Have you ever been in dire need of money for paying the tuition fees of a university going child or for renovations around the house? Well, thanks to the banks, there is no need to put your plans on hold. Several banks in Pakistan offer personal loans. A personal loan can be taken for as low as PKR. 50,000 and can go up to PKR 2 million (provided you can afford the monthly payments on a loan this size).
However, being approved for a personal loan can be a tricky process. To improve the chances of your personal loan application, go through the minimum requirement checklist to determine whether you fit the minimum asks of a bank.
- Basic Eligibility
Many banks across Pakistan offer personal loans to customers maintaining an active account with the bank for a minimum of two years. Bank’s are more inclined to offer personal loans to salaried individuals who have a minimum employment record of 1 year or more and are permanent employees of the company that they work at. Be sure to ask if the loan being offered is relevant for your personal employment status.
- Minimum Income
Bank’s generally keep a lower minimum income requirement for salaried individuals, as compared to their self-employed counterparts (only applicable if the bank is offering loans to self-employed persons). Self-employed persons are expected to demonstrate a higher level of income in comparison to salaried individuals because banks consider them to be a higher risk customer segment. This is not because the bank is discriminating against a self-employed person, but rather because their income tends to vary significantly over the course of the tenor of the loan – due to which the bank is taking on higher risks by lending to them.
For salaried individuals, you can find loans being offered for applicants earning as low as PKR 25,000 per month while the self-employed are generally required to have a monthly income of PKR 40,000 and above. Before you apply, be certain that you are earning the minimum required. If you are self-employed make sure you can provide ample evidence of your claim regarding your income.
- Debt Burden Requirements
Another main reason for not getting the loan is that the applicant may already have too much debt than they can handle. Bank’s figure out how much a customer is able to pay by a simple formula known as the debt burden calculation. The bank will look at the total credit card and loan limits the applicant already has and will calculate how much of their monthly income is going towards paying off the existing loans, credit cards and running finance facilities. If the applicant is paying an amount over and above fifty percent of their net income towards loans, it is highly unlikely that they give the applicant another loan. Bank policies on debt burden vary – on average you will find debt burden requirements of banks to range between forty to sixty percent. This means that your payments towards existing loans should not exceed more than forty to sixty percent of your net income (after all deductions). Make sure you aren’t already paying too much of your income towards servicing your debt. If this is the case, pay off what you have already borrowed before you decide to apply. Also if you had debt once upon a time but have paid it off and forgotten to get the ‘no objection certificate’ from the lender it is important to get this document. As the chances are that this line of credit will show up on your credit file, in the event you have not obtained the ‘no objection certificate’.
- Negative cCIB
Prior defaults or late payments towards existing loans will most certainly ruin the chances of an applicant to get a loan. If you have taken a loan from another bank or financial institution your payment history is recorded in the Electronic Credit Information Bureau (eCiB). Be sure to never fabricate the facts, the bank you are applying to will know once they start to process your application. Please don’t be irresponsible, applying for a loan is not like playing the lottery. The bank knows your history they won’t lend to someone who hasn’t paid off their previous loans.
- Unverified addressed
Another major reason for a loan application to be rejected is the provision of non-verifiable addresses. Dummy addresses are the best way an individual can commit fraud, therefore banks are stricter in locating the addresses provided by the applicant. A bank will send a representative to verify whether the applicant really lives at the address they have listed in the application. In the event this isn’t confirmed the application may be rejected. Make sure to tell the bank representative of the timing when your family is at home. If you have domestic staff tell them to expect a bank representative. Non-verification usually delays your application, as the bank will attempt to verify the address at least 3 times before they reject it. If you are in a hurry to get your approval, have all your ducks lined up.
- Unsafe Areas
Although this point of concern is something beyond the control of the applicant; the banks do look at the area that an applicant lives in. Bank’s won’t lend or give the applicant a loan in the event that they reside in politically volatile areas. It is quite unfortunate that the political situation has made parts of our country vulnerable. Therefore, to reduce risk to the minimum level, banks generally extend loans to the individuals living in secure and accessible areas. Make sure you flag your residential address to the sales representative doing your documentation in case you are unsure. Since this information isn’t really public you can only obtain it from the representative processing your documents.
- Unauthenticated Documents
Provision of any unauthorised documents or the submission of forged document may result in the outright rejection of the loan application. Don’t be reckless, do not submit fake documents. Doing this will most certainly lead to a rejection let alone the embarrassment that will follow later.
- Politically Exposed Persons
If the applicant is a politically affiliated person the bank will generally avoid lending to them. You should know whether or not you are politically affiliated. Bank’s refer to such candidates as PEP (politically exposed persons)
- Being in a commercial engagement that does not generate consistent income
Banks are hesitant to lend to individuals who are in a trade or industry that doesn’t generate predictable income. For example, it is very difficult for real estate agents to get personal loans since they purely work on commissions. If you are someone who works purely on commissions your chances of being approved for a personal loan are slim.
- Make sure to have a banking relationship.
Make sure you already have a banking relationship of some sort. The most important relationship with a bank is having an account that you maintain. This is really important for a bank in today’s day in age. If you don’t have one already, make sure to get one before you decide to apply. Build your bank statement for at least 6 months before you apply. This means posting regular transactions and building history.
All in all, personal loan applications approval process is delicate and in depth. Make sure you follow the steps mentioned above to improve your chances of getting approved.
Once you are approved, use the money wisely as it isn’t yours to keep. You do have to pay it back at a future date, so use it for something that is absolutely necessary.
Smart bano, compare karo!