Thursday, 21 July 2016

Six things about Home Loan Tax incentives you didn't know

Irrespective of how much one earns one is always on the lookout of legitimate ways to save tax and this is true not only in our country but worldwide barring a few countries that have do not levy any income tax on their population. So if you have a home loan, there are numerous options available to you under the IT act that can help you save tax. There might be a few things about these sections that you might not be aware of; the discussion below focuses on six such aspects.

1.       The New Budget Allows You to Save Extra 50000!
As per the new provisions announced in the current budget additional rebate of Rs. 50000/annum on interest is available subject to certain conditions. This deduction is available for loans sanctioned in the coming financial year provided the value of the house is less than Rs. 50, 00,000 and the house loan amount does not exceed Rs. 35, 00,000. Thus first time buyers can now claim a total deduction on interest up to Rs. 250,000; this is Rs. 200,000 under section 24(b) and the additional 50,000 under section 80EE.
2.       Deduction on Interest is Available on Accrual Basis:
Interest calculation can be done either on paid basis or accrual basis. Paid means when it is actually paid while accrual is when it is due whether paid or not. Deduction on interest allowed u/s 24 is available on accrual basis; this means even if the borrower has missed paying one or more EMIs he/she can still claim the full deduction for the entire financial year as the interest was due, even if it were not paid on the said date. While not paying on time could put you on the loan defaulter list, it will not impact your tax deduction.
3.       You Need to be a Co-Borrower and a Co-owner as well to Claim Tax Deductions:
A joint home loan offers many benefits; enhanced loan eligibility and bigger tax break are two major ones. However if all applicants need to claim tax benefits then they need to be co-borrowers and well as co-owners. If only one person is paying the EMI then the other person despite being a co-owner cannot claim tax benefit. Similarly if the person sharing the EMI burden is not a co-owner then also he/she is not eligible to claim the tax benefits. The EMI sharing ratio decides the proportion in which tax deduction is available to the co-borrowers.
4.       Deduction Can Be Reversed!
If the property for which deduction under Section 80C towards principal repayment is claimed is sold before five years then the entire deduction claimed under the said section is reversed. This reversed amount is then added to the income for the year in which the property is sold. The silver lining here is that the rule does not apply to the deductions claimed for interest payment and generally in the initial years the EMIs bear a bigger interest component which is not reversed.
5.       Loans from Individuals also Eligible for Tax Breaks:
If for some reason like a low CIBIL Rating or lack of documentation one chooses to borrow from friends or relatives rather than the organized financial sector, then also tax deduction is available. Deduction u/s 24 towards interest repayment can be claimed provided the loan is taken for the purchase or construction of a house or a property. The interest rates applicable should be reasonable and a legal certificate needs to be provided by the lender to claim the deduction. The benefit allowed for tax deduction under the sections 80C and 80EE is not available if the borrower chooses to borrow from an individual.
6.       Other Charges are also Tax Deductible:
Apart from the principal repayment and interest other charges paid during the loan process can also be claimed for tax purpose. Thus charges like processing fee can also be claimed under Section 24 which also allows for claiming deduction for the interest paid on the loan. This is so because the processing which is paid for the service provided by the bank when processing the loan is treated as interest as per the definition in the IT Act.

The tax laws keep getting updated so it is important to keep yourself up to speed on them. Hopefully the above aspects can help you save a more tax on your house loan payments. 

Wednesday, 13 July 2016

How An Identity Fraud Can Ruin Your Cibil Score?

Identity fraud is always ravaging. The impostor not only steals away your personal information but casts a dark cloud of uncertain financial crisis for your future. And you are left with the list of unpaid credit bills and loans that were never drawn by you. The CIBIL Score bleeds out and the hope to enliven financial health is minimal.

Here is a guide on how an identity fraud can ruin your CIBIL Score and what are the best possible ways to protect yourself against such financial catastrophe?

Dangers of Identity Fraud
First of all, the impostor would use your personal details to make enquiries for loan and credit cards. Every time a new query is made to the bank, it will be reported to CIBIL. This will increase the number of hard enquires on your Credit Information Report. Multiple hard queries would affect the score badly.

As the scammer would succeed in opening a new account on your name, it will again add an account in your CIR. Next, due to non-payment the balance on your name would rise and hurt the score. Just a single month of delinquency can severely impact and result in a drop in CIBIL score.

The imposter can simply change the address and contact number to deceive you for longer period of time. By changing contact details, you would realise only after too much of loss is already incurred.

Not to forget credit cards here. These are even easier to misuse. If you have a really good CIBIL score, the impostor can easily apply for fresh credit cards such as instant approval credit cards on your name and keep on increasing dues for you.

As, they already have access to your other credit cards, they can misuse those as well. So not only your bills would skyrocket but your credit utilization ratio would also take a leap. The score thus is bound to hit the rock bottom levels due to following points:

1.            unpaid new debts
2.            increase in debt to income ratio
3.            increase in credit utilization ratio
4.            frequent enquires for fresh credit

All the factors collectively can ruin the score to irreparable levels.

Watch out credit report!
As prevention is always considered better than cure, you should always monitor your credit report thoroughly many times in a year. When you are alert, no impostor can ruin your financial health. Never ignore an unidentified action on your report- be it a query of a bank or an update in your personal data. Always notify CIBIL if you identify any unknown activity on your report.

Besides the report, you should personally be shrewd enough to not handle your documents to anyone without a strong reason. It is better to write the purpose of document while sharing there itself. Similarly ask for your documents back whenever the purpose is not resolved. Do not leave a copy of documents with anyone.

In fact do not share confidential information such as credit card numbers and other personal ID details on phone or chat windows. While submitting data online, check the authenticity of the website. Read the privacy policy to ensure that your data is not shared with the other parties.

It is also wise to keep photocopies of your cards with you so that you can block it anytime.

When you find traces of identity fraud
Whenever you discover an unidentified action in your report you should inform your bank and CIBIL about it. If the damage is yet to happen, you would save a real time financial crisis in your life.  However, in case of the mishap, you can only rely on the bank to help you track the credit transactions.

You should also contact the local police station in person and get the case filed. The cyber-crime team with the help of information provided by bank may solve the case for you.

You would also need to raise a CIBIL dispute so as to block your account for further damage. The damage caused by identity theft is not limited to one area. You would need to clear out all the disputes related to credit cards, loans and queries separately.

The process is lengthy and would take much of your hard work and time. You may also consider professional services to mend the credit history loss.

Thursday, 7 July 2016

Relationship between CIBIL scores and loans

Loans are heavily dependent on CIBIL score. In fact, CIBIL score is the financial baggage, which always tags along with loans.

CIBIL score is a crucial and vital element for loans. It is why one faces rejection of loan for low CIBIL score. Most people are not even aware of their CIBIL score or something called as the “CIBIL score” until they face of rejection of loans for bad credit score. Loans and credit score is interlinked. One’s chances of getting a loan are directly proportional to his or her credit score. The lower the score, more probability of rejection of loan for low CIBIL score. The higher the score, the lesser the probabilities of rejection of loans for bad credit score.

The actual procedure:

Loan borrowing sounds simple. The procedure is indeed a cakewalk if you have done all the things right. An individual fills a loan application form for a desired bank. He hands over the form to the bank. The person’s bank inquires for the person’s credit report and score, and thus the tough part begins. If the person is eligible to receive a loan and he has a good credit score; the bank approves his loan application. On the other hand, if a person is eligible to get a loan but he has a bad credit score, then the bank will reject that person’s loan for low CIBIL score.

The lender’s point of view:

It is easy and illogical to blame lenders for rejecting loans for bad credit score. We all are aware but tend to overlook the fact that lenders are those wishful thinkers who really want people to take their loans. The reason why lenders sell loans to people is that they make money from the rate of interest one incurs. However, while evaluating loan applications, a lender likes to make sure that he is lending money to a responsible individual, someone who will be able to repay the same along with the defined interest. Nobody likes complicated things, not even lenders. The process is simple: Take the loan today and return it along with the interest tomorrow. Nobody wants to go running behind anyone or knocking people’s doors asking for money.

When banks approve people’s loan applications, they necessarily look for five things in the person’s credit report.

1.     Their Company Profile: Banks have a pre- approved list as to who is eligible for the loan and the credit card depending on their company profile. In case your profile in their list of the chosen profiles; your application will be approved.

2.     The Account Status Section – The account status section is of prime importance. It indicates any suits filed or any written off cases. This might affect your chances and this might be another reason for rejection apart from rejection of loans for bad credit score.

3.     Repayment Trend: One’s repayment trend is captured in their credit report. In case one has defaulted in his past, then that record will be evident in the 'Days Past Due' [DPD] field. This might be another reason for rejection apart from rejection of loan for bad credit score.

4.     Credit Score: It is noted and known that 79 percent loans are sanctioned to people with a CIBIL score greater than 750. It is crucial that one maintains a good credit score. Otherwise, they can face refusal of loan for low CIBIL score. One can always follow certain techniques and methods to improve their score. They can also take help from credit repair companies like Credit Sudhaar, who offer a plethora of services like credit health check up, score improvement module and free loan assistance and helps in preventing refusal of loan for low CIBIL score.

5.     EMI to Income ratio: This is simply the ratio of your EMI to your income.

 If (EMI/ Income ratio) < 50 percent, you have good chances of getting your loan approved. Otherwise, more chances of getting your loan rejected.

To make the logic simpler, let us understand the same with two examples.

1.     Imagine you have an income of Rs 50000. As per rule of thumb EMI to income ratio, your total borrowing capacity is only 50 percent of your salary. Lenders assume that you will require 50 percent of your salary to pay your living expenses. So, your total borrowing capacity in this case is 25000. Now, banks check for incremental EMI, which is borrowing capacity minus the EMI. Suppose your EMI amount is 10000. Thus, incremental EMI is 25000 – 10000 = 15000. Based on this, a total loan of 15,00,000 may be allocated to the person at the rate of 10 percent for 20 years. This application is likely to get accepted.

2.     Similarly, imagine a person with a salary of Rs 100000. As per rule of thumb EMI to income ratio, his total borrowing capacity is 50000. Now suppose the EMI amount is 50000. So the incremental EMI will be borrowing capacity minus the EMI = 50000 – 50000 = 0. Based on this figure, no loan can be sanctioned to the person. This kind of an application will most probably get rejected for a reason not equivalent to rejection of loan for low CIBIL score.

Yes, loans are heavily dependent on CIBIL score. And hence, it is significant that we maintain a healthy credit score. After all, when we apply for loan, we expect to receive “a loan” instead of being left “a lone” with nothing in hand.

Thursday, 30 June 2016

Know the classification of debts

Debt, in simple words, is the money that you owe to an individual, financial institution etc. There are different kinds of debt and not all debts are the same. The most common kinds of debt include home loan, credit card debt, education loan and car loan. Debt is used by people for making big purchases which they may not be able to afford under normal circumstances. Lending institutions expect borrowers to repay back the borrowed sum by a certain period of time, along with interest. Different creditors use different means of getting their money back. Hence, it is important to understand the terms and conditions as well as the power a creditor holds.

Debts can be classified into secured and unsecured. Secured debt is a debt that is secured by a collateral, such as a home loan or a car loan. This kind of debt brings down the risk that is associated with lending. The lender has every right to take over your collateral, such as your home or car, if you fail to repay back the loan. You will never become the full owner of the asset tied to the secured debt until you have managed to repay back the loan. It is important to remember that home and car loan aren’t the only kind of secured debts. Secured credit card is also a form of secured debt. A secured credit card is a kind of credit card where your savings account will serve as a collateral on the credit available. There are a number of different issuers in the market offering secured card to clients. Most of the people opting for a secured credit card are doing so as they believe it is one of the answers to how to improve CIBIL score. If you are looking at different ways on how to improve CIBIL score, getting a secured credit card may be a good option.
Unsecured debt is a debt that has been extended to a borrower without a collateral. Credit card debts (excluding secured credit card) tend to fall under this category. If you have opted for an unsecured debt, your property cannot be taken away if you are unable to repay back the money. However, financial institutions may take other actions against you for failure to repay back the loaned sum. They can either take you to court or hire a debt collector, who may force you into paying back the money. They will also report you to the credit bureau so that the delinquent payment status will be shown on your CIBIL report.

Debts can also be classified depending on the time period for which money is borrowed - short term, medium term and long term. A short term debt is one that has to be repaid within three to nine months from the date of borrowing. Intermediate or medium term debts are those that have to be repaid in five years or so; and long term debts are those that may be taken for ten years or more and is used to meet the long term needs. Debts can also be differentiated depending on how you decide to pay every month - revolving or instalment. Under the instalment debt, you would have to pay a fixed amount each month eg. home loan. A revolving debt, on the hand, does not have a fixed monthly payment. Credit card debts are the most common kind of revolving debts.

The manner in which you handle your debts, play a big role in building your credit image among the financial institutions. Making timely repayments is one of the solutions to how to improve CIBIL score. It is of utmost importance that you pay all your outstanding dues and have nothing left pending. Avoid missing any payments as these get listed on your credit report. Also, balancing out your debt portfolio is another way on how to improve CIBIL score. If you must keep unsecured debt, try and maintain it at 20% and the rest 80% in secured debt. Lastly, if you have several debts try and consolidate them. This helps to keep track of the payments, thereby bringing down the chances of missing any. Now that we have looked at the different ways on how to improve CIBIL score, it is important to put them into practice at the earliest. Remember, the way in which you manage your debts speak a lot about well you can handle finances. It is one of the first things creditors want to learn about you. So make it a good one!

Thursday, 23 June 2016

Understand Your Credit Report Can Help Raise Your Credit Score?

It is very important to understand your credit report when you wish to have a good score and enjoy credit facilities offered by modern banking system. To maintain a good credit score is not a rocket science but requires financial diligence and discipline. You need to have a good credit history of paying out your loans and bills on time on the credit information report (CIR). Let’s understand in detail how knowing your credit report helps you raise your score.
Your credit report contains detailed information of your credit accounts. It does not contain anything regarding your savings and investments. All secured loans and unsecured loans such as home loan, auto loan, credit cards, personal loans and overdraft facilities are reported in the CIR. You can access your report online using CIBIL consumer login.
A typical credit report has following sections:
1. Credit Score
This section shows your credit score. For example your CIBIL Transunion Score would range anywhere from 300 to 900. Score above 700 is considered good. About 80 per cent of people with such good score tend to get their loan application approved. The credit history of your loan accounts and enquires would basically drive the score calculation.
2. Personal Information
This part has your personal information like name, birth date, gender and ID numbers- PAN, passport and voter ID number.
3. Contact Information
Here, contact information including up to 4 addresses and telephone numbers are mentioned.
4. Employment Information
This section mentions your income as reported by banks. When you apply for loan you share your income details and the member banks report that data to CIBIL and other bureaus every month.
5. Account Information
This section shares vital information regarding the credit accounts on your name. It details about names of banks and financial institutions, types of loan (such as auto, personal or higher education loan) and credit facilities used by you. The account and ownership detail including account numbers, date of opening, date of last payment, credit amount, current balance and monthly payment record for 3 years are precisely mentioned here.
6. Enquiry Information
Your report also shows enquiries made by banks when you apply for loan or credit card. The credit history with too many enquiries show that you need funds desperately and marks a bad flag.
Knowing your report by heart basically helps you assess your current credit worthiness. You get to know your current balance, what you can currently afford to pay back and how much credit you can apply for, all at one place. Practically acknowledging your current financial status you can definitely work to improve credits core.
It would be righteous to say here that your credit report helps you repair the credit score. As credit history reported on credit report holds importance so does its correctness. Without checking your report, you cannot figure out errors, if any emerge on your report. If there are errors in your current account balance or repayment history it would directly stumble upon the score. The credit score would fall without your knowledge.
Although CIBIL allows you to start a process to dispute the error to the concerned bank and as the error is corrected and reported to the credit agency the score improves. The process however may take more than a month’s time. Watch out for following common errors on the report:
1.       Computer errors regarding personal information, contact information and employment details. These need to be corrected for validating your identity.
2.       Errors on account details should be immediately reported to the bank. This may adversely affect your entire history.
3.       Unknown enquiries if spotted on the report shouldn’t be ignored at any cost. This could be a warning sign as someone else might be misusing your personal information to draw credit. You need to report it as soon as possible and stop the call and identity theft attempt.
4.       These can certainly hamper the growth of your score.

Thus it is advisable to check credit report several times a year. By checking your report you ensure that there are no errors pertaining to your personal information or account information. Also, knowing your report, you basically know your credit score and credit worthiness. All in all, knowing your report is the first step to raise the score.

Thursday, 16 June 2016

Common Credit Mistakes by the Common Man

“Common Man”, or the idiomatic “Aam Admi”, does not refer to a gender but to a socio economically average person who is also a hard working tax payer and is generally considered gullible. His dreams of the future are better than the history of the past. What would such a person want? Perhaps lower taxes, better education, better healthcare and a peaceful family life. Since, “getting loans at low rates of interest” does not ordinarily feature on a “Common Man’s” list therefore he is bound to be negligent towards his CIBIL score. Such a mistake can cost him time, effort and a great deal of money.

Here is a list of some common mistakes that people make without realising its impact on their credit score. Avoiding these mistakes can help your score stay in a favourable zone and help you stay out of any credit related anxiety.
1.       A wallet bursting with credit cards – There may be no real need for it yet sometimes we apply for credit card because we are attracted to the various offers and end up signing for more cards than we need. Firstly, these cards may come at an annual charge of which you may not be aware. Secondly, having too many cards can affect your CIBIL report poorly. When a banker reviews it, he or she is likely is to assume that the person under review has an insatiable appetite for credit. Do note neither the credit report will justify nor the bankers will seek any clarification on why you have so many cards with you? A lender will simply reject your loan application for having irresponsible credit behaviour.

2.       Shutting down old credit cards – Now that you know too many cards could be a problem, rushing to shut them down can pose another. It’s best to not sign up for credit excessively. But now that you have, cut down on your cards at intervals. Begin with the most recent ones as they will have the least negative impact on your score. It is a common tendency for people to get rid of their old cards. Well, that is a big no! When you shut down an old card you also shut down the good old credit history. All of its credentials will be removed from the report.

Your credit utilization rate is also affected with every cancelled credit card.  Utilization rate is the percentage of credit used vis-à-vis the total available credit limit across all credit facilities. For example, if you have used only Rs. 10, 000/- out of a limit of Rs. 1, 00, 000/- it means your utilization ratio is only 10%. Whereas, if you have used Rs. 10, 000/- out of a credit limit of Rs. 50, 000/- then your utilization rate goes up to 20%. Though your usage has remained constant the impact on your utilization rate is due to the drop in available credit limit. Either ways, a higher utilization rate means lower credit score.

3.       Guaranteeing loans or becoming a co-applicant to help a family member or friend – Remember, lenders ask for a co-signee or a guarantor only for those borrowers who have a risky profile and are not eligible for loan otherwise. By standing in as a guarantor you may have helped someone else wriggle out of a tight spot but it means now the loan repayment is as much your responsibility as it is of the primary borrower. All these details will be recorded in your credit report and any missed or delayed payments will have an equal negative impact on your score. This also adds up to your credit exposure. So be doubly sure before you sign on that dotted line.

4.       Building a debt pile – A habit of charging without restraint and maxing out your cards can lead you to drown under a pile of unmanageable debt. This means you should be sure of what you want to purchase and have a plan on how you will repay your advances, only then you must use credit to make payments. Another sure shot way of building up a cliff of debt is to make only minimum payments due at the end of every credit cycle. This means, that all roll over balances will attract a high interest rate and cast an exponential effect on your outstanding bill amount. Also, avoid constantly seeking low interest rate balance transfer to make existing payments.

5.       Being indifferent towards delayed or missed payments – This certainly has the most devastating effects on anyone’s credit. A delayed payment implies you do not have enough resources to fulfil your financial commitments on time. It not only leads to a declining score but also makes you seem to be hard pressed for cash and being irresponsible with credit. No lender would ever want to partner with such a person.

6.       Not using credit even though you have access to it – This is one damaging factor. Any credit score has to be calculated upon your good or bad credit history. If there is no history of credit usage, there will be no score for you. Not having a score means, a prospective lender will not be able to make any judgements about your credit behaviour and thus may not extend any credit to you. So, make a charge every month, for example: let your mobile phone bill be paid through your credit card and be sure to pay it back on time and in full. This way you will be able to maintain a healthy and positive credit score.

7.       Not checking credit report – Experts have asserted that you must check your CIBIL report atleast once a year to be sure that all information provided is accurate. Also, you can look out for red flags such as unauthorised enquiries on your report or an unidentified loan account in your name. This could indicate a case of identity theft. You must immediately raise a CIBIL dispute to highlight it and get it resolved. If the case is resolved in your favour then it can help your score to escalate some points.

Money makes the world go round. But in today’s world, its credit that makes the world go round. For not just a credit card, but even buying a house, a car, completing an education etc. You need credit to meet any of these financial goals. Since credit is of critical essence in fulfilling your worldly desires, it is only common sense to look after all things related to it like, your credit score. Be conscientious & fulfil your financial commitments in a timely fashion, check your report regularly, make conscious efforts to maintain a high score & don’t go for irrational credit shopping.
Happy Credit to youJ

Friday, 10 June 2016

7 Reasons when you may require to take loans

Easy availability of credit helps you improve life. You can practically buy you dreams with available funds. You can support your education, start a business, build a home, plan special life events such as marriage and travel across the world! There is nothing that you cannot get a loan for. Here is a list top 7 reasons for getting loan.

1.       To Buy Your Dream Home
Whether you want to buy a new home or get a renovation done for your existing abode, you have ample choices to bring forth the credit. Home loans are one of the most popular credit products available. For all kinds of needs pertaining to your home, credit is available. Besides regular home loan to facilitate buying of a residential property, you can draw special loans for repairs, loans for extension, top up loans, EMD, reverse mortgage loan as well as loan against a property.

With plenty of offers on interest rates and affordable EMI plans, most people seek home loans when buying a property. However it is important to keep CIBIL score calculation in mind before you apply for a home loan.

2.       To Drive a Luxury Car
Auto loans are always in demand. These are usually secured loans, available till 100 % finance with very attractive car loan rates and payment options. In case of default the vehicle acts as a collateral and can be seized by the bank. Whether you want a new car, or a second hand one you can easily get credit to make the purchase. Besides you can also get loan against car.

3.       To Meet All Kinds Of ‘Personal’ Needs
Personal loan can meet maximum needs of a borrower. You can travel, throw a party, indulge in luxury or meet an emergency expense, using with this fund. There is no check, whatsoever on the usage of personal loan. It is an unsecured loan where your credit history plays a very crucial role otherwise a very high interest rate is levied on loans for bad credit score. If you need a loan for short term with minimum documentation, personal loan is the choice for you.

4.       To Add Wings for Success With Education Loan
Education loan is like a silver spoon in the mouth of the one who lacks funds for pursuing higher studies. You can fund your entire fees as well as related expenses via education loans. This future investment is available at 100% financing, attractive interest rates for the best of universities and institutions with the least documentation and processing issues. More offers are available with co-applicants and collateral. The repayment is usually started after the completion of the study program.
5.       To Start Or Grow Business
If you want to start a small business or expand your existing venture, look no further and apply for business loan. It is an unsecured loan and available in a very wide variety. Your credit history will predominantly define the terms of your business loan. Special deals are available for premium customers.

6.       To Buy Electronics, Gadgets And More
Name it and you have it! Yes, you can get loan to meet practically all of your needs. From LED TV to refrigerator, to washing machine to laptop, from air-conditioners to mobile phones, tablets and camera, you can buy all this and more with the help of a consumer good loan. Many of these products come with 100 % financing options and easy EMI offers. Truly speaking credit improves the way you live today.

7.       To Shop And Hop!
Spending plastic money is a total fad these days. Whether you want to shop for your favourite brands of clothing, jewellery or shoes; or for that matter, pay for a meal outside and/or at gas station, just pay with your credit card. At the end of the month you just require to pay the bill with processing charges. However plenty of benefits such as cash backs and discounts are offered on card buying. So you need not carry cash to buy. You can borrow instantly via your credit card for your purchases.

The list of reasons for building credit can continue forever. Banks and financial institutions offer all kinds of loans for different needs. All you need to do is, clearly know your needs and choose the right option. It is equally important to plan repayment at the same time.