Easy Credit

At 31, Mumbai-based Hardik R Thakker is a veteran of mastering loans. Don’t scorn at the thought of the 31-year-old being attributed as a veteran; his first loan was for his education and then he borrowed when he was about to get married to tide over the mounting wedding expenses and now, he has taken a loan for his dream house. “These days, banking service has become so efficient that I had to just call my personal banker and tell him about my requirement and the rest was taken care by him,” beams Thakker.

Thane-based Dhanse family of five spreads over three generations – Rukhsar, her husband Yasin, their two sons who are 22 and 20 and Yasin’s mother. “We bought the car as a gift for my son on his birthday. We live in Thane, where it is not easy to hail an auto at will. We felt the need for our own car due to the poor state of public transport,” rattles Rukhsar. They bought a Toyota Etios in 2014 and are happy with their choice of car and the loan. “The EMI is convenient and the car helps us commute easily,” she adds. In Pune, 35-year-old Amber Sironzkar is a man possessed with his dream of buying MacBook Pro. “Last year, I just felt the urge to buy what I was aspiring for long—the MacBook Pro for Rs 64,000, because the deal sounded just right and it was easy to avail an enticing offer from Bajaj Finance,” he says. For him this option was the best way to buy a product of his dreams, with an easy payment option. “The loan process was swift. The processing was complete in a short time, with an ECS Mandate form, one cancelled cheque, and a KYC document, along with one recent salary slip. With an easy four-figure monthly EMI, I was able to take my favorite machine home,” adds Sironzkar.

Making loans work for you

With the growth of consumption based spending, the need for loans for various goals has grown ranging from vehicles and weddings to tablet and smartphones. Today, personal loans have certainly made life easier and simpler as it is a great way to handle unexpected bills, improve your home, make a large purchase, or perhaps assist with education expenses. The loans are getting easy to get because the lender-customer relationship, especially for unsecured loans like personal loans, is being validated with several parameters other than the credit score. Then, the access point for loans is spreading; you don’t need to visit the bank or the NBFC.

You don’t need to apply for a loan and wait endlessly. In the case of borrowing for consumer goods and cars, most manufacturers and distributors have tie-ups with lenders who are stationed at the point of sale to facilitate the loan.

As for personal loans, your existing banking or financial dealings with an NBFC or the usage trail of a credit card makes it easy to borrow. While financial institutions follow a stringent process to ensure that borrowers can repay the loan, the borrower too must accurately judge and be confident of their ability to repay. Says Veetika Deoras, chief operating officer - Digital Head, Tata Capital: “A consistent employment record, residence stability, and adequate documentation are elements that help an individual secure a loan at a good rate. Technology is helping make the loan process a breeze for customers by providing an easy, fast, convenient and 24x7 way to apply for a loan.”

And, credit card users also get the option to break down their purchases into EMIs. Almost every online purchase above Rs 5,000 whether it is a mobile phone, home appliances, furniture or even travel tickets can be broken down into EMIs at the time of purchase. One can just click on the EMI option and see the amount of EMI and interest to be paid for a particular credit card which depends on the loan tenure whether it is 3 months, 6 months, or even up to 2 years in some cases.

Prudent borrowing

Just because loans are easily available, one should not err into borrowing too much and face difficulty in repaying a loan. There are several indicators to arrive at what could be an ideal borrowing. For instance, a good indicator on how much you could borrow should be the amount of money that goes towards servicing the loan from your salary. A debt servicing ratio of less than 35 per cent is preferable. This means, 35 per cent of your income goes to pay the debt off by way of EMI. This ratio would vary across individuals, but ballpark this is a good indicator to know how much money goes towards servicing all forms of debt that you have.

“One has an income and then there are expenses and also, one needs to keep 20 per cent for contingencies. From the surplus cash one has the option of going for loans—housing, personal, car etc. But, one should remember that one should never take into account income that is not regular. Also one needs to keep in mind other commitments like SIPs and annual insurance premiums,” says Rakesh Makkar, head of business, marketing and CSR, Fullerton India. It is for this reason that most borrowers seek your bank statements to assess the money that is going towards servicing debts to ascertain your ability to repay the loan.

These days, access to Aadhaar and the Internet has meant that one cannot create fake identities for the sake of borrowing. There was a time when one could fudge bank statements and even income tax returns with the intent to cheat lenders. The credit bureaus have ensured there is practically no room for such fraud. The flipside to such robust data-driven assessment also means that if some records are erroneously marked, the onus is on you to get your records straightened with the institution where the records have not been updated or cleared.

Says Anil Ramachandran, head - marketing and communication, and head - retail unsecured assets, IndusInd Bank: “Yes, getting a personal loan without established credit history is difficult, however for our own clients who have strong banking relationship with us, we do offer appropriately customised personal loans based on their relationship with the bank, employment etc. Other than this, such clients have an option to avail secured credit card among others as well.”

However, that may not be the case in semi-urban and rural areas. Says Ramesh Iyer, vice chairman and managing director, Mahindra & Mahindra Financial Services: “We cater to people mostly in semiurban and rural market. And here, there is no CIBIL score, therefore the applicant factors should be very healthy factors in the sense that he has to pay his instalment on time, so that the reputation risk is well-maintained.”

At the time of festive season, several resellers and lenders have got into tie-ups by promoting 0 per cent interest, which is attention grabbing. However, do not be blinded by such deals, because such deals do not have the option for a cash only sale, which would otherwise allow you to arrive at the real cost of the deal. So, no matter how tempting these loans appear and are easily available, even at low interest rates—you should know that all loans include processing fees, hidden costs, and a repayment cost by way of interest. After all, who will offer you a product at a loss? Keep this mantra handy before you embark on your borrowing journey. 

himali@outlookindia.com

preeti.kulkarni@outlookindia.com

anagh@outlookindia.com