Being pursued by call centre executives of banks and non-banking financial companies (NBFCs) who offer personal loans is common. But these calls mean little. When a customer finally decides to avail of the loan, things can go sour. And often, it is done without any reason given by these executives.

Next, she got a letter from the bank informing her of the loan rejection, but not any reason. The bank sent me a letter that I did not meet its criteria, but nothing specific was mentioned. How am Ito know what really went against me? Although the interest rate for personal loans is much higher — 18-21 per cent for salaried and 24-40 per cent for self-employed individuals —the fact that these are no collateralised loans makes financial institutions cautious.

Scorecard

Financial institutions look at an individual's credit scorecard, which they avail of from credit information bureaus. At present, there are four such bureaus — Credit Information Bureau (India) (Cibil), Experian Credit Information Company of India, Equifax Credit Information Services and Highmark Credit Rating, which provide information to banks and NBFCs.

Different banks may assign different weightage to a customer's income level, other loan obligations, past track record of defaults, and have a minimum score that a customer has to meet. Any past loan default or late payment of credit card or other bills will lower one's chance of getting the loan.

Guarantor

The situation can get complicated if the applicant has been a guarantor to someone who has defaulted on his/her loans. Loans, including car loans or home loans, are against a collateral that can be liquidated to repay the loan. The guarantor is the second level of surety for loans. In situations where the collateral cannot be liquidated, the guarantor is responsible. This gets reflected in the credit bureau's report, as well.

Co-borrowers

In case a relative's income is being clubbed with that of the customer's, or there is a co-borrower, their income statements are also needed. The loan will be approved only if they also meet the required criterion.

Profession

While no one wants to admit it, there are certain professions that are blacklisted. However, both banks and NBFCs have over the years reduced this list drastically, according to a banker. Now one's occupation and area is considered less important and the bank or NBFCs look at the individual's 'intention' and 'ability' to pay back, besides his/her present debts.

However, some banks may still not wish to lend to people from certain professions because of their bad experiences. For instance, earlier lawyers or media professionals were scrutinised more carefully.

Area

Sometimes loans get rejected because of the area an individual lives in. For instance, certain areas are considered low-income and riskier for recovery. Then, if the person is working in one area, but the bank does not have a branch in that area where he lives, the loan application may get rejected. The same applies if the bank does not have a branch in a particular city.