Choosing a Lending Product from a bank wisely!

29th September 2015


Most consumers avail lending products from their banking institutions at numerous occasions in their professional and personal lives. This could be anything from personal loans to financing a child’s marriage, auto loans to purchase a new car or mortgage facilities to construct a house. Some banks even offer individual running finance facilities to supplement consumers’ daily needs. Although an individual is aware of the markup rates and repayment schedules on such facilities, it is advisable to be aware of the circumstances under which these loans are granted.

 Requirements for Getting a Loan

Any financial institution, although benefiting from lending to a consumer, does its background checks before disbursals. In Pakistan, most banks follow a stringent list of employers and organizations which their credit department has deemed suitable to lend to. All employees of such organizations are automatically approved for lending products. However, this is just the first step to securing a loan.

Once an individual falls in the realms of an approved employee list, different background checks are performed on his credit history and debt-liquidity ratios. An individual should not be a defaulter from any financial institution. With the establishment of the Credit Bureau in Pakistan, banks run history checks on each individual before clearing him for lending products. Even the slightest record of late payments, written off amounts or payable dues, disables an individual from qualifying for a loan or an asset product. These checks are run against CNIC details, thereby enabling all institutions to verify his past details before proceeding.

The second check performed by banks is a measure of debt-liquidity ratio, more commonly referred to as the “debt burden” of an individual. This is a simple ratio, gauging his monthly take-home salary against all fixed monthly payments and current financial exposures. A simple example would be an individual living in rented premises, paying a certain amount as repayment for a personal loan, and a certain exposure to two credit cards issued against his name. All these repayments would add up as his debt burden against his take-home salary amount. Under stringent regulations, banks are only allowed to lend up to a certain percentage of an individual’s take-home income; therefore this measure serves as a precaution against risky exposure on their part.

After clearing these initial screening processes, the bank further conducts its verifications of an individual’s residence, employment and financial stability. Successful clearance would eventually enable a consumer to avail his desired product.

Precautions a consumer needs to take

There are certain aspects which an individual can control to maintain his credit worthiness and further enjoy banking facilities. Firstly, one should ensure timely payments on all dues and bills. This will ensure a clean credit history for the individual and serve to his advantage every time he applies for a lending facility.

Secondly, every time an individual completes the payments for a certain product, he must obtain a clearance certificate; more commonly referred to as a “No Objection Certificate (NOC) from the organization. This completes and closes his previous lending file. Additionally, it also provides him valid documentation to present in the unfortunate event of an error in his credit history.

Thirdly, an individual should not avail lending facilities beyond practical means. This creates unnecessary financial burdens in the form of rising monthly payments and overwhelming markup amounts. It further hinders an individual from applying for any necessary loan facility as his debt-burden ratio exceeds the applicable levels by any banking institution. An optimized debt burden ratio should therefore be maintained to secure approvals for all potential loans and future financings.


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