Aditya Kumar
Personal loans are a rage among working professionals seeking quick means to secure financial aid. While some say they are a life saviour to help tide over instant financial needs, others say they carry very high interest rates. The internet is flooded with all sorts of information related to personal loans. One can even approach a financial advisor to get more details but the knowledge gathered is almost always ambiguous.
Regardless of the information that you hear about personal loans, they are without a doubt an ideal solution that people have been choosing to serve their instant monetary needs. Why? Because they are easily available. You don’t have to visit any bank or NBFC branch. Apply online, get it digitally approved and receive the loan amount in your bank account within 24-48 hours.
Lenders such as banks, NBFCs, fintech companies and peer-to-peer (P2P) lenders have their own criteria to assess a borrower’s creditworthiness. The process of underwriting includes a plethora of aspects which may not be completely known. Factors such as age, employment, credit history and various other information are taken into account.
However, if you are residing in a shared or bachelor accommodation, many lenders are hesitant to approve your loan approval. Yes, that’s true! Your home – rented or shared - can create a difference between approval and rejection of a loan.
Why lenders hesitate to grant loans to those living in shared accommodations?
A residence is an important determinant when it comes to granting loans to those residing as a paying guest or shared accommodation. If it is your first job after graduation, you most likely will not be earning enough to afford a new house. Approving your loan application could pose a risk to the lender, as it knows that you already have to pay rent while managing a spate of other expenses. The conclusion might be that you are incapable of repaying the loan going forward.
Initially, you may choose to rent an apartment or share it with bachelors. Unfortunately, many lenders may prefer not to consider such persons for a personal loan. On the other hand, if you own a house, are married and staying at the same residence for years, there is a higher likelihood that your loan application will get approved easily.
What do the lenders deduce?
As the personal loan is granted on your assurance that you would be paying back later through equated monthly instalments (EMIs), the first thing that lenders consider is your repayment capacity. Now, bachelors are often prone to changing residences and jobs. This sends a negative impression to lenders as it suggests an element of inability in making timely repayments.
How do the lenders ascertain whether you are eligible?
Traditional lenders like banks and NBFCs, who have a strict list of checkboxes to approve a loan, can even reject you immediately. However, that does not mean you can easily get a personal loan from other lenders.
Lenders thoroughly go through the information that you have provided while filling the application form. While crawling through the details, if they find 'shared accommodation' or 'paying guest' in your residential information, they try alternate means to verify your repayment capacity.
For example, they can ask for additional checks. In that case, along with your job profile, the duration or tenure of your employment becomes an important factor. In case you have jumped between five-to-six companies within a time span of two years, the lender will warn banks to keep your profile under scrutiny.
How are alternative data sources used to assess the borrower's repayment capacity?
There are other online marketplaces which do not hesitate in granting unsecured personal loans. They assign loans based on their proprietary risk-management algorithms, advanced data analytics and other data sources, some of which include a borrower’s social media profile. This helps them to become aware of the borrower’s spending, savings and other financial habits.
With the help of social media profiles, lenders understand what kind of blogs or articles the borrower reads frequently. In spite of merely judging on the basis of residence, they use other profiles like LinkedIn to see how often the individual has changed jobs or is looking for one. This helps the lenders to determine the borrower’s ability to repay the loan.
The writer is Founder & CEO of Qbera.com published in moneycontrol
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