My friend and I approached a few banks for personal loans. I was disappointed to note that my friend got the loan on a much lesser interest rate than I did, though I had applied for the same amount and the same tenure. Can banks offer different interest rates for the same loan offered to two people?
Personal loan interest rates need not be the same for every individual. A key factor that determines the rate is the borrower’s credit history, which is basically a record of past repayment of loans and credit card bills by the person. There is a central repository where such data from all the banks on existing loans and repayment patterns of their customers are accumulated. This data is currently available with Credit Information Bureau (India) Ltd, or Cibil, and will soon be available with other credit agencies, such as Experian Plc and Equifax Inc. Before approving a loan, a financial institution always checks with Cibil about your loan repayment track record. A good repayment track record could fetch you a higher loan amount at a lower interest rate. In case of a bad repayment record, you will be charged high interest rates. You may also find it difficult to obtain a loan. If you are sure about your payment history, then obtain a copy of your credit report from Cibil. If you notice any discrepancy, approach the bank concerned, collect proof for repayment and send across a request with the proof for updating your credit report to Cibil.
Before applying for a loan, you should always check your credit record to see if all the data is in order and clear all dues. If you have a good credit report, you can use it to your advantage and negotiate interest rates.
I wish to study abroad. How can I apply for a student loan?
To be eligible for a student loan, you need to be a resident and should have secured your admission to a professional course through an appropriate selection process. The amount of student loan granted differs across banks. Usually, the maximum amount granted for studying abroad is Rs15 lakh at an interest rate of 10.5-15%. Some banks also offer a choice between fixed and floating interest rates. If you want Rs7 lakh or more in loan, you need to provide a guarantor. For this loan, you will need to pay a margin amount (initial down payment) of 5%. Banks also keep as security property, national savings certificates, insurance policies, among other things. You can also include your parents as co-borrowers for the loan to increase your loan eligibility. The repayment of the loan generally start after one year of the completion of your course or six months after securing a job. This again varies from bank to bank.
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Adhil Shetty is CEO & co-founder BankBazaar.com