Tuesday, 24 November 2015

More about interest rates

Applying for a loan to finance your dream home? The process includes going through the various aspects in detail, so that you can get yourself the best possible deal.
When you avail of a loan, the terms of repayment include having to pay interest on the loan amount, for the tenure of the loan. Before you go ahead and finalise your loan (and lender), keep in mind that the types of interest rates vary and that you should choose one that best suits your needs.
Fixed interest rate
The way this works is simple: the interest rate will not change during the tenure of the loan.
  • Why choose a fixed rate of interest:
A fixed rate does not get affected by the changes/ fluctuations in the interest rates, which means that when you choose this option, the amount you will have to repay each month stays constant for the term.
Depending upon the interest rate scenario, fixed rates can often be lower (and therefore turn out to be more economical) compared to floating rates.
  • Factors against a fixed rate of interest:
Consider a scenario wherein owing to market conditions, the floating rate prevailing at the time dips and goes lower than the fixed rate that you have opted for. In this case, you have no option but to continue with the fixed rate, albeit at a higher cost.
If you believe you can deal with the idea of (possible) uncertainty, then a fixed rate is not the option for you. Instead, you could consider the alternative – floating rate – and service your loan accordingly.
Floating interest rate
With this option, the interest rate will go up or down depending upon the interest rate changes in the market. While this is dependent on a number of factors, it does affect your loan repayment capacity.
  • Why choose a floating rate of interest
You can choose to switch to a fixed rate of interest whenever you believe the timing is right.
If the interest rates go down, it is wholly possible to repay your loan faster even if your repayment amount remains the same.
  • Factors against a fixed rate of interest:
It is possible that being a floating rate, it can go up higher than a fixed rate would.
In this scenario, your repayment amount will be proportionately higher, which could impact your finances for a period of time.
Reducing rate of interest
As the term suggests, reducing rate is calculated each month basis the outstanding loan amount. The repayment amount in this case includes the interest payable on the outstanding amount, in addition to the principal repayment. However, after each payment cycle, the outstanding loan amount reduces and hence consumers do choose this option, should the lender offer it.
  • Why choose a reducing rate of interest:
This is a prudent way of paying interest, as you are paying interest only on the outstanding loan amount. Compare this to a fixed rate wherein you continue to pay interest on the loan amount, irrespective of the amount you have already paid off.
  • Factors against a reducing rate of interest:
Calculating the reducing rate of interest can be quite a task! Often, people find it simpler to avail of the fixed interest rate option as a result.
In conclusion
When you are considering the options available to you, keep in mind the whole picture. Choose the rate of interest as per what you are able to pay comfortably, allowing for other expenses that are an intrinsic part of our lives.

The choices available to a consumer are plenty, so choose wisely and choose well!

Need a Home Loan? Check your Credit Score First. Save Money on home loan interest rates

Tuesday, 17 November 2015

Using Your Credit Card To Save Money

Credit Cards have become an integral part in today’s financial world. They offer a lot of convenience to customer but overdependence on them can often result in falling in debt trap or a poor credit score.
It is very important that one uses these small plastic things careful and after due deliberation. Below we will try and look at some simple ideas which can help in saving money through the use of credit card.
Though it may sound contradictory but using credit card to save money is not so difficult; just read on to find out.
Timely payments are the key to financial discipline:
Whether it is credit card payments or EMIs, paying on time not only helps you save money directly but also improves your credit report which can in turn have financial benefits. Late payment attracts high penalty from credit card companies like late payment and financial charges. Though credit card companies offer the option of making a minimum payment; this option should be used only in extreme conditions and then also try and pay a little more than the minimum due amount.
Don’t make late payment or paying minimum amount a habit as it may increase your risk perception in the eyes of the lender. Sometimes due to a genuine oversight or some banking error one may not be able to pay his/her bills on time. In case one has a good credit record then the credit card company may agree to overlook this or may reverse the charges on request. For a regular defaulter this will definitely not be done.
It’s a good Idea to pay utility bills by using credit card:
Utility payments like water, electricity, insurance, telephone bill etc are mandatory payments to be made every month or annually. Paying them by using a credit card has two fold benefits. Most credit cards have reward point system or offer a cash back facility. Thus by paying these bills you may actually get a benefit either in the form of a cash back or reward points which can be redeemed later for some item of your choice. Using this credit card lets you earn some interest on your savings lying in the bank also.
Understand Your Credit Card:
Before applying or in case you already have one understand your credit card well. Credit card companies may offer a lot of “lucrative deals” but one should always be clear about the fine print. The credit card companies are also running a business and are not there for some charity. As a rule cash withdrawal from credit card must be avoided; even personal loans are cheaper than that.
Be clear about the joining fees, annual charges, late payment charges etc. In case you have two credit cards check features of both. If one offers reward points for payment of some specific type them you can use that card to make payments for that utility or in some cases petrol etc (especially in case of co-branded cards). Sometimes some shopping outlets or restaurants also offer discounts for specific cards; be sure to be aware of this. A list is usually given as a part of welcome kit; we rarely read it though!!
Converting a Big Purchase to EMI:
This facility needs to be used with caution but can sometimes prove to be very useful. Credit card companies offer to convert big ticket purchases to EMI. In case one plans to go for a personal loan this option may be a cheaper one with no paperwork involved. However missing a payment can or erode away the interest rate advantage so be careful. Often a zero interest EMI may be also available but be sure before you opt for this facility.
Rewards Points!!!
We all love freebies and gifts. That’s why I saved this for the last. Credit card companies have a full catalogue of the rewards that offer in return of accumulated points. This may range from gift vouchers, to toiletries, to some luxury items.
Spending does actually get you returns. Be sure to look at the catalogue and choose wisely. Sometimes points may not be carried forward to the next financial year and may lapse so act timely. In case you don’t like anything there are some gift vouchers that one can opt for.

Use your credit card wisely and earn while you spend!!

Tuesday, 10 November 2015

What is credit counselling and how does it work?

Wikipedia defines credit counselling as “a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultimately eliminate debt.”
In some countries it is a mandatory process before anyone can file for bankruptcy. Different countries have different regulation for it. Credit counselling agencies can be not-for-profit, no fees entities or they can also be for-profit, charging very high fees.
How credit counselling works?

The credit counselling works on a three step approach.

First Step : Evaluate the current credit health status
Second Step : Draw a personalized plan on resolution and to increase credit score
Third Step : Implement the plan and evaluate on a regular basis
The first task of any credit counselor is to understand the individual financial situation. It is thus important that the debtor should not hide any fact from counselor. Most debtors come with multiple loan defaults, very low credit scores and no income source to payback the loans. In such a distress it is counselor's job to first give confidence to the debtor and understand the complete picture.
Next the counselor tries to chalk out a plan for repayment, settlement and negotiations. A debtor may here authorize the counselor to negotiate with creditors on his/her behalf. Counselor then tries to discuss debtor’s situation with lenders and tries to get the best possible solution, whether it is a waiver of interest amount (partial or full), an extension for payment duration or settlement through partial payment.
During this time, the counselor also educates the debtor about the various rules, regulations and personal finance management techniques through which the debtor can plan for payments as negotiated and avoid getting into similar situation again.
Finally the counselor may also suggest a debt management plan (DMP) to the debtor. Herein, the debtor legally hands over his/her financial liabilities to the counselling agency and makes monthly payments to them, which the agency then re-distributes among lenders as per negotiated terms. It is important to note that while DMP may seem like an easy solution, it costs money and involves sharing your sensitive personal information with the counselling agency.
Does credit counselling affect credit score?
A counselling session by itself will never affect your credit score, but if you take a DMP, it may affect your credit score negatively in the short run. Because, first, it usually involves paying off debt accounts and closing them one after another. Second, a loan settlement or partial payment will again negatively affect your credit report. Lastly, if the agency stops making payments on your behalf it will further damage your credit history. But a debtor who needs DMP may already have a bad credit score due to bad financial history and hence in the long run it only helps close all bad debts and start afresh.
Things to be careful about
It is important to take credit counselling if you are in deep debt and don’t have sufficient resources to close the debts. But it is also important that you select your credit counselling agency carefully. Always select a reputed and authorized agency and beware of those who upfront ask for large fees or sensitive personal information.

Thursday, 5 November 2015

The 5 Best Home Loans in India

Dreaming of your dream home? A home loan can turn your dreams into reality. With the various home loan options available today, buying a home has never been easier. 
There are several financial institutions that are willing to offer loans to suit an individual’s budget options. However, it is always prudent to exercise caution when availing of a loan, hence ensuring that certain important criteria are checked is important. Factors such as interest rates, amount of loan, whether there is an option to pre-pay the loan etc. need to be taken into account.
To further sweeten the deal some banks and institutions even offer special concession schemes such as lower interest rates for women, while others have benefits for senior citizens. Other things to look out for are joint loans, hybrid loans etc.
 Of course, taking into account the processing time as well as the loan process itself is extremely important. With some research, getting the best deal is a doable task.
Let us look at some of the besti home loan options available in the market today, keeping in mind some important parameters.

Interest rates
One of the primary factors taken into account when applying for or availing of a home loan, the interest rate affects your EMI greatly, as also the total amount payable.
Interest Rate
9.50% - 9.55%
HDFC Limited
9.60% - 9.65%
9.8% - 9.90%
Axis Bank
9.95% - 10.45%

It is advisable to consider the interest rate according to the tenure of your loan.

Processing fees
Another factor to keep in mind is the processing fee that you need to pay the lender when making your loan application. In case you wish to simply check your loan eligibility, you would still need to pay the fee, which is typically waived at the actual time of application subsequently.
Processing Fee
0.50% – 1.00% of the loan amount or Rs. 1500 (Rs. 2000 for Mumbai, Delhi and Bengaluru), whichever is higher + applicable service tax and surcharge
HDFC Limited
0.5% or Rs. 10,000 + service tax, whichever is higher
Upto Rs. 25 lakh: 0.25% of the loan amount (minimum Rs.1000)
Rs. 25 - 75 lakh: Rs. 6500
Rs. 75 lakh and above: Rs. 10,000
LIC Housing
0.50% of the loan amount
PNB Home Loans
0.50% of the loan amount

Ease of loan processing
While there is no tangible measure that we can apply here, it would be wise to check with each lender as to their processing time. While some lenders may charge a higher processing fee, this could be offset by a quicker processing time and ease of documentation. Going through the process can often be time consuming and the paperwork extensive. Hence do keep this equally crucial factor in mind at the time of loan application.

Ease of access
In today’s online world, everything is available at the click of a mouse or by downloading an app on your mobile phone. Well, in a similar manner, you should be able to have access to your home loan account and related details at your convenience. Hence, while this may not be a deal breaker when selecting your provider, it is definitely a point to consider.
Let us take an example. Say you wish to understand your tax benefit eligibility for the financial year. You may also require a copy of the disbursement schedule for your reference. It may not always be possible to make a trip to the nearest branch (of the lender) to get these details. Instead, quickly logging on to your own secure online account should do the work for you.

In conclusion
Compare home loans prior to taking that all-important decision.
Also, do keep in mind that your credit score plays an important role in the process. Hence, it is vital to check your score prior to applying for a loan. If you think your score is not as good as it should be, consider ways on how to boost your credit score. Some judicious financial planning will help you reach your goal. You could also consider availing credit counselling services to enhance credit score.

Before you narrow down on a lender, do read the fine print, thoroughly understand all the terms and conditions, ensure that there are no surprises by way of hidden charges etc. Choose your lender wisely and move into your dream home!

i Ranked in no particular order.

Tuesday, 3 November 2015

Looking to buy a new car this Diwali? Check your CIBIL score first

Diwali is synonymous with crackers, lots of sweets, lights and new beginnings and of course buying new things especially on Dhan Teras! So you have decided to buy a new car; you have shortlisted the model of your choice, have a color in mind, have researched about the best deals available but have you checked your CIBIL Score? In case you are wondering what does the CIBIL score got anything to do with your car shopping for Diwali; read on.

Why Check Your CIBIL Score?
Be it a four wheeler or a two wheeler people generally prefer to buy it with the help of an automobile loan. Loans are available fairly easily, processing is fast and one does not have to wait long (for accumulating sufficient funds) for fulfilling their dreams. Before you apply for a loan check your CIBIL score so that you are not caught unawares in case your application is denied due to a low CIBIL score. In case there is time you could take steps to improve CIBILScore

When you approach a bank for a loan whether an auto loan or a home loan apart from the documentation and eligibility criteria the CIBIL score is important. Even if you have the required documents and meet the eligibility criteria, if your CIBIL score is not up to the financial institution’s acceptance level your application will be rejected. Before processing your application the bank seeks your credit score from CIBIL and then goes ahead with the next step. A low credit score could lead to your loan application being rejected.

The CIBIL score is a reflection of your financial health and also an indicator of how you treat your debt. A good CIBIL score is an indicator that you are a responsible borrower and a low one obviously reflects the opposite. Bankers would like to lend to those people who have a responsible attitude towards their debt whether loans or credit card dues.

How Does a CIBIL Score Help You?

A healthy credit score is beneficial for you as a borrower in case you are looking to take a loan. The most obvious advantage is that it helps you by getting your loan application accepted; a poor credit score leads to the application being rejected. Here it is important to mention that different financial institutions will have a different threshold level at which they are willing to lend depending upon their policies. There are loans for low credit score too but obviously at higher rates.

So how else does a good CIBIL score benefit you? If you have a good CIBIL score then the balance tilts in your direction. Since you know that most financial institutions will be willing to sanction a loan to you; you can choose the lender which offers most favorable conditions whether it is in terms of interest rates, processing fees or the tenure. Thus as a customer you have a wider choice with a healthy credit score; you can benefit financially as a result of a high credit score. A healthy CIBIL score also ensures faster processing of the application and you also save time since you will not be forced to apply elsewhere in case your loan application gets rejected.

How to Check your CIBIL Score?

Now that you know why your CIBIL score is important and how can it help you it is the time to find out how to get your CIBIL score. You can get your CIBIL score by filling out a simple form online. The form requires filling up some details for authentication purposes and the report is emailed to you the same day. 

If you feel that your score is not in the best of conditions then you could choose to apply to a FI that might be willing to lend at your score but this decision should be made after careful consideration. Since Diwali is close there is not much time for you to do something about your credit score; however if the score is low due to an error on part of the bank or the rating agency then you still have time to get it rectified and then apply for a loan.
So have a safe Diwali and fulfill your dream of buying a car!

Thursday, 29 October 2015

How much debt is beneficial?

Debt or loan is the financial instrument that enables you to meet your requirement on funding. It not only helps you acquire large cost assets but also facilitate getting investment for your own venture. Apart from these also help in managing your credit score that reflects your credit worthiness.  

Different people have voiced different opinions in this context. While some individuals find it reasonable to incur debts as long as you have sufficient resources to pay it back, others are of the opinion that they are unnecessary and prove to be a liability on your finances in the long run.

Although debts assist you in investing in large purchases when you have insufficient resources and plays a huge part in how you can improve your CIBIL score, it is essential to understand where to draw the line before the “beneficial debt” turns into a liability. There is a fine line between how much debt is beneficial to boost your credit health and the time till it is termed as being too much debt.

Lenders have set certain guidelines to specify how much debt one should have. It is advisable to have debts that do not exceed a certain percentage of your total income. You should also have sufficient funds to pay off your principal debts along with the interest.

You know you have crossed the “beneficial debt” line when you have to work overtime, miss out on payments or utilize your savings in order to cover your debts. This kind of debt, thus, proves to be non-beneficial to you and starts having an adverse effect on your credit score. Debt is an extremely powerful financial instrument as long as it is used responsibly. Imprudent usage of debt will reflect poor credit scores and cause a huge dent in your finances in the long run.

It is important to keep these simple points in mind before incurring additional debt:

1.       You should have sufficient incoming cash flow and savings to cover the settlement of your principal debts along with the interest.

2.       You should opt for further debts only when you are confident that you will receive a healthy return on investment (ROI). There is no point in investing in a project incurring more debts where the returns are not strong. It is essential to thoroughly research on the ROI value of the debts before you think of borrowing more than required.

3.       You need to closely examine if you are entitled to a suitable interest rate. Compute the overall cost to be paid in the long run. For instance, calculating if purchasing a house at a low rate of interest would be better than renting one. If you are unable to get competitive rates on interest, it is advisable to evaluate all your options. In case of a bad credit report, it is essential to reconstruct the credit score to a satisfactory figure and apply again.

If you meet these points of reference, the debt you are applying for is not considered as too much. However, if you are unable to satisfy one or more of these criteria, the debt is termed as too much.

Friday, 23 October 2015

Things to keep in mind before taking a car loan

With multiple banks offering variety of credit cards to suite various needs of an individual, having multiple cards is not uncommon.

But managing multiple cards effectively becomes a challenge and many a times the card holder gets lured by various marketing initiatives and over spends on the credit cards. In case you are one of such card holders and are planning to cancel your cards, please consider the following prior to taking a step in this direction.

Credit card is one of those credit instruments that gives you access to funding at any point of time. The flexibility that the card extends does not only adds to comfort but more importantly has a lot of positive bearing on one’s score if utilized properly.

Closing down credit card accounts while prevents one from over exposure to credit, and one should evaluate this option but it is important to be careful while closing your account, since it can affect your credit score.

Since the credit score is an outcome of the way one utilizes his credit, a credit card becomes an important instrument in impacting the score. Repayment patterns and length of credit accounts grossly impact the credit scores of an individual. All other loan accounts get paid off over a period of time. A personal loan for example, has an average shelf life of about 3 years, an auto loan also on an average get paid off in about 3 years. Even a housing loan, that generally is taken with a repayment period of 20 years also get closed by paying complete outstanding amount in about 12 years. While on other hand, a credit card continues to exist for a very long time, and thus continue to impact the credit health of card holder positively.

Also, this is the only instrument where a person can hold multiple accounts with ease without having to worry about fixed monthly payments. Thus it is advisable that a person should rather having the cards cancelled, continues to hold them. He can choose not to use them regularly and for day to day purchases. But can use them once in a while to keep his credit health active and positive.