Posted September. 26, 2005 06:15,
Lee works for a small company, and Kim Ki-ju (assumed name, 34) is employed by KT, a large company in Korea. Dong-A Ilbo asked the two to visit eight different commercial banks and apply for a loan.
It turned out that Lee was not allowed to take out a loan at many of the eight banks. Even if the application was granted, the terms of the loan contract differed greatly from bank to bank.
Some banks even put people at a disadvantage out of concerns over creditworthiness when they try to compare terms of a loan.
Who Are Qualified and Who Are Not Qualified for a Loan?
Kims annual salary is 50 million won. Kim has borrowed 20 million won based on his own creditworthiness and 25 million won with someone consigning his loan.
Lees annual salary is 20 million won. Once he paid for his credit card bill of 300,000 won 15 days behind the due date. But he is not in debt. Lees company has a good reputation in the public relations field, posting annual sales of six billion won.
Yet, only three out of the eight banks were willing to grant Lee a loan. Itll be better for you to go to the bank you have an account where your salary is transferred into, bank tellers told her. But it did not take long for her to realize that what they were actually saying was your company is not large enough to be trusted.
Your working experience does not meet our requirements; You are not married; and even You are not qualified because you are female, are some of the things said to Lee.
Even when some of the banks approved a loan to her, the terms of the contract were not that favorable. The ceiling of an offered loan was five million won with interest rates widely ranging from seven to 22.8 percent a year.
For Kim, things looked better. Woori and Chohung Bank denied a new loan because they are already burdened by outstanding loans. But six others said they would lend him 20 to 40 million won at an interest rate of 5.67 to 11.45 percent a year.
I had no idea your company is such an important element when you need to borrow money, Kim said.
Is Your Company the Only Determinant in the Loan Screening Process?
Two important factors determine whether or not you will be granted a loan: the company you work for and your annual salary. If you fall short on these two qualifications, you are likely to be told, Visit the bank you have an account at.
Your personal assets and financial record are not high on the list of important qualifications for a loan at banks.
When banks mention the bank you have an account at, what they really mean is you are not qualified for a loan. If a person were able to borrow from the bank he has an account at, why would he go anywhere else? asked a bank official.
Banks keep databases of thousands of businesses. If a loan applicants company is not part of the database, he/she is likely to be denied a loan. Even if a loan were granted, the upper limit would be low.
But, in some ways, it is reasonable to visit the bank you have an account at.
Banks give each customer merit based on a monthly average of the balance in your account. For example, 100 points are given for every average of 500,000 won. Then, 200 points are given for one million won. Accumulated merit points might allow even those who are otherwise unqualified to receive a loan to borrow some money, however small amount that might be.
Does Asking Questions about the Terms of a Loan Contract Work against Loan Applicants?
For Kim, it was Hana Bank that offered the most favorable terms. Not long ago, he applied for a loan there and received a preposterous response. The bank raised interest rates by 0.4 percent.
The response was: If a person visits multiple banks and asks questions about the terms of a loan contract, he might not be a fully qualified customer in our judgment. By this reply, the bank implies that going to several banks and asking questions just as one would to shop for other goods and services will not work. Shopping is certainly not for borrowing.
Every bank offers something different. Are they saying that I am not even allowed to ask questions, but will be penalized by them if I dont apply for a loan from the first bank I go to? said Kim infuriated.
Many are justly infuriated over such a practice. But thats because the credit management systems of banks assume only typical cases and make standardized decisions, explained Lim Jong-oh, who heads the Loan Center at Hana Bank.
One may be discriminated against for other reasons, too, when it comes to loans.
If you had borrowed cash with credit cards or consigned loans for others, these would be also minuses. However small the amount, if you had your property seized due to long overdue traffic tickets or other unpaid bills, taking out a loan is hardly possible or interest rates would shoot up.