Before you head out straight into applying bank loans, there are few checks you must make to ensure high chances of approval. I previously had the chance to have a conversation with a banker who now becomes a businessman and he shared something incredible. You might be wondering “how do I know what to check?” or “how would I know my chances of getting approved?” – well good thing is it is not rocket science. Here are the 4 major checklist you have to follow through.
1. Application Score
In the old days you will normally have to meetup face to face with bankers at the banks. Banks no longer have to see you or you seeing them which may cause biased loan approvals. But things changed, banks have a system these days to screen your loan application. The system is like a score engine that sees through your profile demography such as, your:
- place of work
- home address
- work experience
However, a brilliant tip to get your loan approved is to change your home address. Change my address?! When I say change your address does not mean you have to move to a new home or change your address in your personal ID – it simply means using your parents’, siblings, or spouses home address when you apply your loans in the bank form. Why is this important? Believe it or not banks will also assess your financial strength by the place you stay. In Malaysia, places like Bangsar or Central Kuala Lumpur are expensive places. Banks may fare better for people who stayed in Bangsar compared to those who stayed in a lesser developed area. Bank’s logic is that when you stayed in developed areas means you can afford the lifestyle there which also reflect your financial strength. However, this all depends on where you buy your house, you may get a better approval chance if you buy a house in less developed areas if you stay in there – just try your luck, we’ll never know.
2. Banks Will Assess Your Income Level
This is important because the bank would like to see how much you are earning which also determine your loan payment capabilities. If you don’t meet the banks’ income criteria then you will be rejected – as upset as it sounds. Another good advice is to choose the right bank! What do you mean choosing the right bank? It simply means you will have to ask the magic question to banks, “how much percentage of my income do you recognize to process my loan? “. That’s right! Some banks only recognize 70% of your income instead of 100% for your application. Let’s say your salary per month is RM 3000, if the bank only recognize 70%, that means you are applying your loan for RM 2,100. If a RM 3000 can get you a RM 160,000 worth of property, you might need to rethink your decisions if the bank allows only 70% of the total RM 3,000. The key take away is to ensure that you ask the banks how much percentage of interest do they recognize on customers’ loan applications.
3. Credit Score Report – CCRIS
When it comes to your credit report which have all information regarding your credit score, banks will know everything which in this case recorded in the, “Central Credit Reference Information System (CCRIS)”. CCRIS knows all about your credit facilities such as PTPTN, car loan, home loans and whether or not you are a good customer – a good customer would mean a good payer from bank’s perspective.
If you are a credit card user, you may wonder, “how am I to know if my credit score is good?”. just make sure not to use more than 50% of your credit limit – as simple as that – well, theoretically. But you may also wonder, “what if my credit score is clean? like a piece of white sheet with stains on it” – that won’t be good as well because banks cannot judge your financial behavior such as your spending patterns or how well are you committed to paying any financial commitments. A good tip is to take up an ASNB loan which has a compounding effect in it since it does not disrupt any of your CCRIS. Not only will it help you saves money, it will also grow while you sleep! you have nothing to lose. However, try minimize using unsecured loans such as credit cards – why do I say this? Banks will think that you are a “credit hungry” person or you don’t have much cash with you when you use or apply many credit cards and this gets worst if you don’t pay on time.
and last but not least….
4. Monitor your Debt to Asset Ratio (DSR)
Let’s say you run short on cash that month but you still swipe your credit card for few non-needful items just because it has huge discounts – Oh man, I haven’t paid my credit cards yet this month! Worst, the bank called you and ask for your payments and it has going like this for few months. Chances are, your DSR is already quite critical because you find it hard to pay your own commitments or are poorly managing your finances which may need your financials restructure.
The standard DSR formula is “all your commitments + any new loan application (in RM) divide by your net income (after tax and EPF deductions)”. Different banks have different DSR acceptance rates. Some banks will approve people with DSR maximum of 60% while some banks prefer 45% (which is quite a good percentage). This apply same to applying housing loans, have read on 4 Great Tips For Getting your Loan Approved !
All and all, my advice is to bite what you can chew – don’t take loans with commitments higher than what you think you can pay. Settle for things you can afford so long as you can have a peace of mind. You are not enjoying life if you get financial headaches to maintain your big houses or great cars – the important thing in life is to be happy and to always know that you have extra money to live off comfortably at the end of the month or as I call it “financial abundance”.