credit score
Despite having the same income and loan amount, if the credit profile is weak, you may have to pay lakhs of rupees more in interest. The new trend shows that banks are now giving more importance to behavior than income. Even today, most people believe that if the salary is good then the loan will be available easily and at affordable rates. But the reality is different from this. In a recent example, despite two people having the same age, salary and loan amount, the bank offered them a loan at different interest rates. The only reason was credit score and financial behavior.
Same salary then one gave more interest
The profiles of Rohit and Kuldeep were similar. Both were 35 years old, earned Rs 16 lakh annually and both applied for a home loan of Rs 50 lakh from the same bank in the same month. But Rohit got 8.5% interest rate for 25 years, whereas Kuldeep was offered 9.8% interest rate for 24 years by the same bank. That means Kuldeep had to pay more money.
Rohit and Kuldeep, both 35 years old, earn ₹16 lakh annually and both applied for a home loan of ₹50 lakh. The bank gave loan to Rohit for 25 years at 8.5% interest rate, while Kuldeep got a loan for 24 years at 9.8% interest rate. The result was that Rohit’s EMI was ₹40,000, while Kuldeep had to pay ₹45,000. Kuldeep will pay approximately ₹ 10 lakh more interest during the entire loan period.
Why did I have to pay more interest?
The biggest reason for this difference was the credit behavior of both. Rohit never misses an EMI, repays his old car loan on time and uses his credit cards sparingly and judiciously. At the same time, in Kuldeep’s records, some payments were delayed and his credit card dues were often high. These small things make a big difference in the eyes of the bank.
BankBazaar.com CEO Adhil Shetty explained the reason for this. He said that RBI data shows that retail credit has grown at the rate of more than 15% in recent years. Now banks approve loans through algorithms, where more importance is given to your repayment history, credit card usage and age of the account (credit history) than your salary. Therefore, even people with similar salaries can get different loan terms.
Rohit’s credit score was good. He never missed an EMI, repaid his earlier car loan on time and also used his credit card judiciously. On the other hand, Kuldeep had two late payments three years ago and his credit card dues were also high, which he did not repay on time.
It is not right to change jobs again and again
The jobs of both also make a difference. Rohit has been working in the same IT company for the last 9 years, while journalist Kuldeep has changed jobs 4 times in 10 years. Basically, your salary shows that you can earn, but credit score shows how responsibly you handle money. According to Vinay Singh, CPO of loan company Olyv, people who have a good credit score get lower interest rates, higher loan limits, quick approval and better financial products. At the same time, those with a bad credit score have to pay higher interest or sometimes even get the loan rejected, even if their income is stable.
In today’s time, banks and finance companies give loans on the basis of data. They also look at how you repay the loan, use your credit and how well you maintain your account. Therefore, credit should not be considered just a convenience, but a long-term financial asset. Paying EMI on time, not taking more loan than required and balanced use of credit limit can get you a better loan deal.