Disputed Personal Loan account would be removed from her history.

Improving the CIBIL Score: Reena was advised not to apply for further credit until the disputed loan account was erased from her CIBIL history, which could take another fortnight when the NBFC updated the status with CIBIL. As soon as the disputed account was removed from her CIBIL history, her score increased, and she fulfilled her loan requirement with a Personal Loan from HDFC Bank.

What are the Learnings to Avoid CIBIL Errors and Keep Your CIBIL Score Intact?

There are no shortcuts to a permanent resolution. Solve the problem in the right way, and avoid offers from agents who promise to rectify the situation quickly and ask for funds.
Borrowers should routinely check their CIBIL Score before applying for credit to ensure that there is no wrong entry and that the score exceeds the benchmark required.
Keep proof of all credit taken and keep track of repayment. Ensure that you obtain a no-dues certificate when completing a loan repayment.
To maintain a good CIBIL Score, individuals should practice healthy credit usage, both secured and unsecured, and most importantly, make timely repayments.

Sujata, an employee of a company featured in the Economic Times list of top companies, was surprised to receive offers for a Credit Card and Personal Loan just three months after she started working there. The offers came from ICICI Bank, with which she had her corporate salary account, and other prominent banks, such as HDFC Bank and AXIS Bank, and she was spoilt for choice.

For employees at companies classified as Category A or B in the HDFC Bank Company Category List, such as Sujata’s, these privileges are not just surprising, but also a testament to the benefits of working for a listed company. In contrast, applicants from Category C or D companies are not offered similar privileges, highlighting the advantages of being associated with a top-tier company.

Let us look into why Banks are ready to offer Personal Loans and Credit Cards to the employees of companies included in the approved list for sourcing.

The Approved Companies List of Banks features The Economic Times’ list of elite or top companies in the country. Established entities with increasing revenues and rising share prices are included in this list of approved companies by leading banks in the premier categories of A and Super A, according to the HDFC Bank Company Category List. These companies employ a significant workforce and operate offices throughout the country. They provide stable employment and promising prospects to their staff, who can fulfil their financial commitments on time.
Premier companies hire graduates from prestigious institutions like IIT, IIM, and other top colleges offering advanced degrees. These individuals possess strong educational backgrounds and high skill sets and earn handsome salaries. Consequently, elite companies seek out such individuals to fill job vacancies. With good incomes and positions at leading firms, these employees can easily afford a comfortable lifestyle and are eager to hold credit cards, such as the ICICI Bank Coral Credit Card.
Having secured a job with an organisation that offers good benefits and attractive remuneration, employees are eager to improve their lifestyle with a Personal Loan from HDFC Bank, which provides the best terms and conditions to applicants working in Category A and Category B according to the Company Category List. Looking forward to enjoying the rewards of their hard work and building future investments, banks also aim to provide them with funding for secure and unsecured credit.
Applicants employed by elite companies are less likely to change jobs frequently, providing lenders with a sense of security. They are also well-established, have self-owned residences, and are readily contactable. State and central government employees are favoured because of the security of their jobs and consistent monthly salary payments, and are included in the approved lending lists.

Data analysis has shown that applicants working for listed companies are less likely to delay or default on their payments, making them the preferred segment for lending, particularly for unsecured Personal Loans and Credit Cards.

Comparison of Eligibility Criteria for Personal Loans and Credit Cards Issued to Employees of Listed and Non-Listed Companies.

Income: Banks and NBFCS issue credit based on monthly income and the customer’s profile. Banks have an individual policy of a minimum salary requirement for issuing credit for lifestyle needs, such as Credit Cards and Personal Loans. Listed Company employees are favoured and entertained with a lower salary transfer. Some Banks restrict sourcing and require a higher income for Non-Listed Company Applicants.

Approved/Listed Companies

Tenure: A Personal Loan’s tenure or repayment term is between 12 and 72 months. The bank sets the repayment term at the time of loan disbursal, and it remains fixed. Applicants from listed companies are granted a longer repayment tenure of 72 or even 84 months. In contrast, the term for applicants working in Category C or D companies is limited to 48 or 60 months.

Loan Amount and Credit Card Limit: Banks provide Personal Loans ranging from ₹ 1 Lakh to 40 Lakh, depending on the customer’s needs, monthly income, and repayment capacity. According to the bank’s eligibility criteria, the loan amount issued to applicants employed with listed companies is the maximum, as there is a cap on the loan amount for applicants employed with non-listed companies.

Similarly, for Credit Cards, the credit limit issued for an applicant working in an Economic Times-listed company will be higher than that of a private limited company not featured on the list.

Experience: Most banks require a minimum of one year of work experience to process a Personal Loan or a Credit Card. However, an exception is made for applicants working in the Approved Company Category List of Banks individuals employed with elite or super prime companies earning a monthly salary of ₹50,000 and above can apply with a continuity of three months or more.

Policy Criteria for Non-Listed Companies:

However, customers employed by Non-Listed Companies are eligible for unsecured credit, although eligibility standards and lenders’ options are limited. If you work for a company not on the approved list of major banks, securing a personal loan or credit from banks that provide credit to non-listed companies, such as YES Bank and IndusInd Bank, is possible. There are key factors to keep in mind that will help secure credit.

Income: Banks ask for higher salary credits from non-listed company applicants. High-income applicants with a monthly salary of ₹ 1 Lakh and above are treated in a preferred category and are issued Credit Cards and Personal Loans despite working for an unlisted firm.

Stability: Applicants who own or have a family-owned residence and work with a government organisation are considered stable and financially eligible for unsecured credit if the lender’s other Eligibility Criteria are fulfilled.

The CIBIL Score requirement of 730 to 750 has become mandatory for a Credit Card or a Personal Loan. Applicants with a high CIBIL Score and a sound repayment track of existing credit are liable to be given credit readily when needed.

Having a successful financial relationship with a Bank and maintaining an account with a healthy balance at all times can significantly boost a credit application. This empowers the audience to take control of their financial health and be favorably viewed by lenders.

Company Turnover: The performance of the company the applicant is applying to is reviewed if the company is not listed in the AXIS Bank Company Category List, but the applicant has an account, and privileges of a Credit Card or a Personal Loan are awarded.

In conclusion, banks look for borrowers confident they will return the funds on time. As unsecured funds come without security, borrowers with secure backgrounds are preferred.

Companies in the approved list of banks are added after their profit margins and turnovers are constantly checked and verified. Organisations predicted to face a downturn, such as the travel industry, are delisted during COVID-19.

As the turnaround for Personal Loans is shorter and debt recovery is a mammoth task, Banks are reassured to extend credit to salaried employees of thriving companies. These employees are assured of receiving their salaries and can, in turn, pay their dues on time.

Banks are now a part of our everyday existence. They are the safekeepers of our earnings, offering various financial services, investments, and safe deposit boxes for jewellery and other precious items. There is an ongoing relationship with the bank that holds your funds. Whether it is a savings account, a salary account, or a business account, the services provided are according to the type of account and the balance maintained.

Lending is an integral part of the Banking business today. It involves issuing credit according to various customer needs, such as buying a new home, expanding a business, purchasing a new vehicle, or meeting individual and emergency needs.

Holding an account with a registered Bank has become necessary, whether with a private or government-aided Bank. However, it is not essential to maintain an account with the Bank to apply for credit. You can apply to any Bank that will suitably fulfil your funding requirements. However, a bank statement is a mandatory document required for issuing further credit, such as a secured loan, home loan, or mortgage, and for unsecured credit, like a Personal Loan or Credit Card. Personal Loans and Credit Cards are issued without security or guarantee, making an individual’s bank statement paramount.

The type of Bank account and the transactions reflect an individual’s financial standing based on income earned, spending patterns, and savings or balances maintained, which is crucial for assessing an individual’s economic worth and management abilities. An individual’s banking allows a lender to verify the income and current credit instalments being paid.

Essential Transactions Required When Applying for an Unsecured Credit

Are you Applying for an HDFC Bank Personal Loan or an ICICI Bank Coral Credit Card? A three-month bank statement must be submitted as part of the documentation required to process your Personal Loan and Credit Card requests from a bank or NBFC. Note the following before submitting your bank statement.

The Bank credentials in banking must match your KYC Documents, such as your name and account number, which should be similar to the bank account mentioned on your salary slip.
A three-month bank statement must be submitted as documentation the date of the statement should not be more than 10 days older than the date on which the loan application is submitted.
The statement should reflect salary transfer credits for the last three months. Ideally, the salary must be credited by the 7th and on a regular date, month by month. The salary credited must match the net salary as per the salary slips.

The Following Checks Will be Conducted When Verifying Your Bank Statement.

Any returns or bounces of cheques issued to external parties because of insufficient balance are regarded negatively and will result in the rejection of the loan request.
If the EMI of any existing loans has not been paid, it will be reflected in the bank statement. As a result, the applicant will not be issued any further credit for the next three months in such cases.
An average bank balance is required to issue further credit. If the account balance is low and the applicant has exhausted all earned income, the lender may be apprehensive about the applicant’s financial Eligibility for a Personal Loan.
The EMI paid for the existing credit is considered when verifying the bank statement. Credit Card dues and loan instalments are also included in Calculating Personal Loan Eligibility.
If the applicant maintains an alternate Bank account with regular transactions, they should submit the additional statement as proof of financial stability the earnings of the spouse and parents residing in the same premises are also considered part of the income, provided that the lender’s policy is fulfilled.

What are the Benefits of an Upright Banking?

An applicant maintaining a bank statement with regular salary credits and a healthy balance enables a positive response when applying for unsecured credit, such as a Personal Loan or a Credit Card.
With the monthly instalment deducted promptly, the CIBIL Score has also improved. Prominent banks that issue Personal Loans, such as ICICI Bank, HDFC Bank, and AXIS Bank, offer special privileges to holders with vintage or corporate accounts.
Banks offer loans with lower interest rates, enhanced amounts, and reduced processing fees to maintain a relationship with high-income account holders.

Your bank account serves more than merely the purpose of depositing and withdrawing money. By holding deposits with ICICI Bank, you can access the Emeralde Credit Card or Rubyx Credit Card privileges.

With the onset of digital Banking, accessing your Bank statement is convenient. You can download it from your computer or even your mobile phone. When downloading your bank statement, note the following steps to expedite processing your loan request.

The copy must be clear, and all figures and notations in the credit and debit columns must be accurate.
To verify authenticity, create a PDF copy to ensure the bank is assured that the statement is genuine and has not been tampered with.
The bank’s logo must be visible, and the account number should match the bank account number on the salary slip.

Further, the lender will verify the statement submitted for discrepancies before processing the loan request.

Your bank account reflects your financial standing. Prioritise tracking your transactions and budgeting your expenses. A healthy bank account with sufficient funds to cover the costs can greatly facilitate obtaining credit when necessary for building assets, meeting lifestyle needs, and having resources in emergencies.

Borrowing finance comes at a cost. Banks provide finance in various forms, including loans tailored to specific end uses and requirements, such as Home Loans, Loans Against Property, Vehicle Loans, Business Loans for funding growth, and Personal Loans for individual needs.

Premier lenders offer Personal Loans without collateral for repayment within a short term. Banks and NBFCs provide quick finance through Personal Loans to applicants for various purposes, including home renovation, wedding expenses, family holidays, and emergency needs.

The significant charges for a Personal Loan include the Interest payable on the loan amount. Let us examine the terms under which interest is charged and the factors that affect the interest rate charged by Banks and NBFCS.

The current interest rate for a personal loan ranges from 10.99% to 20%. The interest charged for a Personal Loan varies among lenders and is determined based on the cost of funds and each lender’s policies. The customer may be offered different Personal Loan Interest Rates from alternative banks. Let us examine the factors affecting the interest rates charged by banks and NBFCs

Cost of Funds: Banks and NBFCs charge Interest Rates for Personal Loans based on their cost of funds, the Reserve Bank of India issues funds to Banks when in need, against government securities which are repurchased by the Bank as per the Reserve Bank of India repurchase rate or Repo Rate as is commonly known as. A reduced Repo Rate enables Banks to lend at a lower interest rate, and vice versa. Although the fluctuations in the repo rate do not directly affect personal loan lending rates, Banks are asked to review rates and increase lending to infuse cash into the system. With the recent cut in the Repo Rate, home loan rates are being reviewed, although Personal Loan rates have not yet been changed.

The cost of funds also includes the bank’s turnover and profit margins from other services. If banks have increased profits and kept delinquencies under control, a lower interest rate is applied to performing segments.

Policy of the Lender: All lenders, including banks and Non-Banking Financial Companies (NBFCs), establish individual policies for retail lending in the Personal Loan segment. The terms and conditions, as well as the interest rate, are applied following the Bank’s policy. Banks offer discounts on interest rates to:

Employees of companies categorised as Category A and top-tier firms.
Customers with salary accounts that sustain healthy balances.
High-income applicants seeking more significant loan amounts.
Government employees and corporate account holders.

CIBIL Score, Existing Relationship and Special Offers: A good CIBIL Score of 750+ is the gateway to getting easy credit with the best terms. Individuals who use credit and make timely payments are offered the lowest interest rates for a Personal Loan Top-up on an existing loan or as a Personal loan Balance Transfer from an external Bank.

Customers holding accounts and maintaining a healthy Bank Balance, or those with an existing credit relationship, are encouraged, and further credit is extended to them at discounted rates.

Features of Personal Loan Interest Rates.

While it is essential to know and verify the interest charged on your Personal Loan, noting the features will help you calculate the costs associated with the loan amount.

Interest is Charged at a Monthly Reducing Balance Rate. The interest for a Personal Loan is applied to the monthly reduced principal balance. The EMI (Equated Monthly Installment) charged for repayment of your Personal Loan consists of part principal and interest. Therefore, with every instalment repaid, your principal loan is reduced. The next instalment is charged on the reduced principal amount.

Interest is Applied Annually: The tenure for a Personal Loan is issued yearly therefore, the interest repaid annually is flat. For example;

A loan of 2 Lakhs was issued for 24 months at a reducing interest rate of 12%.
The total interest to be paid over 24 months is 13237.09.
Therefore, the applicant will pay an interest of ₹ 6618.5 annually at a flat rate of 6.62%.

The Interest Rate on a Personal Loan Remains Fixed for the Entire Duration. It is fixed upon approval of the loan amount and the tenure for which the loan is granted. The EMI for the loan amount is deducted through ECS from the salary account as per the mandate signed by the customer. Unlike the interest on a home loan, which is applied at a floating rate and fluctuates with the change in the REPO Rate, the Personal Loan Interest Rate remains unchanged.

Finally, the applicable interest charged is revealed only after the loan is approved. The lender’s credit officer considers the details of the customer listed above to determine the interest to be charged.

A Personal Loan Top-up is a convenient and quick way to access funds, making it an excellent option for you. But can you assume that the parent bank will meet your needs as desired? To assist you in making a decision, please review the points below.

Interval Between Applying:- There should be an appropriate gap since the disbursement of the primary loan. If you have recently taken out a Personal Loan, banks issuing Personal Loan Top-ups, such as HDFC Bank and ICICI Bank, prefer a gap of three months or more before issuing funds as a top-up to your Existing Personal Loan. This gap ensures that you make timely repayments, a condition particularly applicable to first-time borrowers.

Your CIBIL Score is a crucial factor in determining your Eligibility for a Personal Loan Top-up It must meet the required benchmark. The CIBIL Score and repayment history are verified before issuing further funds as a top loan. The track record of repayment for existing bank loans that require a top-up, as well as other loans from external lenders, should be smooth. Dues on the Credit Card being used must also be cleared.

Company Category and Employment Profile:- The procedure for Applying for a Top-up Loan is the same as for a New Personal Loan. Therefore, all the applicant’s parameters are checked. If the applicant has changed employment, the current employer should be listed in HDFC Bank’s Company Category List. If the company is not featured in the approved company category list, the applicant can apply with an alternate bank for a Parallel Loan.

Financial Eligibility:- The loan amount issued as a Top-up is based on the bank’s eligibility criteria and the applicant’s capacity to afford the extra EMI. If the applicant has taken on other credit recently in the form of a mortgage loan or Auto loan, all the current EMI will be taken into account when calculating the eligibility for extra funds to be added to the existing personal loan as a Top Up. Use an EMI Calculator to calculate a suitable EMI before applying.

Prepayment Option:- If you are running a HDFC Bank Personal Loan or an ICICI Bank Personal Loan, you have the option to foreclose your loan after paying 12 instalments by settling the principal amount balance, for which a fee is applicable depending on the loan amount borrowed. If you wish to repay the loan amount promptly, Applying for a Parallel Loan, which is a separate loan taken from another bank, is a better option, as both loans are independent and can be foreclosed after the Bank’s terms are fulfilled.

Interest Rate:- Before Applying for a Personal Loan Top-up, it’s essential to compare the interest rates offered by other lenders. If you have a good CIBIL Score and an on-time repayment record, other Banks can provide you with a lower interest rate and additional funds through a Balance Transfer of a Personal Loan. This comparison can empower you to make the best financial decision for your situation.

In Conclusion:-

A Personal Loan for salaried individuals has become popular as Banks offer loan amounts tailored to individual needs without requiring any collateral. If you have steady employment and are managing your finances well, Banks are willing to provide Personal Loans. Furthermore, if you fulfil all your financial commitments, a Top-up to your Existing Personal Loan is readily available.

Maximise Your Savings: A Guide to Securing a Personal Loan at the Lowest Cost

Banks offer quick and convenient funds as Personal Loans for all individual needs or shortages. It is essential to note that the charges for a Personal Loan vary from lender to lender and also depend on the applicant’s profile. Getting funds at the lowest costs is a priority, so how can you calculate the rate at which you will be given funds and the key points that will determine the cost of your loan? Taking note of the following will help you secure the best deal for your Personal Loan Requirements.

When Applying for a Personal Loan, it’s essential to prioritise your needs. This will help you determine which charges will have the most significant impact on the total cost. Here are some basic costs that can help you understand the difference.

The Interest Rate is the primary cost of funds. The Current Personal Loan Rate Ranges from 10.99% to 16% Annually.

The Rate You Will be Charged Depends on the Following:

Your Net Salary: Banks issue a lower interest rate to high-income applicants. Most lenders classify interest rates according to income therefore, an individual with a net income of ₹ 35k applying for an HDFC Bank Personal Loan can expect a higher interest rate than an applicant with a monthly salary of ₹ 50k.

The Loan Amount You are Eligible for: The sanctioned loan amount for an applicant significantly impacts the Personal Loan Interest Rate. Customers with an income of ₹75,000 and above are considered elite, eligible for a loan amount of ₹10 lakhs and above. They are offered the lowest available interest rate of 10.99%, while applicants seeking lesser amounts of ₹5 lakhs will incur an interest rate of 11.99%.

Your Company Category plays a significant role in the unsecured lending sector of Personal Loans. Being employed by a company listed in the Economic Times or an organisation categorised as Category A on the Approved HDFC Bank Company Category List for Personal Loans, or as an Elite company on the ICICI Bank Company Category List, can help you secure the best terms for your loan. This knowledge empowers you to be strategic and proactive in your loan application.

Important to Note: As the interest rate is a significant expense, the information above will assist you in finding the most suitable lender based on your income and loan requirements. For instance, if you are employed by a company listed in the HDFC Bank’s Company Category, the lowest interest rate for your personal loan is offered by HDFC Bank. However, if you work for a non-listed firm and your monthly salary exceeds ₹ 50,000, the lowest interest rate for your personal loan is provided by ICICI Bank.

Processing Fees: The processing fees are a one-time file charge levied by Banks this is the file charge or expenses incurred by the Bank for issuing the loan. The processing fees for a Personal Loan can be up to 2% of the amount disbursed. Still, discounts are offered to eligible customers working with companies that feature in the approved company category list of the Bank, specially targeted segments such as government employees and high-salaried customers applying for a personal loan of ₹10 lakhs and above.

Rather than charging a percentage of the loan, premier Banks such as HDFC Bank and ICICI Bank now charge a flat amount of ₹ 4000/—to ₹ 10000/-, depending on the loan amount appended to the customer. When you apply for a YES Bank Personal Loan, the processing fees are 1% to 1.5% of the loan amount forwarded to the customer.

What You Need to Evaluate: Applicants often consider the interest rate when Applying for a Personal Loan, but overlook the processing fees. It is important to note that the processing fees are an upfront charge deducted from the loan issued, which will affect the loan amount you expect to receive in your account. Ensure you incorporate the processing fees into the total loan amount you require. If a significant loan amount is necessary, the percentage charged as processing fees will increase the overall loan costs. Therefore, seek a bank to help minimise these costs and charge you a minimal processing fee.

The Monthly Installment Payable (EMI): A Personal Loan Repayment is made through the EMI, which is deducted on a fixed date from the salary account. The total cost of your loan will vary depending on the amount you can repay monthly as an EMI towards the amount borrowed as a Personal Loan. The interest charged for a Personal Loan is applied annually, so the shorter the repayment tenure or the quicker you can repay your loan, the less the cost.

Selecting a tenure option is not just about the cost of the Personal Loan. It’s also about ensuring that your monthly EMI is comfortably affordable. By reflecting on your monthly budget and any other credit EMIs that need to be paid, you can make a responsible decision that keeps you in control of your finances.

When allotting tenure, the bank will also consider your monthly income, other obligations, and the employer’s company category. An applicant can request a repayment tenure, but the final option rests with the Bank. The EMI Calculator can help you check for a suitable EMI for the loan amount required before applying for a loan. If you feel the EMI is too steep, you can apply for a lesser loan amount.

Check The illustration Given for Variation in Costs

EMI

Other factors include prepayment penalties and repaying part of the loan. If the loan is needed for a limited period, you can compare the policies of various banks regarding the foreclosure clause. Look for a lender who will allow you to repay the loan amount with the least penalty. If your CIBIL Score is well above the required benchmark, Banks are confident in lending large amounts for a longer tenure with favourable terms. In contrast, aberrations in the score and history can make funds costlier.

Applicants can now quickly check for Personal Loan information online, as Banks and NBFCs update their websites with the Personal Loan Interest Rate and terms offered. Making an informed decision and checking out the complete cost before Applying for a Personal Loan will go a long way in lowering your Personal Loan Costs.

A Personal Loan is issued for lifestyle expenses and emergencies—banks and NBFCs market personal loans as a premium product for the salaried class. Salaried customers receive a monthly salary in the bank, offering transparency regarding their income and expenses. Lenders are comfortable providing short-term funds to customers based on their monthly income, which is repaid through Equated Monthly Instalments (EMI). A Personal Loan is primarily granted based on the monthly salary received by an applicant. Consequently, the Personal Loan Criteria, such as the loan amount and interest rate, are determined and applied according to the monthly wage. The salary bracket is broadly defined as follows: Salaries processed are segmented by banks as follows:

Eligibility criteria for a Salary of 25k to 30k: The minimum income benchmark set by Banks for a Personal Loan is a salary of ₹ 25k. This is the amount a graduate employee can expect at the start for basic expenses and spare funds to invest in a new mobile phone and home appliances with a personal loan. Banks that issue Personal loans to applicants with a salary of above ₹ 25k are YES Bank and IDFC Bank. NBFCs that offer Personal loans to applicants with a salary of ₹ 25k include Fullerton India, INCRED and Hero Finance. To Apply for a Personal Loan to YES Bank, an applicant must fulfil the other YES Bank Personal Loan Eligibility Criteria and have a CIBIL score of 700+.

Personal Loan Eligibility for applicants with a salary of ₹ 30k to ₹40k per month: With the rise in inflation and living costs and the corresponding increase in earnings, the previous benchmark of a salary of ₹ 20k is now increased to ₹30k to Apply for an HDFC Bank Personal Loan and an Axis Bank Personal Loan. An applicant working in a CAT A company featured in the HDFC Bank Company Category List is eligible for a loan amount of ₹ 500000 lakhs to be repaid with an EMI of 13167/- over a tenure of 48 months. HDFC Bank permits applicants with a salary of ₹ 30k and above without a CIBIL score and no previous credit history to Apply for a Personal Loan if the company features in the Approved Company Category List.

Personal Loan options for applicants with a salary of ₹ 40k and above: A monthly salary of ₹ 40k transferred to the Bank fulfils the eligibility for income criteria of most Banks. Applicants can apply for an ICICI Bank Personal Loan and an ICICI Bank Coral Credit Card with a salary of ₹ 40k and above. The income is sufficient to cover monthly expenses and apply for credit when required for a family wedding, home renovation, or education expenses. The maximum amount an applicant can get as a Personal Loan is ₹5lakhs to 8 lakhs depending on the CIBIL score and if the employer features in the approved company category list. It is not mandatory for the applicant to have a CIBIL score to Apply for a Personal Loan from HDFC Bank.

Eligibility for High-income applicants with an income of ₹ 50k, ₹75k and above: With a higher income, the terms of Banks are revamped; the multiplier applied for the loan amount an applicant is eligible for increases as the income allows expenditure over and above the monthly budgets. Maximum loan amounts of ₹ 30 to 35 lakhs are issued to eligible customers with discounted interest rates and extended repayment terms. Customers earning over ₹ 75000/- are treated as Elite customers, and the personal loan application is processed under the Golden Edge Personal Loan category with favourable terms. A waiver of the penalty clause for foreclosure of a personal loan after paying 12 EMI is offered for loan amounts above ₹ 10 lakhs.

Further, to verify the salary received to process the loan requirements, the following terms must be qualified according to the personal loan eligibility criteria:

The salary slip with the applicant’s credentials and a corresponding Bank statement for three months are part of the documentation proof required to process a Personal Loan. A regular salary credit of three months without any intervals is necessary for the loan process.
The Salary transfer must be reflected in the Bank account month on month on a regular on a fixed date. Banks expect employers to transfer the salary in the first week of the month and fix the EMI date accordingly.
The salary should be transferred electronically through ECS (electronic clearing services) month after month. In this digital age of Online Personal Loans, banks do not process applications with salaries received by cheque or cash.
The net income details in the salary slip submitted must correspond to the amount transferred. If there is a variation, proof of the same must be submitted.
Banks consider the regular salary components as the applicant’s monthly income. Incentives are not counted unless received month on month as a fixed amount.

Personal Loan applicants can use an EMI Calculator to determine an affordable EMI based on their monthly earnings. Whether they’re an IT professional working for a company listed in the Economic Times or a government employee, their income and stability make them a preferred lending category. Personal Loans have become a convenient option, with loan amounts processed online, allowing salaried applicants to receive funds within 72 hours to address financial shortfalls!

The recent Repo Rate cut of 0.25 basis points has given borrowers a moment of cheer, but various factors determine how the rate cut will filter down and lower interest rates and monthly instalments. Expecting your current loan to cost less or thinking of taking fresh credit, let us explore the implications of the Repo Rate cut.

What does the rate cut mean for home loans and Mortgages, depending on the terms of your loan?

If Your Home Loan is Running at a Floating or Fixed Interest Rate

The customer can repay with a fixed or Floating Interest Rate when appending a Home Loan. Fluctuations in the Repo Rate (the RBI’s repurchase rate) will directly affect customers repaying their home loans at a Floating Interest Rate. Home buyers running a loan with a floating rate can expect a change in their interest rate according to the revision cycle of two to three months.

With a fixed interest rate applicable for a home loan, the interest rate does not change if the Repo Rate increases or decreases. The EMI remains constant for the duration of the fixed term. Banks usually offer a fixed interest rate for 2 to 3 years, after which the existing Floating Interest Rate is applied.

Thus, customers with a Floating Interest Rate can take advantage of the rate cut when the date for the revision as per the cycle is due, whereas applicants with a fixed interest rate will have to wait for the fixed term to end.

Is your Home Loan operating under the RLLR (repo rate linked), EBLR (External benchmark linked rate) or MCLR (marginal cost of funds) regime?

In 2019, the RBI initiated the Repo rate-linked mortgage system and advised banks to issue loans under the RLLR or repo rate-linked regime to pass on the benefits of a rate directly to customers.

Banks’ lending under the Repo rate-linked scheme will add a spread to the base rate for example, with a Repo Rate of 6.5%, a Bank adding 2.5% as operating costs and profit will issue a home loan at 9%. With the .25% reduction in the Repo Rate, customers with a Floating Interest Rate will be offered a reduced rate. Loan holders can opt for a reduced EMI or tenure to avail of the benefit.

The EBLR Rate issued by Banks is linked to the Repo Rate as the external benchmark a variation in the Repo Rate is carried forward to the EBLR Rate, though the Bank operating costs are included in the spread when issuing an EBLR Rate.

The interest rate issued by Banks under the MCLR scheme can vary from Lender to Lender. The key factors for calculating the MCLR Rate are the Repo Rate, the cost funds, the deposit rates, operating costs and profit margin. Thus, the Repo Rate reduction may not immediately reflect in the interest rate.

Banks offering an MCLR-linked interest rate will review the terms provided to a customer after 6 months; if the other inputs for calculating the MCLR Rate are favourable, a better rate may be offered.

The RBI has reduced the Repo Rate to make loans cheaper and infuse cash into the economy. Loan holders look for immediate relief. How long it takes to lower your EMI depends on the individual terms of the loan and the time stipulated to reset the terms. Banks will examine their fixed deposit rates, current CRR, and profitability. Banks tend to drag their feet when they need to lower interest rates, and the customer profile and payment track are also considered when reviewing the loan terms.

This is a time for upheaval in the mortgage lending scene as customers anxiously look to negotiate better terms for their existing loans and new home buyers wait to compare rates offered by Government Banks and Private lenders. The Home Loan top-up option helps customers renegotiate their loans and apply for surplus funds at a lower rate.

Home loan and Mortgage customers with timely repayment tracks can take advantage of Balance Transfers by transferring the principal balance of their loan to an alternate lender offering lower rates. At the same time, Banks go the extra mile to retain priority customers.

Will the Repo Rate Reduction Lower Personal Loan Interest Rates?

Personal Loans are unsecured funds with short repayment terms, up to a maximum of 72 months. Banks and NBFCs look to fund customers with suitable profiles who make timely repayments, thus ensuring rotation and profitability. The Personal Loan Interest Rates are based on the cost of funds, which includes the RBI repo or repurchase rate, the CRR ratio, deposit rates, and the financiers’ operating expenses. As Personal Loans are issued without securities, Banks must keep the default ratio below the acceptable limits.

Over the past two years, the RBI has increased the Repo Rate twice, but interest rates for an ICICI Bank Personal Loan, HDFC Bank Personal Loan and AXIS Bank Personal Loan remained steady with banks taking the changes in their stride. So, will the .25% reduction of the repo rate encourage Banks to reallocate interest for personal loans as Banks are not obligated to link personal loan interest to the repo rate fluctuations and take time to absorb the changes and consider their portfolio? Further, the interest rate and EMI for a personal loan are fixed at the time of disbursal, and the EMI remains the same; therefore, a variation in the Repo rate will not change the existing rate of your loan.

At a monthly reducing balance, Personal Loan Interest Rates range from 10.80% to 20 %. Banks formulate an individual policy targeting customers according to their preferred segments and applicants with a mutually beneficial relationship. Other primary factors influencing the interest rate include:

The net monthly income.
The CIBIL Score.
The category of the employer as per the Company Category List of the Bank.
The Loan amount was approved.

Banks face liquidity issues due to the high fixed deposit rates and the downward trend in the savings ratio. If liquidity increases, banks might consider lowering the rate of New Personal Loans to performing segments. How the rate cut is transmitted to the personal loan sector depends on the bank’s policy, the cost of funds, and profit margins.

At this juncture, Personal Loan seekers can look for lower-rate options, and existing personal loan customers can take advantage of a reduced rate by Transferring their loan balance to an external Bank or Applying for a Personal Loan Top-up.

The RBI has reduced the Repo Rate to inject more cash into the economy and make loans more affordable. However, for the benefits to ultimately reach the average borrower, the expectation of relief through a reduced EMI for current obligations and the encouragement of fresh borrowing will depend on how effectively the rate cut is passed down in the coming months.

Credit has become the rule of the day, and it is readily available in the form of unsecured lending such as Credit Cards and Personal Loans or mortgages, Home Loans, auto loans, and Loans Against Property. Unsecured lending helps fuel spending, which may be beyond one’s budget. If spending is not accounted for, it will likely become an uncomfortable debt, so check for these early warning signs.

Excess usage of Credit Cards

A Credit Card is a handy product for lifestyle and emergency expenses. Lifestyle aspirations make it easy to get lured into excess spending with Credit Card usage, which allows you to repay after a 30-day credit-free period. Keeping Credit Card usage in check is essential as the interest levied on the unpaid dues is exorbitant. To be noted are the following Signs that you could be heading towards overdue payments on Credit Card.

Expenses on your Credit card: A Credit Card is used for lifestyle expenses or emergencies. If you use your Credit Card to pay for essentials such as groceries and children’s school fees, you are tight on funds and appear to be taking the easy way out, specifically if the payments are not cleared on time.

Your Credit Card Limit is getting exhausted the ideal usage should be up to 60% of the assigned limit. If you use two or more Credit Cards and have used them extensively, you must consider how to repay the dues on the designated date. Revolving credit by using cards alternately can lead to debt.

Delayed Payment of Your Credit Cards: Lenders usually allow a grace period of 10 to 15 days for payment after your monthly statement is generated. If you cannot pay the total amount, it is mandatory to pay the minimum due, which is 5%. The balance is carried forward to the next month with an interest of 36% to 42% per annum. Further, if the minimum due is not paid by the due date, additional charges, such as late payment charges and over-limit fees, are levied. It is advisable not to ignore the implications of postponing your Credit Card Dues. A delay of one to two cycles is understandable, but further delays can lead to the multiplication of the due amount as a high interest rate is levied on the balance carried forward.

High Debt to Income Ratio

The ideal debt-to-income ratio, as per industry experts, is that an individual can pay a maximum of 25% of the monthly income towards debt such as Credit Card Bills or monthly instalments for a Personal Loan, mortgage or loan against commodities. Banks consider allotting 40% to 60% of the income towards the payment of an EMI of a Personal Loan, taking into account the net salary of the customer and the Company Category as per the Approved Company Category List of the Bank. If the ratio exceeds the benchmark, in the situation that an individual has other unexpected expenses or takes additional credit, there is a possibility of defaults with the following indications:

Delayed Payment of EMI: The EMI for your Personal Loan or mortgage is presented to your bank account on the designated date. If there is an insufficient balance in the account, it will return unpaid and be reflected as a bounce. An EMI accidentally missed is overlooked, but a continuous string of delays is to be taken seriously.

Low Bank Balance: Most bank accounts require a minimum Balance to be maintained, even if they are salary accounts with a Nil balance. The account holder must have enough to meet mandatory obligations and clear EMIs. An account that does not meet the average Bank balance requirement will not be issued further credit when required, and a cheque bounce prohibits the issuance of additional credit for three months.

Indiscriminate Borrowing: When stressed about paying bills, you may take credit from lenders charging a higher interest rate, such as App Loans or Early salary loans. This may give a sense of relief but lead to a further escalation of debt. Borrowing to repay debt is a warning that you are not managing your finances.

Aberrations in the CIBIL

Maintaining a healthy CIBIL Score is essential, as it signifies an applicant’s ability to manage credit. The following are the CIBIL notifications that your credit ratings are going down.

Lowered CIBIL Score: To avail of credit, you must have a CIBIL Score of 750 points or above. Checking your CIBIL Score regularly is essential to ensure it is above the required benchmark take remedial steps if your score is dipping.

The Number of Inquiries in CIBIL is Increasing: Each time an individual applies for Credit, the lender sends an enquiry to check the customer’s credit history; too many enquiries indicate financial stress and will downgrade the CIBIL Score.

Increased Risk Ratio: The Credit Bureau of India Ltd (CIBIL) allots a risk ratio from 1 to 5, based on individual credit history, with 1 showing the highest risk and 5 the minimal for issuance of further credit. An increase in the risk score is a telltale sign of financial stress.

In Conclusion, having enough funds to cover monthly expenses and save for emergencies is essential. Shortfalls can affect one’s well-being, leading to loss of sleep, health issues, and stress. If covering your expenses is giving you anxiety, take heed of the signs.

Adopt the following strategies to help you avoid further debt and revive your finances.

Rework your current budget per the incomings, mandatory expenses, and spending you can avoid.
Stop using your Credit Cards, which can lead to further debt.
If you have a low CIBIL Score, do not apply for credit, as it will lower your score further.
List your current obligations, EMI being paid for loans, credit card bills and other pending expenses.
Contact your Lenders and negotiate options such as converting your credit dues into EMI or transferring the Balance of your Personal loan to an alternate Bank.
Check the existing terms of your loans and survey the market for cheaper options.

Debt Consolidation agencies that offer instant solutions are not the answer. Remember that taking small, consistent steps can help avoid a sticky situation. Making informed decisions when acquiring credit and noting the early signs can help prevent a debt crisis.

Repo Rate

The Reserve Bank of India (RBI), or the Central Bank, is the financial controller and acts as the Banker to the Government of India. It issues and regulates the flow of currency, keeps inflation in check, and monitors the operations of Banks and NBFC. The RBI also acts as a Banker to other Banks and NBFCs and provides financial assistance when required for further lending. Banks can avail funds when needed against the deposit of Government bonds and securities and repurchase these bonds with interest, which constitutes the Repurchase or Repo rate. The RBI sets the price or interest to be paid by commercial banks according to our country’s economy, and the cost of funds for banks increases or decreases with a change in the repo or repurchase rate.

The Repo Rate is a Significant Factor in Determining the Cost of Lending. Other Factors Include:

The CRR (Cash Reserve Ratio) will be maintained per the RBI directive.
The operating costs of the Lender and the profit margin.
The deposit rates and yield.

How Does the Repo Rate affect the Interest Rate of Secure Loans?

Home Loans and Loans Against Property are mortgages issued for longer tenures with a floating or fixed interest rate with a floating rate of interest, the fluctuation in the Repo Rate will be carried over to the mortgage rate. Banks operating under the EBLR (External Benchmark Lending Rate) system as propagated by the RBI must pass on the change immediately. Banks that issue interest as per the MCLR (Marginal Cost of Funds Lending Rate) will include other factors, such as operating costs, when adjusting the interest rate. Ultimately, the change in the base rate is passed on to the customer as per the lender’s policy.

What are the Effects of Changes in the Repo Rate on Your Mortgage Loan Interest Rate and EMI?

When the Repo Rate increases, banks quickly raise the Interest, and your monthly EMI is inflated. If your EMI is hurting with the increase, you have the following choices:

Look for an alternate lender who is offering a lower interest rate.
Please Apply for a Balance Transfer of the principal balance of your loan to an alternate lender. With the restructure of your loan, you can check for a suitable EMI (our EMI calculator can assist you).
Ask for an increase in the loan tenure to reduce the burden of your EMI.

The Significant Variations in EMI with a Reduced Repo Rate are as follows:

A lower EMI gives instant financial relief an applicant has the excess funds to pay the mortgage’s principal balance partially, reducing the tenure and repaying the loan in a shorter time.
The loan cost decreases with a reduced tenure as interest for a mortgage is applied annually.
The lowered EMI reduces the applicant’s financial burden and creates eligibility for further funding as a Top-up when required.

For Example, Home Loan applicants running a loan with a government Bank or a Bank that offers a repo rate-linked home loan can avail of the direct benefit of a rate change for example, if an applicant runs a home loan of ₹ 5000000/—at 8.75% for a tenure of 20 years with an EMI of ₹44185/—per month, with the interest rate reduced by .25%, the EMI to be paid henceforth is ₹43391.16/— and vice versa when the rate goes up.

Banks that adopt the MCLR system are slower in passing on the benefits and may take 6 months to a year. A fixed rate for a mortgage is offered for a three-year tenure and is renewed at the current applicable interest.

The Impact of Repo Rate on Unsecured Loans

Primary Finance issued as Unsecured include:

Personal Loan for salaried employees.
Business Loans for the Self-Employed.

Banks issue finance without collateral to Salaried persons as Personal Loans for emergency expenses, individual usage, and shortfalls such as weddings, school fees, and home renovations. Self-employed individuals are issued finance for personal usage and business expansions. Banks issue loans based on documentation, the applicant’s profile, and previous credit history. The interest rate for unsecured loans is determined at the time of disbursal and remains fixed for the entire term as Personal Loans have shorter turnaround times; therefore, a change in the Repo Rate will not directly affect the interest rate or EMI. However, if the Repo Rate Changes, the Lender will reassess costs and margins and change slabs accordingly.

What is the Influence of the Repo Rate on the Interest Rate and EMI of the Unsecured Loans Category?

The Interest Rate on a Personal Loan Varies from Lender to Lender, and Banks Decide on their Lending Slabs.

When the Repo Rate is lowered, banks are supposed to pass on the benefits to their customers by giving them loans at a cheaper rate. However, Banks usually reduce their rates for unsecured loans, keeping in mind the segments that are the most profitable or have the lowest default ratio.
When the cost of funds is reduced, HDFC Bank gives discounted interest rates to applicants employed with companies featured in the Approved Company Category List.
Balance Transfer offers for personal loans are circulated to applicants running personal loans at a higher interest rate. The HDFC Bank offers customers the lowest rate for a Balance Transfer with a high CIBIL Score and a sound repayment track.
The existing Personal Loan EMI is unaffected by the increased Repo rate. If excess funds are needed, it is a better option to Apply for a Parallel Personal Loan rather than a Personal Loan Top-up, which will increase the cost of the existing loan.

For example, the last repo rate change was in February 2023 by .25 basis points from 6.25% to 6.50% thus, Banks issuing Personal Loans steadily adjusted their interest rates. An applicant Applying for a Personal Loan from HDFC Bank was offered an interest rate of 10.75% at a reduced balance, which was increased to 10.99%. The minimal rate provided for a Personal loan from ICICI Bank is 11%.

With all the data published digitally, it is now easy to stay informed and updated about market trends. Keeping track of the changes in the Repo Rate will keep you ahead financially. Changes in the Repo Rate can alter your EMI, and Banks offering better deals can help reduce your financial burden.

The Repo Rate is a tool of the central bank to monitor inflation and regulate interest rates and cash flow. It influences the cost of living, the pricing of essential commodities, and the interest rates for lending. Thus, a variation in the Repo Rate gets filtered down to the average borrower.