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Home Loan: The Lender's Point of View

  Sat, Aug 26, 2017     written by : CSF-Team
Home Loan

When a person applies for a personal loan, some of the typical things they have in mind are whether they should go for a fixed interest rate or a floating interest rate, what's the ideal term length, the terms and conditions they would be comfortable with, etc. However, seldom does one think about the entire concept of a "home loan" from the lender's perspective. What does your bank think about when looking at your loan application?

The following are some of the things that shed light on the lender's point of view when it comes to SBI home loan, ICICI home loan, etc:

1. Safeguarding Against Defaults

The biggest concern that troubles the judgement of a potential lender is the possibility of defaulting. Non-Performing Assets cause more loss of money than any other factor for a bank or an NBFC. Thus, they want to take all possible measures to make sure that even if you end up on their loan defaulter list the net loss is minimum.

One of the most common ways banks protect themselves is by having you offer the home loan property as collateral. This way, they can seize the property in an event of default and if you are unable to repay the loan within a certain period, they can sell the property to recover the loan money.

2. Loan Charges

Do you know what is the first thing your lender will check when applying for SBI home loan? The answer- your CIBIL score. In fact, it's one of the most important factors in every loan process.

Your score will decide whether you will even get a home loan or not. If it's good (above 650 in the case of CIBIL) then you will qualify. However, the lender will still consider several other factors to finalize the loan charges. If you have a good repayment history, a high income, and a stable job, then they can afford to propose you an attractive interest rate and flexible terms and conditions as well. However, if they have reservations resulting from certain remarks in your credit report, or on the account of a business that you may have started (which means high risk) only recently, then you may have to do with a higher interest rate.

3. Loan Prepayment

Lenders manage their cash flow on the basis of several factors. For instance, they lend loans according to the volume of the funds they receive from the existing borrowers. So, when people decide to prepay a loan, i.e. pay off the loan earlier than the due date, it affects the entire system and hurts the balance. Moreover, there is a loss of money in this event as the borrower will pay less money on the interest. So, what's a benefit to the borrower is a loss for the bank.

To prevent losses from loan prepayments, lenders usually impose prepayment charges which can either be a flat fee or a percentage of the pending loan amount.

4. Contract

A contract helps a lender to bind the borrower under specific legal conditions that can prevent losses and unfair advantages of all kinds. The following are some of the terms and conditions a lender may put in the contract:

  • You agree to pay all fees/penalties to the lender wherever applicable.
  • The lender is entitled to revoke your loan request if any discrepancies are identified between the documents submitted and the actual/original documents.
  • You agree to give up the rights of the property you are applying the home loan for if your name is put on the loan defaulter list.

Bad loans have become a big concern for the banks in the country. So, they are doing everything possible to minimize this risk. For instance, they are taking help from innovating credit rating agencies that are experimenting with social media data and other types of online data to get a more accurate credit rating of the individuals/borrowers. However, you needn't worry about this. If you will pay attention to the basics of credit building you can attain a good score and get an SBI home loan easily.