Thursday, 15 November 2018

Don’t ignore 5 things while using Credit Cards

Credit cards are a blessing in today’s time as they help in managing our finances in a much better way. But one needs to manage this tool carefully in order to prevent sinking into a deb trap. Good credit behaviour and avoiding mistakes is necessary to ensure that the credit card helps us in improving our credit score. A good score goes a long way in establishing our credibility. It makes it easy for us to borrow money in future. Here are 5 things that one must not ignore while using the credit cards.
Don’t carry a balance on the card
The card issuer requires you to pay only minimum monthly balance on the card bill every month. It is usually only 5% of the bill amount. But one should not resort to this practice. The longer you take to clear you dues, the more interest you will have to pay on it. Since the credit card interest rates are very high, carrying a balance will soon put you in a debt trap. The interest amount will keep piling up and soon become more than the actual principal amount. If you simultaneously make new purchases the next month then things will get out of control. Hence one should charge only those expenses to the card that one is able to pay at the end of the month. Do not buy items that you won’t buy normally if you had only cash to spend. It is always better to plan out a budget and stick to it, so that you don’t tend to overspend using your credit card.
Don’t miss your payment
Staying current on your payments is of utmost important if you wish to maintain a good CIBIL score. Payment history accounts for 35% of the credit score. Missing payments not only attracts a late payment fee but is also responsible for a low CIBIL score. The late payment record stays on your report for seven years. If you tend to forget the due dates, then the best way to stay on top of payments is to either use Google Calendar or just use automatic payments. If you are unable to pay the entire balance, it is better to pay at least the minimum due amount, than skipping the payment entirely. If you find yourself in a financial crisis then do not ignore your bills completely. The interest will keep piling up and soon become unmanageable. It is better to talk to the credit card issuer to renegotiate the terms. You may try to negotiate a deal and come out with a payment plan that would allow you to pay your dues.
Don’t over utilize your credit limit
Paying the credit card balances in full each month does not guarantee a good CIBIL score. 30% of the score is also based on the credit utilization factor. It is calculated by dividing the amount of credit utilized with the total available credit limit. One must not exceed 20% to 30% of the limit in order to keep the credit score in good shape. A person who is in a habit of maxing out credit cards every month will have a very high credit utilization ratio.

Don’t close old credit cards
The longer the credit history, the better it is for your score. Old credit cards help in increasing the average age of your accounts and hence help in improving your score. So do not close your old credit card even if you are not using them anymore. The credit limit available on these cards help in improving your credit utilization ratio.
Don’t ignore your credit card statements
One must carefully review the credit card statements every month to check and verify the transactions. Any charges that you do not recognize should be dealt with immediately. A monthly review helps in uncovering identity theft cases. Apart from this, the card holders must also review the credit report regularly to see how their credit card usage behaviour is affecting their credit score.
If you take care of the above 5 things, you will be on the right path to ensure that your credit card usage affects your score positively.

Monday, 5 November 2018

How to deal with increase in home loan interest rates?

A home loan is a long term financial commitment as its tenure extends from 10 to 25 years. There are a lot of external factors like inflation, crude oil prices, rupee value and global economic condition that affect the rate of interests. If you have a home loan in your portfolio and if you have chosen a floating interest rate then these external factors will have an indirect effect on your personal finances.
If RBI decides to hike the rates and the bank with which you have a loan decides to pass on the hike to its existing customers then you need to devise a strategy to deal with this change. There are several ways in which you can deal with the impact of rise in the interest rates.
Increase the EMI amount- Home loans EMIs usually take up a substantial percentage of a family budget. A hike in the interest rate will change the total cost of the loan. Instead of extending the loan tenure if you can accommodate an extra amount in the budget (without affecting your other financial goals), then it is a good decision to increase the EMI amount that you pay every month. Sometimes it is much better to increase the EMI amount than to invest your savings. If the rate of interest you are paying on home loan is higher than what you would get as return on investing the savings, then increasing the EMI amount is a better option.
Increase the tenure- There may be situations where you do not feel that you can budget an extra amount of EMI. In those cases increasing the tenure of the loan, while keeping the EMI amount same can be the only option. However, if you do so, the cost of the loan in the form of interest outgo increases.
Balance transfer- Another way of dealing with the situation is to shift to a different lender who is charging a lower rate of interest. Tell your existing lender about your intentions. Most banks do not wish to lose their old customers, and try to accommodate their requirements in order to retain them in this cut throat competition. If you have paid attention to the factors that affect CIBIL score calculation, then you will have a high credit score. Use this weapon and try to negotiate with them so as to avoid the hassle involved in switching to another bank. If you do plan to switch you must first compare the cost involved with the savings that you will derive, to understand whether it is wise to do so or not.
Partial prepayment of loan – If one has some surplus funds or if one is expecting a bonus in the near future, then those can be used to make a partial pre-payment of home loan. If there is no prepayment penalty, it is a good way to bring down the principal outstanding amount. If the borrower keeps the EMI amount same, then prepayments will help him in servicing the loan faster than the agreed upon tenure. It will also reduce the overall cost of the loan. Prepayments however should not be done at the cost of saving for emergencies. One must not sacrifice the corpus created to meet short term goals, otherwise one would need to take loans at a high rate of interest in order to meet them.
Switch to fixed rate home loan- A fixed interest rate definitely provides more stability to your financial life. If adjustments to floating interest changes are difficult for you to handle, you may think of switching to a fixed rate home loan. You can explore this option depending upon the outstanding loan amount and remaining tenure of loan that you have. But remember fixed rate is usually higher than the current floating rate, so you will need to do a cost benefit analysis to decide whether it is really in your interest to make a switch. If you are close to final repayment date, then it may not be justified to make the switch.
Before deciding on a particular strategy analyse every aspect of your financial portfolio. You should adopt the measure that best suits your budget and financial situation. Remember, you do not want to get into additional debts at a higher rate of interest, just to save on interest cost of home loan.

Saturday, 20 October 2018

4 quick tips to manage your personal loan EMI better

Not all financial needs can be met through savings. Personal loans help people survive tough times and help in getting the funds that they need to meet their immediate cash requirements. You can depend on these loans for your child’s education, marriage, medical expenses or any other purpose. But taking a loan puts a responsibility on the borrower, that he needs to repay the loan amount through fixed monthly instalments. The borrower needs to make sure that he makes the payment on time. Failing to do so will not only attract penalties but also affect ones credit score negatively. Here are some tips that will help people manage the personal loans EMI in a better way.

Pre research

If you spend a little time in researching and comparing the various options of personal loans that are available to you, then this effort can go a long way in helping you manage your EMIs. Check and compare the personal loan interest rates offered by various banks, NBFCs as well as private lenders. Do not just go with the first personal loan offer that you receive. Even the bank with which you have a prior relationship may not offer you the best deal. So do your due diligence and find out the best available loan offer. You need not go physically to each bank to talk to the officials. Use the Internet to compare the different options that you have, and select the one that suits your needs. Since the interest rate is directly proportional to the EMI amount, a lower interest rate translates into a smaller EMI amount. So be a smart borrower and choose your option wisely. If you manage to get the loan at a comparatively lower rate, the EMI burden on the income will be less.

Pay attention to credit score

This tip also requires efforts prior to taking the loan. As you have seen above, managing EMI becomes easier when the interest rate charged on the loan is low. A good CIBIL score helps you achieve just that. A CIBIL score reflects how well a person has handled his past debt obligations. A high score reduces the risk that the lenders face while lending money. It helps in winning their trust that the borrower will repay the loan responsibly. But if you have a low CIBIL score, do not get disheartened. You may still get approved for the loan. There are many lenders who offer personal loan for low CIBIL score. But then before you take such a loan, you must be sure about your repayment capacity. A high interest rate translates into high EMI amounts. If you are not able to stick to your payment schedule your score will take a further hit.

Use a Personal Loan EMI Calculator

Using a mortgage calculator really comes in handy when you have to manage different aspects of EMI. It helps you decide whether you can repay the loan amount easily. So use a personal Loan EMI calculator to see how much monthly payment you will need to make, given a specific loan amount, interest rate and tenure. Change the loan period and see how it affects the EMI amount. One needs to choose an option that suits one’s pocket. Make sure that the total debt obligation that you need to handle in a month (EMIs of past loans + the EMI on new personal loan) does not exceed 50% of your salary. If it does, then you may have to increase the tenure of the loan to reduce the EMI burden on each month.

Contingency fund

One cannot underestimate the importance of rainy day funds when it comes to managing EMIs effectively. In case of any unplanned situation like a loss of job, or medical emergency these funds give one some breathing space. One does not need to worry about delays in EMIs. Usually, you must have enough savings that can service 3-4 months of EMIs. But these funds can be built up only when one takes care of his spending patterns. Make a budget and stick to it. Slowly build up reserves so that you don’t have to worry about any missed payments.

There is nothing wrong in taking a personal loan to fulfil one’s cash requirements. But it is important to make sure that one repays the loan diligently. Following the above tips will help you manage the EMIs well and follow a disciplined life.

Thursday, 11 October 2018

Types of business loans that you can apply for

Loans have made it easier to persuade the dreams at an easier and faster time than usual. Start-ups are fortunate these days to get the loan when the proposed plan is promising. While planning for a business loan, let’s understand the types of business that are available across.

1.Term loan
A term loan is the one where the loan is provided for a specific period mostly between two years to ten years with the interest rates agreed upon which can be fixed or floating. This is an unsecured type of loan and hence the risk probability for the lender is more.

2.Loan Against Property
If the borrower has a property that he or she can keep as the guarantee, it becomes easier to get the loan. The valuation of the property is done and the loan amount is sanctioned according to it. This is a secured type of loan and usual tenure to maximum is seven years.

3.Gold loan
If the borrower has gold jewelry or gold coins, even those can be kept as the guarantee against the loan amount that is sanctioned. When there is immediate and small amount crunch, this act as the best option as it is processed faster compared to other loans and the tenure is a maximum of two years.

4.Loan Against Shares or Financial Securities.
Bonds, shares, financial asset classes, fixed deposits, insurance, mutual funds also act as the loan guarantee. If an individual has any of this, then singularly or collectively they are kept against the loan amount that is borrowed. The interest rates here are again fixed or floating according to the mutual consent of lender and borrower. The tenure here also is lesser compared to term loans but can be more if compared to gold loans.

5.Cash Credit Facility
Cash Credit Facility is getting the cash instantly. These are smaller amount loans. Again an unsecured type of loan that is given after many checks and the after seeing the potential of the business. Tenure is lower than five years. This can be a good option if someone is applying for a personal loan bad cibil score.
6.Letter of Credit (LC) Facility
Either banks or a guarantor gives a letter of credit which states the credibility or an individual who is running the business. This has a lot of consideration from the past credential of the borrower.

7.Equipment Loans
There two types of equipment loans. One that is taken to buy the equipment and other is taking loan keeping the existing equipment as security. In the first case, it becomes an unsecured type of loan and in the second it’s a secured loan. If the basic business is established, these loans are easy to get but comparing the wearing of the machinery and its deteriorating valuation with the actual profit that can be achieved.

8.Personal Loans
A business loan is usually with a higher percentage of interest rates compared to personal loans. If the amount required is up to ten Lakhs or something, a personal loan may act as a better option than a business loan. Again, an unsecured type of loans with maximum seven years of tenure.

9.Nonprofit Business Loans
There are may co-operative organizations or community services which help the upcoming businesses. They offer negligible interest rates and sometimes no interest rates at all to the borrower. If possible, one should try getting these type of loans as in a longer run, these will be beneficial.

Small loans for small-scale projects. Here, one can get loans as low as five lakhs. In India, mostly the grah udhyogs opt for these types of loans.

11.Short-Term Loans
Where the borrower is sure of the project and needs an amount for the smaller tenure, he or she may opt for short-term loans. They are aided with lesser interest rates compared to normal loans. The tenure can be as short as six months.

Business comes with a great financial responsibility with a future vision of prosperity to oneself and people working with. One should make sure which option suits the best to them.

Friday, 5 October 2018

Will Low CIBIL Score Tow Away Your Car Loan?

Owning a car unlike in the past is no more a luxury. All young people want to buy a car for themselves as soon as they start working and those who already have vehicles are looking at upgrading their wheels or buying additional ones. All this love for cars is facilitated by easy availability of loans. Almost all financial institutions offer car loans at fairly easy terms. However for the loan to be sanctioned the applicant needs to comply with the eligibility criteria for the loan to be sanctioned.
Credit Score and Car Loan:
Like all loans car loans are sanctioned if the applicant meets the conditions laid down by the lender. There are various conditions that need to be met and one of them is a healthy credit score. A low CIBIL score indicates that the person has not been a responsible borrower in the past; this will obviously not inspire trust in the lender that the applicant has approached.
When you apply for a car loan, the first thing the prospective lender does is get the CIR of the applicant. Whether the application goes to the next step or not is determined by the credit rating of the applicant. So if your score is low does it mean that it is an end for your dream of getting a car or is there a way around it?
Does a Low CIBIL Score Tow Away Your Car Loan?
A low score is definitely not a good sign if you are looking for a car loan or for that matter any loan but there are steps that can be taken to deal with your situation.
  • Check Your CIR: The first thing you can do is a check your CIR before you apply for a loan. If your score is low then you should focus on identifying the reasons for the low score. There may be times when the score may be low not because of irresponsible credit behavior on your behalf but because there was some erroneous reporting by a lender, like there may be delayed payment which may have not happened or default on a loan which is not yours. You need to bring this to the attention of the rating agency that will get in touch with the lender to get the mistake rectified. This will take at least a month but if the score is low due to the mistake then you will see an improvement in your score and then you can apply for the car loan.
  • Work on Improving Your Score: If the score is low then it reflects irresponsible credit behavior on your part, in such a sceanrio you cannot look for a quick fix as a credit rating is built over time. However it is important that you identify the reason/s for the score being low and then work on improving them. This may take a while but it is better to wait for your score to improve rather than going ahead with a loan application with a low credit rating. A low credit rating means you have less choice in terms of which lender to approach and also that you may have to pay a high loan interest rate due to your score being low.
  • Get a Co-applicant: If you have a low credit score you can try and get a co-applicant to apply with you for the loan. However this will make sense only if the co-applicant has a better score than you. If the co-applicant’s score is as low as yours or lower then there will be no benefit in getting him/her as a co-applicant. Bothe applicants have to meet the eligibility criteria and other conditions as laid down by the lender and the applicant with the better score can become the primary applicant.
So a low score does not mean that your car dreams have to be towed away, there are ways that can help you deal with the situation. Hopefully one of the above ways can help you deal with a low score situation.

Friday, 28 September 2018

Difference between online personal loan and traditional bank loans

In the internet times, everything is fast. Somehow, somewhere the patience is decreasing. But, there are things which are happening at the lightning speed! So, one has to be fast. Now, while speaking about the speed of everything, the time required to achieve the dream has also decreased. The time of getting the credit which helps in achieving the dreams, in taking a new house, taking a car, going for that vacation, having a perfect wedding, starting a new business now is easier. But, it’s not about only getting the loan or the credit approved. It is also about how irresponsibly on handles it!

There are different reasons why an individual requires a loan. While home loans and car loans or education loans are specifically designed for those specific needs, a personal loan has a wide range of needs. Marriage, travel, medical emergency, house repairs, small business needs and many more are the reasons why one wants to apply for the loan. With many of the banks, HDFC personal loans are the ones which are a little popular once. Applying for a loan is also faster and easier these days. With online options coming into the picture, applying for loans now happens on fingertips. The online application takes less than five minutes. There are few of the sites that assure you the loan approval within three minutes. All that one has to do is submit e-copy for the documents like aadhar card or election card, PAN card, credit score if known. And it’s done.

However, while comparing it with traditional bank loans there is one major difference. An online personal loan when applied for does not promise a bigger amount that can be sanctioned. For smaller amount loans, they are good. But, while talking about traditional bank loans, depending on an individual’s credit history, credit score and the earning, the amount that can be approved can be bigger. Applying online for the loan may face a few complications. Sometimes even after the approval, as there would be some documentation errors, it can get canceled. While in a traditional loan, this can never happen. If the cibil score is below average, one can also apply for Loan for low cibil score. Online personal loans work amazingly for this. The percentage of interest is higher, but a small amount as 50000 or 100000 is approved instantly. While is an urgent need of funds, this would help greatly.

Either online personal loan or traditional bank loans, the credit bureaus work in the same way. One has to make sure that the repayment is done on time. The credit score is affected in the same way in either of the loan types. If missed or delayed payment, the score drops. It is important for an individual to understand the responsibility of the credit that is taken. A credit score is now not only checked at banks or NBFCs while applying for loans or credit cards, while taking jobs, applying for visas, going overseas, the score is checked everywhere. A Single goof up, and the score dips and all these things get affected.

As described, online loans are faster and are available at an easy and faster speed. One of the reasons it is so popular is the smaller amount that can be approved along with the easy disbursal in the bank account. While the traditional bank loans may take time but a huge amount seeing the conditions can also be approved. Loan for the low cibil score is also approved in either of the cases, but that does not imply that one stops caring about the score. Working on the score and taking a small loan in repaying the older debts can also be a good option!

Tuesday, 18 September 2018

Type of properties against which lenders provide loans

There are many times in your life when you need finances to fulfil your dreams but do not have ready cash available. Setting up a business, sending your child for education abroad, weddings and home renovations are just a few of these situations when one can rely on borrowed funds. For this one can either take a personal loan or a loan against property.
A personal loan is an unsecured loan that is usually given for a maximum period of 5-7 years, whereas LAP as the name suggests is a secured loan taken by mortgaging a property. LAP is available for a maximum tenure of 15 years. Personal loan EMIs turn out to be higher, because of shorter loan tenure and a high rate of interest ranging between 17-22%. LAP is a cheaper way of borrowing funds. The EMIs are affordable as tenure is long and interest rate is lower, generally ranging between 12-16%. The personal loan amount depends on the income level and CIBIL score of an individual. Loan amount against property is based on the property value. So you can make use of an idle asset and borrow much more funds than you can through a personal loan. Moreover, if you have a low income or a bad credit history, a personal loan for low CIBIL score may turn out to be very expensive on your pocket. Loan against property will be an ideal choice in such situations.
Let’s see the kind of properties that one can mortgage to get a Loan against property.
  1. Self-owned residential property
  2. Self-owned and self-occupied residential property
  3. Self-owned but rented residential property
  4. Self-owned piece of land
  5. Self-owned commercial property like shops, office buildings, malls etc.
  6. Self-owned but rented commercial property
Factories, warehouses, schools, hospitals and multiplex buildings also qualify for LAP. One can also avail for LAP for under construction property that is 90% complete and being built by an approved builder.
The easiest way to get LAP is when you have a property with proper maps and plans that are sanctioned by the town planning authority. Most banks and NBFCs offer loans for such properties that have a clear legal title.
What if you have a registered property without map? Since these properties do not have a clear plan sanctioned by town planning authorities they have some amount of risk for the bank. With such properties you may need to provide documents like a proper sales deed and proof of sufficient income, so that you can gain the trust of the bank.
Is GPA sufficient to get LAP? General Power of Attorney is a legal instrument that gives an authority to act on someone’s behalf. The GPA holder does not own the property. Since he does not have any legal ownership, most banks and NBFCs do not provide loans against such property. One may try his luck with private lenders or some housing finance companies who may do so, but charge exorbitant rates to cover up for the risk.
Can Lal Dora land and agricultural land be used for LAP? Lal Dora land refers to that part of the village that is left for keeping livestock. Banks and NBFCs do not grant loan for such properties. Private lender on P2P platforms may offer such loans. Loan against property is not provided for agricultural land as it is not mortgageable.
One of the main requirements for LAP is that the property should be free from any legal and financial encumbrances. When an application for LAP is submitted, bank does a legal check and valuation of the property. The amount of loan that gets sanctioned depends on the valuation done. One can borrow up to 65% of the value of property. Hence, the kind of property that you put up as mortgage can be a deal breaker or deal maker when you file your application.