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The Reserve Bank of India (RBI) on January 10 said it is mandatory for banks to offer fixed interest rate product in all equated installment based personal loan categories.
The frequently asked questions (FAQs) on ‘Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans’ (August 2023) also said the circular covers all equated installment based personal loans, irrespective of whether the interest rate is linked to an external benchmark or an internal benchmark.
What Did The FAQ Say?
– At the time of sanction of loans, annualised rate of interest/ annual percentage rate (APR), as applicable, should be disclosed in the Key Fact Statement (KFS) and the loan agreement, the FAQs said when and at what frequency should banks and other regulated entities (REs) communicate with the borrower.
– During the tenure of the loan, any increase in the EMI/tenor on account of the external benchmark rate should be communicated.
– The quarterly statements should be provided disclosing at the minimum, the principal and interest recovered till date, EMI amount, number of EMIs left and annualised rate of interest for the tenor of the loan.
– Regulated entities (REs), the FAQs said have to mandatorily offer fixed interest rate product in all equated installment based personal loan categories.
– REs have to provide the option to the borrowers to switch over to a fixed rate as per their board approved policy at the time of reset of interest rates.
The Banking Industry in India has experienced rapid transformation. Previously, Banks were mainly regarded as safe-keepers of money and were conservative about lending. They gave financial aid to government-sponsored schemes and well-known industrialists. Banks gave credit to a select few with onerous paperwork and securities.
Gradually, with socio-economic changes beginning in the last century, the opening up of the public sector, and the privatisation of Banks in the country, there was a rapid change in functioning. Funds were forwarded as loans for business purposes as private enterprise was encouraged.
Development and growth brought about better opportunities for qualified professionals such as doctors and engineers, leading to a strong middle class. Banks initiated offers of credit, both secure and unsecured, to the self-employed and salaried individuals. Personal Loans and Credit Cards are offered to customers in addition to mortgages.
Personal Loans allow individuals to fulfil emergency and lifestyle requirements with funds when needed. To meet customer requirements promptly, banks and NBFCs endeavour to disburse loan amounts quickly and efficiently. The digitalisation of the banking industry has significantly reduced the time taken for Personal Loan Processing. Loans that previously needed a week or more to process are now disbursed in hours and advertised as Online Instant Personal Loans. Due to the automation of many processes, such as credit checks and document verification, which were previously done manually,
Noteworthy areas where digitalisation has helped customers eliminate delays and enabled Lenders to reach the right audience are as follows:
All the information is available online if you want to Apply for a Personal Loan you can check for the Eligibility Criteria for Personal Loan that best suit your profile details. For example, if you have not used any credit before, Apply for a Personal Loan from HDFC Bank, which provides a Personal Loan without CIBIL Score. Check for the Lender that provides the most suitable terms and the Personal loan lowest interest rate.
Personal Loan Application and Documentation: In the past, whenever a customer needed, say, a Personal loan from HDFC Bank, a visit to the Bank branch was required, or the Bank executive came to the office or home premises with the Personal Loan Application Form. Photocopies of all personal loan documents required were to be attached as hard copies physically stamped and signed by the applicant.
Gone are those Days: An applicant can apply online from a computer or mobile phone interface within minutes in the comfort of a home or office premise. The Personal Loan Documents are available online, such as an Aadhaar card and a PAN card as proof of identity and your current address. An applicant can instantly download the banking information, and the salary slips are usually available by mail or retrieved from the company’s portal.
Thus, the online application reduces the paperwork, and Personal Loan Application Requests are completed within minutes and forwarded to the Bank.
Credit Report Check: Credit bureaus record all transactions done by individuals that Banks and NBFCs report the Credit Bureau of India, or Transunion CIBIL, as it is commonly known, is regarded as the primary agency by most lenders. The CIBIL commenced operations in India in 2007. It records all individual transactions and generates a risk score. Lenders refer to individuals’ repayment histories to reduce the chances of default.
With the digitalisation of records, credit transactions get updated instantly, and the Bank receives the credit history online. The processing of a Personal Loan Application is initiated after the Lender is satisfied that the score is above the required benchmark an applicant can also access the CIBIL Score Online to check for discrepancies in the records. If there are delays or aberrations in the payment history, it is better not to apply, as a decline further depletes the score.
Verification: On receipt of a Personal Loan Application, the Lender verifies the authenticity of the information and documents. It is now convenient to check the customer’s KYC Documents Online, such as the Aadhaar card and PAN card, from the Government portal, a far change from when the Bank team physically matched via a visit to the client.
Digitalisation has streamlined verification processes. Lenders can now conveniently verify the authenticity of documents via the video KYC process on a call with the customer. In case of unavailability, there is the option of biometrics KYC. This efficient process instils confidence that the customer’s details are accurate and that the applicant can be located easily in case of a default.
Embracing digitalisation has ushered in a new era, empowering you to manage your finances from the comfort of your home, computer, or phone. You no longer need to visit the Bank and stand in queues; account holders can draw cash from an ATM, and payments are made via NEFT or IMPS, all at your fingertips.
Personal Loans have also undergone a radical change with digitalisation customer Banking can be verified online with authorisation to check customers’ income and outgoings.
Before the Reserve Bank of India introduced the CTS (Cheque Truncation System), a specific number of cheques as per the tenure for repayment were required for the payment of the Personal Loan EMI suppose a customer receives an HDFC Bank Personal Loan for a tenure of 36 months, a similar number of cheques were to be given to the Bank. The Bank then physically sent each cheque for clearing on the due date, which was onerous and time-consuming. Now, a CTS cheque facilitates the online clearing of funds, the amount approved as a personal loan is transferred by the Bank to the applicant account and the EMI is presented for clearing through ECS (electronic clearing system). This system has significantly reduced the time and effort required for loan repayments, making it more convenient for borrowers.
Customer data and information are updated online, expediting the decision, and the applicant is informed of the status via email or telephone.
With digital systems in place, Banks can now securely store customer Data and enable automated Preapproved Personal loan offers to applicants with healthy banking histories. Online systems have made it easy and practical to store data, eliminating the need for scores of physical files and documents. Now, analysing years of data is possible and efficient, allowing banks to track customer data over the years and reconsider personal loan requests if an applicant re-applies.
Now, banks can track customer data over the years, checking for Personal Loan Rejection Reasons for customers denied credit previously and can reconsider the request if an applicant re-applies.
With the infinite possibilities and progress digitalisation has made possible, Lenders must address usage concerns.
In conclusion, the digital sector is constantly progressing and developing, with AI taking over various functions. The financial industry is trying to keep pace, and there is no telling what the future holds.
There has been a subtle change in spending patterns over the millennia. Post-COVID, facing uncertainty and challenges, there have been changes in the spending ratio to savings. Instead of saving, people prefer using their income to enjoy life fully. Simultaneously, there is an increase in credit usage, both secure and unsecured. Credit Cards and Personal Loans are widely used for lifestyle expenses and individual usage without considering repayment schedules. Thus, Banks are facing a higher average of payment defaults and are apprehensive about further funding.
Primary reasons why the percentage of rejection has increased include the following.
Overleveraged means that the applicant’s credit obligations are exhausting the income, and the Lender feels that the customer is financially stressed and unable to make timely repayments. When issuing further credit as an HDFC Bank Personal Loan, the HDFC Bank process will assess the applicant’s eligibility criteria and forward the customer details so they can check the CIBIL for the credit score and transactions. For example, Suresh has applied for an HDFC Bank Personal Loan of ₹ 5 Lakhs, and his profile details are as follows:
The bank team noted that Suresh’s pending credit card payments were more in ratio to the income earned.
The interest payable on credit card dues is 36% per annum, which was becoming a financial drain on Suresh. He applied for a Personal Loan from HDFC Bank to help manage his finances, but his request was declined, given that the Applicant is overleveraged. With the existing credit Bank debt, Suresh could not fulfil the HDFC Bank Personal Loan Eligibility Criteria as the Bank allows an applicant to allot 30% to 40% of the income earned towards credit repayment for loans and credit cards. The credit card dues must also not exceed 5 times the monthly income.
The above case is not unique; being declared overleveraged or not having the financial bandwidth to afford further credit is one of the common reasons for the decline of an HDFC Personal Loan or an HDFC Personal Loan TOP Up.
Find yourself in a situation where credit dues have become unmanageable, as in Suresh’s case. You can work out relief from the debt as follows With a Balance transfer of the Credit Debts to an HDFC Bank Personal Loan, the Bank will repay the credit card dues to the parent Bank. Suresh can conveniently repay the HDFC Bank Personal Loan with instalments at much lower interest. With the reduced financial obligation, he will no longer be judged as being overleveraged.
The CIBIL Score is not just a number but an evaluation of your credit management. Banks and NBFCs increasingly rely on credit history and ensuing CIBIL scores for issuing further credit. Banks like AXIS Bank and YES Bank will consider a Personal Loan request if the applicant has a CIBIL Score of 700 or higher. However, applicants with a CIBIL Score of 0 or -1 and those with no credit usage history are not eligible for a personal loan from either YES Bank or AXIS Bank. Applicants with no record of credit usage can Apply for an HDFC Bank Personal Loan if they meet the criteria for Personal Loan Eligibility HDFC Bank but will be issued conservative amounts at a higher interest rate.
With the change in spending patterns and increased reliability of credit tools such as Credit Cards and Personal Loans, people are likely to fall behind on payments. The delays and payment discrepancies affect the CIBIL Score and reflect in the history, so applicants seeking further credit will face rejection.
A CIBIL check before applying for credit will stand you in good stead to avoid a rejection. A self-check by an applicant will not affect the CIBIL ratings, whereas when a lender sends an enquiry to check the CIBIL, the score is reduced by 10 to 15 points. You can check if the score exceeds the required benchmark and if any updates do not match your usage. A good length of payment relationship with a Bank is likely to get you further credit quickly from the lender; for example, if you are presently running a Personal Loan from HDFC Bank and the EMI is being cleared on time, your request for surplus funds as an HDFC Bank Personal Loan Top Up is processed instantly.
On the other hand, if you have a settled account with any Bank in the past, it will catch up with you, and the Lender will not issue further credit. The lender notes your credit obligations in the CIBIL report and will calculate your eligibility for funds based on the eligibility criteria. Check your eligibility to pay a further EMI by using our EMI Calculator.
When you Apply for a Personal Loan, your CIBIL history will reflect your existing credit lines, types of credit, and total obligations.
As per recent developments and the Reserve Bank of India decree, applicants’ CIBIL records are to be updated every 15 days, which is twice a month. Customers must be informed each time their CIBIL is checked, and applicants must be updated on why a credit card application is declined. With the Reserve Bank of India encouraging transparency, applicants must know that their credit transactions are all recorded and available for Banks to check.
Most lenders offering Personal Loans and Credit Cards face the challenge of keeping unsecured lending defaults below the acceptable average, as recovery is an uphill task. Therefore, individual lenders have their norms for tendering the right segment. They use the CIBIL Score and the HDFC Bank Company Category List as a launch pad to provide a Personal Loan with speed and efficiency, such as an Online Personal Loan or with hard copies of documents. So, check your credit score and ensure you have the financial bandwidth to support further credit before Applying for a Personal Loan.
A Personal Loan offers individuals relief from unexpected financial issues and shortcomings. It is a tool that provides applicants instant funds in an emergency or for personal use, such as for home renovation, weddings, or travel expenses. A Personal Loan is unsecured, and the Lender must ensure that the Loan is repaid on time.
To maintain quick processing and target the right customers, banks and NBFCs verify the customer’s profile using the years of data available to the lenders. To study customer behaviour, identify the segment best deserving of an Unsecured Personal Loan, and rule out which applicants will most likely fall behind on their repayments.
To this end, Prominent Banks such as AXIS Bank and IDFC Bank have devised a Scorecard method that is designed statistically. When you Apply for an AXIS Bank Online Personal Loan or by giving hard copies of your documents, your application first goes through the scorecard check. The online program enters all the personal, professional, and financial details and assesses them, finally deciding the score.
If the score exceeds the required benchmark, the request for a Personal Loan from AXIS Bank will be processed further otherwise, it will be treated as a denial. To educate our customers, listed below are the primary profile points of a Personal Loan Applicant that the AXIS Bank scorecard considers vital to judge and score.
CIBIL Score: Credit is issued as a Personal Loan based on an individual’s credit score and history compiled by CIBIL (Credit Bureau of India Ltd). Applicants must have a credit record and a CIBIL Score to Apply for a Personal Loan AXIS Bank. A robust credit score and history contribute much towards a scorecard evaluation, whereas a delayed payment track or settled loan will negate the score. Though there is no fixed AXIS Bank Personal Loan Eligibility CIBIL Score Requirement, an overall assessment of the credit history is done, which contributes towards the Axis Bank Personal Loan Score.
Income: An applicant’s monthly salary is a vital consideration for a scorecard. Applicants with a salary of 30k and above are eligible to Apply for an Axis Bank Personal Loan and activate the scorecard. An increased monthly income signifies the applicant’s capability to borrow higher loan amounts for lifestyle needs and repay them promptly. Axis Bank encourages applicants from the high-income segment, and the scorecard evaluates them favourably.
Approved List of Companies: The applicant’s employer must be featured in the AXIS Bank Company Category List. The scorecard assigns higher value to an applicant working in a Category A or Economic Times-listed company than to an applicant employed with a company listed as Cat C or Cat D in the AXIS Bank Company Category List. An applicant employed with a limited or government organisation that features high in the company category list ensures job stability and income.
Education: A higher education is the basis for a promising future the applicant must be a graduate to Apply for a Personal Loan with Axis Bank. Further, being professionally qualified or holding a degree from a recognised institution ensures good remunerations and job prospects. The Personal Loan scorecard endorses the value of being technically competent and having a degree from a premier institute. It issues a favourable score to well-qualified personal loan applicants.
Self-owned Residence: Living in a self-owned or family-owned residence adds much more value to the scorecard than an applicant residing in a rented house. An unsecured personal loan in AXIS Bank is issued for a tenure of 1 to 7 years, and lenders take comfort from the fact that the applicant is constantly contactable and has the freedom of not paying monthly rent, which also adds to the financial eligibility for the loan amount required.
Stability: A length of employment with an organisation featured in the Approved Company Category List and continuity of residence, living with your family, spouse, children, or parents in the same premises for several years, are signs of steadiness. The AXIS Bank scorecard favours applicants with a stable residence and employment profile compared to applicants who frequently change jobs and residence addresses.
AXIS Bank Relationship: If you are an account holder, hold a Credit Card, or successfully run a loan with AXIS Bank, the relationship adds bonus points to your scorecard. Further credit is offered to applicants as an AXIS Bank Personal Loan Top Up, Personal Loan Balance Transfer to AXIS Bank when required based on an existing relationship or a previous account held with a smooth track of timely repayments effectively.
The evaluation of a request via a scorecard allows the Bank to consider all the aspects of an applicant’s profile, leveraging features that enable the Bank to eliminate risk and make a complete assessment. Therefore, an applicant with a CIBIL of 700 points may be approved if the scorecard gives the go-ahead.
The scoring method adopted by AXIS Bank for processing Personal loans enables quick application processing. The system approves or declines a request in the first instance when the applicant’s details are entered into the scorecard. If the score issued is above the required benchmark, the application is then forwarded for verification and decision.
On the downside, if an application is a scorecard rejected, there is no provision for a reassessment or relook the applicant will have to accept the decision as final.
The details and workings of the AXIS Bank Personal Loan scorecard are system-generated, and the workings are best known to management authorities. They can be tweaked according to policy and the changing market scenario.
The information above is based on years of experience in the financial industry. It is an effort to inform our customers to take the utmost care when filling out the application form and impart complete personal information with the AXIS Bank Personal Loan documents that help them get scorecard approval and fulfil their loan requirements.
Seafarers Employed by the Merchant Navy or cargo vessels transport goods by sea from one port to another globally. It can be enormous tanker ships carrying oil, bulk carriers with grain, or smaller vessels with livestock or local cargo. The officers and crew are employed internationally, man the ships, and brave the high seas to facilitate commerce.
Indian nationals are qualified and well-placed to be employed by companies operating under Indian and International flags. A seafarer is expected to continuously serve a 6 to 8-month contract before signing off the ship to take a break and go home for a rest. The diverse nature of the job makes it challenging to adhere to banks’ and NBFCs’ regular policy features for securing credit in the form of a mortgage or unsecured credit as a Personal Loan.
Therefore, leading Banks such as ICICI Bank, HDFC Bank, and Kotak Bank have made provisions for a unique policy that allows Merchant Navy Officers to secure a Personal Loan to fulfil their personal finance needs. To facilitate your credit journey and avoid roadblocks, the profile points listed below are significant and must be noted for the success of your request.
Employer Details: Entities owning cargo ships can register the vessel under the convenience flag in any country based on the economic advantages of lower operating costs and regulatory authority. Countries with the most maritime registries include Liberia, Panama, Singapore, and Hong Kong.
Therefore, a company based in the United Kingdom can own a merchant navy vessel with a Panama registry and employ a crew from India and Greece.
A Personal Loan is unsecured funding therefore, the lender needs assurance that the applicant’s employer is a reputable company and that the applicant’s employment can be verified. If the employer’s office is in India, physical verification is done if the employer does not have an office in India, a confirmation via phone or email is done. To this end, the Lender will require a valid employment letter with a renewed contract for the next voyage, and an HR confirmation from the employer’s office is needed.
Banking: The applicant’s salary must be transferred to the Bank account on a designated date. If the applicant is working with an Indian company, a last twelve-month bank statement with a salary credit is needed from the salary account.
Suppose a foreign company employs the applicant and gets paid in US dollars or other foreign currency. In that case, an Indian national must operate an NRI account for the salary credits and payment of the EMI and an NRO account to receive the loan amount in Indian rupees. A salary slip or certificate giving the details and breakdown of the salary transferred will be furnished with the bank statement as proof of transfer.
Documentation: With a diverse profile, banks require additional documentation to process a Personal Loan for Seafarers in India. Along with the mandatory KYC and Income documents, additional documents required include:
CDC or the Continuous Discharge Certificate: This document issued to seafarers is stamped and signed each time an officer signs on or signs off a Ship. Thus, it records employment, including the years and voyages the applicant has sailed. The CDC must be updated up to the last contract done.
Passport: A merchant navy officer must carry a valid passport when joining a vessel. This enables the applicant to apply for a visa for the country to travel to the destination port overseas and enter the ship. Additionally, a visa is required for travel to other countries thus, the applicant must submit a valid passport copy as proof for Merchant Navy Personal Loan Eligibility.
Residence Ownership Proof: A merchant navy applicant Applying for a Personal Loan should have a self-owned residence. Documentary evidence, such as a utility bill or registration documents, must be submitted with the application. The Kotak Bank only processes personal loan requests from the residence location, whereas the ICICI Personal Loan for Merchant Navy can be processed anywhere in India.
Co-applicant: The job of a merchant navy officer requires extensive travel and absence from home for long periods at a stretch therefore, Banks require a co-applicant who can be reached easily to process a loan request. The co-applicant can be a spouse or a parent, and the applicant’s KYC documents must be submitted with the Personal Loan for Seafarers request.
CIBIL: The applicant must prove that the credit taken will be repaid promptly. Therefore, Merchant Navy personnel must have a healthy credit history and a CIBIL Score of 750 points and above to Apply for a Personal Loan. The co-applicants CIBIL Score and credit history are also considered and must meet the required eligibility criteria.
Income: The job of a merchant Navy officer is strenuous, involving braving the high seas and being away from family for long periods at a stretch, which entitles them to take a break. Banks, therefore, consider a 12-month or yearly period for the income criteria. A minimum 6 months’ salary credit is required over a calendar year the average salary must be more than ₹ 1.60 lakhs monthly as required by ICICI Bank. HDFC Bank and Kotak Bank allow a salary of ₹ 80k on average monthly if the company features in the Approved Company Category List of the Bank.
Merchant Navy officers earn handsome salaries and are offered increased Personal Loan amounts starting from ₹ 1 lakh up to ₹ 40 lakhs the funds approved are transferred onetime to the account and can be used as desired. This gives an applicant the flexibility to use the amount to fulfil personal obligations conveniently.
With straightforward communication via satellites, email, and mobile phones, merchant navy personnel can stay in touch from the high seas, enabling them to monitor their finances. Need to renovate your home or take your family on a much-needed vacation with your family? The plans can start taking shape when They are still sailing, so please get in touch with us at customersupport@yourloanadvisors.com with any inquiries. Updating your documents is also easier while you are still employed, and we can help ensure your personal loan experience is smooth. Over the years, we have successfully assisted many clients.
Customer Credit Behaviour has become a mandatory check before further lending for all kinds of Loans and Credit Cards. Every time an individual applies for credit, the financer sends an enquiry to a credit bureau—the primary ones include Equifax, Experian, Transunion CIBIL, or CRIF Highmark—to retrieve an individual’s score and history.
The Transunion CIBIL is considered the prime credit agency and maintains an exhaustive account of all credits. Understanding the CIBIL remarks is crucial as it empowers you to take control of your financial health. Keep regular updates and try to remedy the following observations in your CIBIL history that can lead to a score decline.
Every time an individual applies for credit, the financer sends an enquiry to a credit bureau to check the Credit history and CIBIL Score.
The lender views the credit history to verify the customer’s behaviour with credit. Your previous loans and outstanding Credit Card Dues play a significant role in the lender’s decision to issue further credit. Being aware of this can help you manage your credit wisely and avoid any negative impact on your Transunion CIBIL score.
Based on credit management, the type of credit usage, and repayment tracks, CIBIL issues a numeric score with a maximum of 900 points. The CIBIL Score is a benchmark adopted by most lenders today. A score of 750 points and above is the required CIBIL Score for Personal Loan Approval and the minimum CIBIL score for Credit Card Approval. Maintaining a good CIBIL Score is not just a requirement, but a responsibility that can open doors to better financial opportunities.
A hard enquiry by Banks can lower your Credit Score by 10 to 15 points, but if there are multiple enquiries within a limited period, this may increase to 20 points. Thus, if you apply to 4 Banks simultaneously for loans and Credit Cards, your score can be downgraded by 50 points or more. Besides your score downgrade, numerous requests make lenders cautious that you intend to get multiple forms of funding, which can be challenging to repay.
The Credit Card and loan application details remain on the Credit record for 2 years. However, if relegated by numerous enquiries, the effect on the score recovers within a year as long as the customer restricts the number of further applications.
It is a good idea for an applicant to make a soft enquiry before applying for further credit to ensure that the score is above the required benchmark and there are no surprises in-store, errors, or aberrations. A soft CIBIL enquiry made by oneself is not reflected in the credit history or affects the CIBIL Score. A soft enquiry is a credit check that does not affect your Credit Score, and it can be a useful tool to gauge your creditworthiness before making a formal application.
The EMI for your loan will be presented to the salary account on a pre-designated date if there are insufficient funds, the EMI will be returned unpaid. The lender reports the return of the EMI to CIBIL and other Credit Bureaus, and the time for which the EMI remains unpaid is reported as DPD or Days Past Due.
Similarly, if you miss the payment due date of your Credit Card Bill, the number of days past due will be reflected in your Credit history until the minimum owed or complete bill is paid.
For example, if your Credit Card Bill Payment is due on March 5th, and you cannot pay even the minimum amount owing until March 7th, a 2-day DPD is reported.
If an applicant misses paying a credit bill or has insufficient funds in the account to clear the EMI on the due date, a bounce is recorded. It is the applicant’s responsibility to make good the return as soon as possible.
A delayed payment or a once-in-a-while DPD remark is insignificant; still, a string of delayed payments in the credit accounts portrays that the applicants are not repaying the dues owed timely, which can be due to financial constraints or a careless attitude. This can adversely affect the credit ratings, as no lender will want to give excess credit to an applicant unable to fulfil commitments timely.
If pending payments are not made within a month, the delays are classified as 30, 60, and 90-day buckets.
If repayments are made after 60 or 90 days, an account is downgraded from Standard to Sub-Standard. Consistently delayed payments after due dates suggest that the applicant is under financial stress and unable to honour commitments.
The approaching EMI will further delay paying the pending EMI, making it difficult to get things in hand. The applicant’s intentions could be genuine, and the dues are paid within 12 months, but the applicant cannot maintain the payment schedule.
A healthy account moving towards a Substandard portrays that the applicant is under strain, with a medical emergency or shortage of funds, or has overindulged and cannot manage commitments.
The Credit Bureaus follow all credit tracks, continuously grading them according to the transactions. A substandard account signals financial stress and mismanagement, negatively impacting the credit score.
At this juncture, it is advisable not to apply for further credit, as Banks are apprehensive about giving funds to an applicant in a tight spot financially or who is not keeping up with the repayment schedule.
If your account is leaning towards a substandard category, now is the time to take action and prevent it from moving towards a Doubtful or Loss account, which can hinder your credit score and eligibility.
Credit is essential for acquiring assets and living comfortably today you can take the following steps to ensure your score remains intact. You can avoid the red flags in your credit record by paying attention to credit management. These red flags can include missed payments, high credit card balances, and multiple credit applications within a short period.
Current records suggest that consumerism is rising, with excessive credit usage compared to income and savings. This leads to restricted unsecured funding by Banks and an increase in rejection ratios, making it necessary to maintain on-time payment for all credit and a healthy CIBIL Score.
Are you looking for funds to buy a home, a new vehicle, or expand your business? Banks and NBFCs provide credit to fulfil individuals’ personal and business needs with specific eligibility conditions to eliminate the risk of recovery. To monitor individuals’ credit behaviour, credit agencies compile data on all loans, credit cards, and other credit tools, the most authentic of which is the CIBIL (Credit Bureau of India Ltd).
With the data received, the CIBIL creates an account with a reference number under which all credit-related dealings are accumulated. To grade the creditworthiness scores are allotted as follows:
| Score | Significance |
| Below 300 | Below six months of credit usage |
| 300-550 | Low score |
| 550-620 | Issues with credit |
| 620-700 | Needs improvement. |
| 700-750 | Healthy score |
| 750-900 | Optimum score |
Lenders use the score allotted by CIBIL as a ready reckoner to issue further credit to loan seekers. Banks now need a minimal credit score to process a loan request; the score required varies from lender to lender according to individual norms and the type of credit applied for.
HDFC Bank emphasises the individual’s credit history, not only the credit score. There is no minimal score requirement, and each case is judged on individual merit. There should be no delays or defaults in the repayment tracks and no settled accounts. In contrast, AXIS Bank has a scoring method to confirm eligibility, including the current CIBIL Score.
Other premium Banks, such as ICICI Bank, YES Bank, and NBFCs, such as Aditya Birla, have fixed eligibility norms and will only accept a request if the credit score is at least 730 or 750 points, per the requirement.
Lenders judge customers’ ability to handle credit based on their records and current credit usage, as recorded by the CIBIL. Personal Loans and Credit Cards are issued without any security or collateral based on the customer profile, unlike mortgage and auto loans, for which the lender holds on to the ownership documents until the loan is repaid.
Therefore, repayment records and credit history are a priority in unsecured lending. Before processing a Personal Loan or Credit Card, the lender inquires to CIBIL to retrieve and report the score. An applicant Applying for an ICICI Bank Credit Card needs to have a CIBIL Score of 750 points and above to process the request a similar scorecard is required for an ICICI Bank Personal Loan. The YES Bank requires a mandatory score of 730 points and above to further a YES Bank Personal Loan, Balance Transfer Personal Loan or a Personal Loan Top Up.
Applicants seeking a home loan are also subjected to a CIBIL inquiry. Banks may consider a mortgage request for an applicant with a below-average CIBIL record, but a delinquent history can create issues. The application can be rejected, and the customer may have to apply to an NBFC and pay a higher interest or provide a guarantor. At the same time, a repayment history of timely EMI payments will ensure an enhanced loan amount with a longer tenure.
The CIBIL Score has steadily become a priority for lenders. Banks and NBFCs closely check their averages, and keeping delinquencies and defaults below the acceptable percentage is essential. The RBI (Reserve Bank of India) also monitors the effects of the credit industry on the economy and issues directives.
In the recent past, a CIBIL Score of 720+ was an acceptable score to procure unsecured credit, such as a Credit Card or a Personal Loan. However, due to the increase in defaults and non-payments, this score has now increased to 750+ therefore, be vigilant about your EMI dates and pay your credit card bills timely. A CIBIL Score of 750+ is now the acceptable benchmark to secure easy credit and lower interest.
If you have yet to start using a Credit Card or building a credit history, do not stress. First-time loan seekers are eligible for secure and unsecured credit if the lender’s guidelines are fulfilled. The primary guidelines include:
If, for some reason, your score is below the required norms, you can take steps to work on the same before Applying for a Personal Loan or a Credit Card. If you need funds urgently, apply for a gold loan or a Loan Against Property. Used Car loans are also forwarded with a lower score a loan against a commodity will help you raise funds, and you can regenerate your score with a timely repayment track.
With the digitalisation of Banking systems and government guidelines linking all KYC Documents and Bank accounts, consumer data is being promptly updated. Credit agencies regularly record credit usage, which is readily available for Lenders to check customer credentials. Therefore, understanding the CIBIL ratings and maintaining a healthy CIBIL Score is necessary to procure secured and unsecured credit.
The tenure or repayment term for a Personal Loan is the time allotted to a customer to return the loan amount. The tenure allotted for a Personal Loan is from a minimum of 12 months to a maximum of 72 months, whereas an applicant can repay a mortgage or home loan for up to 30 years.
The importance of tenure in planning repayment should not be underrated. The repayment plan must be worked out before funds are appended to fulfil a need for personal use, buying a home, or business purposes. The applicant can repay the loan via equated instalments or EMI over the allotted tenure or period.
Can an applicant request tenure from the lender to repay the loan? An applicant can put forth the request, but the lender takes the decision keeping in mind the following:
Bank Policy: The lender has the final say regarding the tenure of a Personal Loan allotted to a customer and adheres to the individual policy. Prominent Banks such as HDFC Bank issue a Personal Loan tenure of 18 months up to 84 months in the case of an HDFC Golden Edge Personal Loan. ICICI Bank issues a Personal Loan with a maximum tenure of 72 months. NBFCs such as TATA Capital are conservative in the repayment length and will forward a Personal Loan for a maximum of 60 months.
The Income of the Applicant: The loan amount and loan tenure issued to a customer are primarily calculated based on the customer’s monthly income. The math for calculation is according to the lender’s policy, but the basics are similar. Some banks use a multiplier method, while others issue loans according to a percentage of the income. In either case, an applicant earning a higher income can afford to pay more as an EMI and repay the loan within a shorter tenure.
The Loan Amount Granted: The loan amount awarded to an applicant is based on the customer’s financial eligibility to repay the EMI. An extended tenure is applied for increased loan amounts, considering an applicant’s budgetary restrictions. Applicants earning a higher income are eligible for increased loan amounts, which can be repaid with a suitable EMI, whereas customers with a lower income look for an extended tenure to achieve an affordable EMI.
Age of the Applicant: A salaried applicant can repay a Personal Loan until retirement age, usually 58 to 60. The retirement age depends on the type of employment; if an applicant is employed with a government organisation and provides proof of job extension, HDFC Bank may consider extending
the tenure. Therefore, if an applicant is 56 years old when applying, the Personal Loan Eligibility for the loan amount is calculated, taking into account the repayment tenure of a maximum of 4 years. Retirement benefits and a regular pension are also considered when issuing a mortgage tenure.
Company of the Applicant: The applicant’s employer is given a lot of weight when allotting the terms of a Personal Loan. A customer employed with an organisation featured in the HDFC Bank Company Category List in the premier category is offered exclusive terms for a Personal Loan, such as a discounted interest rate and an increased loan amount repayable over an extended tenure of 84 months. In comparison, a customer employed with a Category C-listed company will be asked to repay the personal loan within 48 months.
The CIBIL Factor: An individual’s CIBIL Score is crucial in appending further credit. An applicant’s previous credit usage and repayment history are the basis for getting additional credit.
A good credit score with a healthy repayment history boosts the customer profile. Lenders are willing to issue increased loan amounts for a maximum tenure to applicants with a CIBIL Score of 750+ as banks are confident of timely repayments and trust that customers will repay unsecured Personal Loans for a longer tenure.
Customers who are first-time loan seekers are allotted a shorter tenure, but a sound repayment track will build confidence for future credit.
Finalising a Tenure:-
The Tenure Remains Fixed:-
The Effects of a Tenure on the Loan Cost
The cost of your loan will also vary according to the tenure, for example:
For a loan amount of ₹ 1 Lakh, interest is charged @ 12% at a reducing balance.
Loan amount repaid with interest over 18 months: 109764.00
Loan amount repaid with interest over 24 months: 1129784.40
Interest is charged annually for the term or tenure of the loan amount taken. You pay interest for how long it takes to repay the loan or the allotted tenure. Therefore, if you can afford to pay a higher EMI, opt for a shorter tenure and spend less as interest.
Option Of a Balance Transfer for a Tenure Change
The repayment tenure for your loan is as significant as the interest rate and the loan amount. Before taking a loan, consider an appropriate tenure per the key points above our EMI Calculator will help you choose a suitable tenure. Ideally, completing your unsecured loan over the allotted tenure works best, as timely repayment of the EMI will give you a healthy CIBIL Score and pave the way for easy further credit.
A Credit Card makes life easy with funds available at your fingertips, you tend to spend without one because you will have to make the payments later. But nothing comes for free, and your Credit Card Bill will be presented to you at the end of the 30-day cycle. A further 15-day grace period is given for the payment of the bill if there is a budgetary constraint, it is mandatory to pay 5% of the total, and the balance is carried forward to the next cycle. The deferred payment costs 36% per annum, which is the interest to be paid on the total bill until the pending amount is cleared.
Extensive Usage: Suppose you have used your Credit Card extensively and need the amount available for repayment. In that case, you can consider postponing the payment over one cycle with the condition that you don’t use your card till the payment is done and will have the funds available to clear the bill. If in doubt, do not wait to Apply for a Balance Transfer.
Limited is Exhausted: Further usage is not advisable if you have used the credit up to 80% of the designated card limit. Also, the interest applied to the unpaid credit is added to the pending dues, increasing the debt further. Rather than wait for the dues to build up, consolidate your debt by applying to transfer your credit card dues to a personal loan.
Budgetary Constraints: If your budget is constrained due to an emergency, take care of your credit outstanding by Applying for a Balance Transfer to a Personal Loan. When you do not have the resources to manage your finances, debts can get out of hand. Take timely action so that your CIBIL Score does not get downgraded.
Bank Policy: Prominent Banks that offer to convert your credit card dues to a Personal Loan via a Balance Transfer include HDFC Bank, Kotak Bank, AXIS Bank, and AXIS Finance. While each Bank has its eligibility criteria, the applicant must meet the basic norms and criteria required, such as:
Status of the Credit Card or Cards: For the dues of a credit card to be eligible for a Balance transfer, the following criteria need to be fulfilled:
Financial Eligibility: The applicant’s income must sufficiently pay for the extra EMI after the monthly expenditures.
The payment of your Credit Card dues via a Personal Loan Balance Transfer is a win-win situation outlined below are the primary benefits:
An excessive debt situation can ruin your peace of mind, so avoid getting into a stressful situation. There is help at hand an external Bank is ready to take over the Credit Card Debt.
The Balance Transfer of Credit Card dues helps you better manage your finances and enables your Credit Card to be used for further use. You can start using your Credit Card again, but most importantly, do remember to use your Credit Card mindfully and spend what you can repay on the date your payment is due to enjoy the many benefits.
Today, holding a credit card is a necessity. Whether salaried or self-employed, earning individuals adorn their wallets with multiple credit cards. Customers are now well-versed in the usage and benefits and are looking for suitable offers besides the regular benefits that are standard to most. Banks also offer special privileges to entice customers, such as free access to Domestic and International lounges provided by ICICI Bank Sapphiro Credit Card.
When marketing a Credit Card, a sales pitch often used is that a customer can enjoy the card’s benefits free for a lifetime. This means that no Joining, Annual, or Renewal fees are to be paid, and the customer is only charged for the actual usage or spending.
What are the economics behind The Lifetime Free Credit Card Offer? Is it a reality or a sales gimmick? Let us examine the rationale.
Joining Fees: Most Credit Cards have a joining or issuing fee, which is not paid in advance but added to the monthly statement. The joining fee varies from lender to lender and depends on the privileges offered.
For example, the joining fee for the ICICI Bank Coral Credit is ₹500/-+ GST, whereas the joining fee for an ICICI Bank Rubyx Credit Card is ₹3000/-+GST. The cost difference is justified by the exclusive features of the ICICI Bank Rubyx Credit Card, such as a higher spending limit and free access to International and Domestic lounges.
The joining fee is waived for customers as a special offer to boost sales for a limited period. Customers who are ICICI Bank account holders and applicants with a high CIBIL Score are eligible for the offer. Some Banks also reverse the joining fee after three months if the customer uses the card and spends the prescribed amount.
High-income customers applying for an elite range of Credit Cards are compensated with welcome vouchers that can be used for travel and shopping. The value of the vouchers is usually more than the joining fee charge. For example, customers who are issued the ICICI Bank Rubyx Credit Card are given welcome vouchers worth ₹ 5000/- whereas the joining fee applicable is ₹3000/-.
Banks also waive the joining fee for customers with solid relationships with the Bank, such as corporate or savings accounts. Check closely for the cash bank, free coupon offers, and minimum spending terms to ensure you recover the joining fee.
Annual Fees: A credit card’s yearly fees are charged at the end of each calendar year since the card activation. When issuing a Credit Card, the bank expects the customer to use it regularly to fill fuel, make online payments for shopping, dine at restaurants, book air tickets, and other personal requirements.
Banks will profit from the card issued only with customer usage if a customer does not use it actively or uses it minimally, the applicant is liable to pay the annual fees. The annual fee charged depends upon the type of card. The yearly fee charges can range from ₹ 500/- as charged for the ICICI Bank Coral Credit Card to ₹12000/- for the high-value Emeralde Credit Card.
Conditions for Annual Fee Waiver: The Bank assesses the customer’s annual Credit Card usage. The annual fee is waived if the customer has used the Credit Card extensively and above the minimum spend as specified.
Banks make an exception and waive the annual fee for customers who do not meet the spending benchmark if they have been swiping their Credit Cards regularly and paying their monthly dues on time.
ICICI Bank account holders who maintain a sufficient balance in the account or have fixed deposit accounts are also eligible for the annual fee waiver.
Renewal Fee: When issued by a Bank, a Credit Card includes an issue date and an expiry date. The expiry date is usually three to four years from the issue date. A renewal fee is typically similar to an annual fee. The renewal fee can also be redeemed against the points earned on behalf of the previous usage.
Customers can request a renewal fee waiver for further card patronage. The bank will check the customers’ CIBIL records and usage, considering the various credit card options available. Banks typically want to retain customers who have enabled profitability with regular usage and payments. At the same time, customers with delayed or pending payments will be asked to clear the same to enjoy the card’s privileges further.
A Word of Caution: The charges for joining, or as yearly or renewal fees reflected in the statement, must be paid as per the monthly cycle. The payment must be honoured even if the applicant does not use the card. The amount will attract interest if not paid according to the applicable finance charges. There have been instances when customers who have been issued a card have refused to pay charges, which have multiplied. As a result, the customer’s CIBIL Score can be affected, and the account will show unpaid dues.
The ‘Lifetime free Credit Card’ cannot be taken at face value; it always has strings attached.
Banks offer free Credit Cards to customers as an added value to a relationship, to further their marketing interest, as a token of appreciation to customers with a long-standing account, or to offer further financial investments. The continuity of the offer will depend on the treatment of the card and its usage. If, for any reason, the Bank feels the offer is not justified, the free tag can be replaced by the charges applicable.
A Credit Card, if used and managed well, is convenient and financially favourable. Use your card extensively to enjoy the benefits of free shopping vouchers, airline miles, discounts at leading hotels and restaurants, and even cash-back offers, provided the payments are made on time, and who knows, you may enjoy the privileges of your Credit Card free of any charge.