Thursday, 23 March 2017

Focus on Credit Factors Rather than Credit Score

Your CIBIL score is often the only indicator of your creditworthiness, and thus extremely important. Whether you need a higher education loan, land mortgage loan, credit card, or even apply for a job, your credit score can prove to the top influential factor in the process. So, it goes without saying that you must keep your credit score in check, and if need be you must take all possible measures to improve credit score as well.
Finance experts always emphasize on credit score. However, other than that you must also focus on the credit factors too. In fact, by focusing on these factors alone you can greatly improve CIBIL score.  This is because these factors are what that shape your credit report, and thus the credit score.
The following are the most important factors that you must keep a close eye on to avoid being listed on the loan defaulters list and to enhance credit score:
1. Payment History
Every individual follows a certain payment pattern. Some people try their best to pay the credit card bills and loan EMIs on time, every time. On the other hand, there are many people who tend to delay the payments every now and then, often paying after the due dates. Depending on your own repayment behaviour your credit score can be considerably affected.
Of all the factors the payment history is usually the most influential one (in many credit bureaus it makes up for 30% to 40% of the total credit score). In other words, this alone can make your score excellent or terribly poor. Thus, you must never delay your payments. Every single payment matters, and thus be given due importance.
2. Amounts Owed
Your pending debt vs the credit available decides the utilization rate. So, if you are able to repay your debt fast it can improve your credit score fast as well.
Another important factor is credit utilization ratio. It is the ratio of the credit limit available to you on your credit cards and the amount you actually use. Thus, if you are allowed to take credit up to Rs. 2 lakhs and you spend 1 Lakh a month, then your credit utilization ratio is 50%. Generally speaking, a credit utilization ratio higher than 30% is not considered good. High utilization is a sign of hunger for credit, which raises red flags for the lenders.
3. Length of Credit History
The age of your credit card accounts and saving accounts etc. also play a major role in the calculation of your credits score. The longer is your credit history the better it is for your score. This is because longer history, which is decent, can provide more reliable information regarding the candidate. So, if you have a long history of timely payments then you will have extremely high creditworthiness. When dealing with lenders you can easily have the upper hand, and can demand better interest rates on the account of your history alone.
4. Credit Variety
Having a long history with credit cards or home construction loans, small personal loans, etc. is definitely good for your credit score. However, if your history includes all of these then it’s even better. This is because if there is a lot of variety of the credit taken by you it shows you are experienced and know how to handle debt. You can easily get an increment of 10% to 15% if you have a history of decent credit mix.
5. Report Accuracy
Even though credit bureaus try their best to maintain accuracy in their credit reports, errors do take place nonetheless. There are many possible reasons for the same- the bank may not send the correct information to the bureau, or may withhold certain information inadvertently, etc. Sometimes there are printing mistakes too, but can affect your odds of loan sanctioning. 

So, by now you must be able to understand why credit forming factors are equally important as your credit score itself. Be sure to check these factors from time to time as developing this habit can do wonders for your creditworthiness.

Friday, 17 March 2017

How to Compare Education Loans in India?

There are no two ways to the fact that quality education is important to attain wisdom and make a decent living. Unfortunately, there are many meritorious students all over India whose dreams of becoming the best engineers, doctors, and architects of the world get trampled due lack of enough money to pay for higher education. However, lately many banks have started offering education loans at attractive interest rates, using which anyone can fulfil their dream of getting the education they want.
While education loans are no less than a boon for those belonging to financially weak families, it is important to be cautious when you apply for one.
There are all kinds of loan providers and all kinds of loans for the same course you are interested in. Thus, it is best if you take your time comparing your options in order to identify the best loan that suits your requirements.
Here are some of the basic things you must pay attention to when comparing higher education loans:
Education Loan Eligibility
Most of the popular courses and institutes are recognized by the banks of India. However, it is still a good idea to confirm the same with the banks or the financial institutions that you are considering. Apart from these basic education loan requirements also get the information on their eligibility criteria. Different banks have different criteria for approving education loans. Thus, if you don’t qualify for the education loan with some banks then you can take them out of your list.
The maximum credit limit on higher education loan also varies from one bank to another. Thus, there is point in pursuing a lender when their maximum limit doesn’t cover your requirements. So, if you need lakhs for an education loan for MBA but a bank can offer 10 lakhs at max there is no point in keeping them for consideration. Also, when you enquire for the limits do let them know whether you need the loan for studying in India, or abroad. Sometimes they have different limits for each of them, and may sanction a higher amount for an education loan for abroad.
Processing Fees and Moratorium
Many people underestimate the processing fees when writing an application for education loan.  However, these fees such as processing fees, documentation costs, administrative fees, etc. can be a huge amount when combined. Thus, it is important that you enquire about the same with the banks. Also, don’t just take their word for it and go through the terms and conditions yourself. There can be hidden charges that they might not tell you verbally.
The moratorium period is the grace period that you get when you complete your education. You don’t have to start repaying the loan during this period. Thus, you would want the moratorium period to be as long as possible. This makes loan repayment a lot easier.
Education Loan Interest Rate
The rate of interest applicable the education loan is one of the most important factors to consider when comparing your options. In fact, this factor alone can stand between accepting or rejecting a loan. This is because most education loans have a tenure of 4-7 years, which is a long time. Thus, you will be paying a lot of money in the form of interest.
It is a no-brainer that a loan with the minimum rate of interest is the best. However, you must also check whether it is fixed interest or floating interest. While the former stays the same throughout the tenure, the latter is susceptible to change (can both increase or decrease). Thus, choose wisely. To get a low rate of interest on an education loan product, the applicant must have a high CIBIL score.
 Prepayment Options
If you are able to finish your education on time, and get a good job soon then it is possible you might want to repay your loan sooner than the due time. This is clearly advantageous as you can save a lot of money that you would otherwise have to pay in interest. However, many banks charge a fee for the prepayment option. Thus, make sure you get information on the same before you finally obtain an education loan.  

Education loans can be really helpful, but at the same time they are a big responsibility too. Thus, be sure you weigh all your options carefully and get every possible information to help choosing the best education loan possible. 

Thursday, 9 March 2017

How to avoid getting addicted to credit?

Credit instruments are meant to make your life convenient. Loans help you enjoy things now and pay for them later in small instalments. Credit cards are convenient while shopping as you do not need to carry cash. But you need to understand the financial implications of using these instruments so that you use them wisely and do not get addicted to them. Credit addiction can be as dangerous as an addiction to drugs. If you do not plan ahead for the future and constantly depend on debts to solve all your financial problems then you may soon find yourself on the road to financial crisis.

Here are some tips that will help avoid credit addiction.

Analyse your habits - Are you using your credit card to buy things that aren’t in your budget? Are you into compulsive spending where you buy things which you don’t actually need? Are you making only the minimum payments on your credit cards? Do you have past due accounts? Analysing your behaviour will help uncover a lot of truths. If you are spending beyond your means you will find it difficult to pay off the balance at the end of the month. If you are accumulating a lot of debt you will need to take charge of your situation right now. Stop using your credit card until you clear all the past dues.

Make a budget and stick to it- A person who recognizes the boundaries of his budget will never find himself in any financial trouble. If you haven’t yet created a budget, do so and promise yourself to stick to it. You can make use of various online tools which help you put all your financial information together and keep track of your spending. Spend only if you can afford the purchase. Keep track of your monthly expenses so that you know where the money is going each month.

Avoid extravagant lifestyle- You need to curb the temptation of spending wastefully if you wish to avoid credit addiction. Purchase things only if you think you will use them. Put a stop to compulsive buying where you just buy items frivolously because they were on sale and later find no use for them. A good way to do this is to make a list of things that you need to buy before going for shopping and then purchase only what’s on the list. If you are still not able to break the habit of impulsive buys then carry cash when you go shopping. A sustainable lifestyle will help you achieve financial freedom. Changing your shopping habits will not only improve your finances but also your credit health.
Pay credit card bills in full each month- Credit cards are a very expensive means of borrowing with an interest rate of 14-24%. If you make it a habit to carry balances on your credit card you will dig yourself deep into debt and find it hard to come out of it. Whenever you charge any expense on the card make sure that you have the funds set aside to pay for it when the bill arrives.
Save for emergency- Save at least 10% of your income to build up an emergency fund. You should have funds to cover for at least 4-6 months of living expenses. Having some reserves not only gives some sense of security but also prepares you to pay for unexpected expenses without wrecking the budget.
Do not max out your cards- If you are reaching your credit card limits each month, and are deeply in debt it is not a sign that you need to apply for more cards. Rather it is a sign that you need to mend your habits and be more careful with your spending. Don’t keep applying for new credit cards without paying off your old ones. If you do so you will find yourself in the vicious circle of debt.

If you are in financial trouble don’t just think that a loan will save you every time. You may postpone arranging for funds but ultimately you need to plan out how to repay it. If you are under too much debt, it is time to devise a debt management plan. Go over your spending and income and chalk out a way to become debt free. Timely action will save you from the miseries of credit addiction.

Thursday, 2 March 2017

How to Get a Home Loan with Bad Credit?

Mr. Bhatia had moved to Mumbai with his family after getting an attractive job at one of the biggest MNCs. He arranged for any apartment to live in on a rental basis. However, he knew he must get a home of his own, which is why he looked for the best home loans in India, and finally picked one. He was all set for moving into his new house, and couldn’t wait to start a new life with his family. However, when he received a call from the bank he had applied for the loan at, he was utterly shocked and disappointed. His loan application was rejected on the grounds of bad credit.
How did this Happen?
Low CIBIL score or CIBIL dispute are two of the biggest reasons behind home loan rejections in India. It’s because these are the factors that most lenders consider carefully to assess the risk associated with an applicant. If they have a bad credit score, then there is a good possibility that the applicant may fail to repay the loan properly within the tenure or make it to the CIBIL defaulters list. Thus, they prefer candidates who have a high credit score instead.
Unfortunately, most people become aware of their bad credit history when it’s too late. The moment they realize they have a bad credit score they wonder how they can enhance credit score in the soonest possible time to purchase their dream home. If you are also one such troubled person, then fret not for there is hope.
How to Get a Home Loan with Bad Credit?
It is possible to get a home loan even with a bad credit. However, you usually have to check with a number of banks before you could finally get an offer. Even then it is unlikely you will get a good interest rate.
If you want to choose from the low interest home loans, then you must improve credit score first. Follow these steps for the same:
Step #1: Get your Credit Report
You can’t make progress unless you know about your current standing first. Thus, the first thing you must do to learn how to boost your credit score, is applying for your credit report. There are many bureaus in India that provide credit reports, such as CIBIL, Equifax, etc. However, CIBIL is the most popular and recognized all over India. Hence, you can apply for CIBIL report by creating an account on their website and submitting a few documents. Once verification is completed you can get the report in your email inbox or even at home.
Step #2. Analyse Your Credit Report
Your credit report contains a lot of valuable information regarding your finances. Thus, be sure you take a good look at it. Go through every section, including the personal details section.
In the report you can see the total amount of debt that’s pending, your account information, history of loans, payments, and more. Check the enquiry information section. This contains the list of enquires made by the banks and other in response to your loan applications. If there are many enquires separated by just a few days, then it is bad for your score. Similarly, if you see that your credit utilization with credit cards has been quite high, then again it can explain why your score has dropped below average. For a good score it is important you spend less than 30%of the credit limit allotted to you on your credit cards.
Apart from financial details, pay attention to the accuracy in the printed information. If there are discrepancies, such as misprinted name, wrong payment dates, or outdated information, etc. then have these corrected as soon as possible. Fixing these errors alone can improve your score to a good extent.
Take Help, if Necessary

If you think there is a lot going on in your credit report and its overwhelming, then don’t shy from taking help from a professional. If you know someone who knows about how credit reports and credit scores work, then talk to them and show them your report. You can also take help from a consultancy company such as Credit Sudhaar, which has some of the most experienced credit reviewers and managers who can help you in improving your credit report. Once your score has improved you can easily get a home loan at an attractive interest rate. 

Wednesday, 22 February 2017

Reasons why should you opt for a balance transfer of home loan

Balance transfer of home loan is the process of transferring the unpaid principal loan amount from one bank to another. There are several reasons why availing this facility is beneficial to the borrower.
Falling interest rates- A home loan involves a substantial amount of money that is repaid over a long tenure. Even a slight reduction in the interest rate translates into significant savings in the long term. That is why an RBI rate cut always brings cheers to the borrowers. If the bank passes on the advantage of decline in interest rates to existing borrowers then they stand to gain a lot as there is a direct impact on their EMIs. But in case your bank is not too eager to reduce the lending rate you can explore different options and switch your borrowings to a different lender. Home Loan balance transfer will help you take advantage of the falling interest rate regime in the market.

Improved credit scoreIf you are stuck with a high home loan interest rate (because you had an average credit score at the time of taking the loan) your EMI burden maybe huge. But after regular on-time payments over a period of 2-3 years you can renegotiate the interest rate charges with the lender. In case they turn down the request you may consider the option of transferring the home loan. Sometimes your existing lender may lower the interest rate but may charge a high conversion rate for the same. You need to calculate the savings on the total interest liability in order to decide whether to continue with the existing lender or switch to a different one.
Switching from fixed to floating- Since a sizeable amount of income goes into servicing the loan the rate of interest is a matter of great concern for the borrowers. If you had taken a home loan at a very high fixed interest rate and subsequently the market improved and interest rates dropped it makes sense to close the old loan and shift to another bank that offers a lesser rate.
Renegotiation of terms and conditions-
If the EMI burden is becoming difficult to handle you may transfer your home loan and negotiate for a longer tenure with the new lender. Though a longer tenure will increase your interest payout, the EMI will be less taxing on your monthly income. You can also ask the new bank to change some other terms and conditions which your existing bank refused to entertain.
Top-up- Many banks provide you a top up loan that is over and above the existing home loan. Like personal loans the top up loan amount can be used for any purpose like home renovation, paying off an auto loan, debt consolidation etc. The rate of interest charged on this loan is usually lesser than the home loan interest rate. So if you need funds and your current lender is not agreeing on giving a top up, you can benefit from a balance transfer by shifting to a new lender who offers you this facility.

Quality of service- Another reason why you may want to switch your home loan to a different lender is the poor quality of services offered by the existing one. If you are unhappy with the substandard services and lethargic approach of your bank you can look for other better options. For example if the bank does not offer you special offers or privileges even though you’ve been consistent with the EMI payments you can think of a change.

Balance transfer usually makes sense in the early stages of the home loan tenure.  If the outstanding loan amount is low and the tenure is expected to end in a few years then it may not be ideal to go for a transfer. A balance transfer involves a lot of time, paperwork and expenses. The reduction in the interest payout should be significant enough to justify the efforts and the costs involved in transferring the loan. Inform your lender about your intentions before taking the final plunge.  Since banks do not want to lose their customer, sometimes they may give into your request and agree for a renegotiation. You may want to stick to the current lender if his offers are as appealing as the other competitors.

Wednesday, 15 February 2017

How to Use Online EMI Calculator Effectively

Most personal loans and home loans offered by lenders today are based on the EMI structure. You can compare these loans easily online, by using the loan EMI calculator. However, before you do that it helps to know a few things about EMI loans.
What is an EMI?
EMI is an abbreviation for Equated Monthly Instalment. When you get a loan, you repay it in smaller amounts on a monthly basis, which are called EMIs. Generally, an EMI includes both the principal, and the interest, and stays the same through the period of the loan. However, in some cases the EMI may change during the tenure. There are three possible scenarios that can make it happen. These are:
Case #1: Floating Interest
If the interest applied on your loan is fixed interest then the EMI stays the same throughout the tenure. However, if it is floating interest, then the EMIs might change, if the lender changes its policy regarding the interest rate in future.
Case#2: Progressive EMIs
If you have opted for a loan that comes with progressive EMIs then your initial payments will be smaller, which will gradually increase until the completion tenure. These kinds of loans are best suited to those who have just started their career, and can afford to pay higher EMIs as their income increased over time.  
Case#3: Prepayment
Say, you got a promotion at work, or receive a large heritage recently. You can use the money for prepayment of your loan, in which case the EMIs will become smaller. This is because the new EMIs will be based on the remaining debt(reduced after the payment). However, you might have to pay a certain fee for this option.
How to Calculate Your EMI
EMI calculation is based on one simple formula which is:
[P x R x (1+R)^N]/[(1+R)^N-1]
Here P is the loan amount or the Principal, R is the rate of interest per month, and N the number of instalments.
To understand the formula better, consider the following example:
Let the loan amount be Rs. 6,00,000, rate of interest be 10%, and tenure duration be 10 years (or 120 months). Comparing with the formula we have:
P= 6,00,000, R= 10/(12X100)= 0.0083, and N= 120
So, EMI = [6,00,000 X 0.0083 X(1+0.0083)120]/[(1+0.0083)120-1]
 EMI= [6,00,000 X 0.0083 X 2.696] / [2.674]
EMI=  Rs. 5020.97
Advantages of EMI Loans
All kinds of loans can be broadly divided into two categories- EMI loans and term loans. The latter comes with a fixed maturity date, and interest rate unlike the former, in which these values can change.
There are many advantages of EMI loans, some of which are as follows:
1. Flexibility- Most EMI loans grant a lot of flexibility. You can choose to prepay, or enjoy a lower interest rate if your loan comes with floating interest rate.
2. Affordability- For many people an EMI loan is the only way to afford a house or a car. If you have a good credit score, and your credit report shows timely payments and responsible credit usage, then you can easily get an EMI loan.
3. Manageable Pressure- You can settle for a convenient EMI loan repayment structure that you can manage. You have to pay affordable EMI payments every month, which won't affect your budget, and add minimum financial pressure.
Using EMI Calculators
Thanks to Internet you can easily compare EMI loans online easily. EMI calculators make it really simple to calculate EMIs of a certain loan. To calculate the EMIs all you need to know is the principal amount, rate of interest, and the duration of the loan. You can enter these values in whichever calculator you are using and you will get the results almost immediately.
You can make the most of EMI calculators by doing the following:
·         Make sure you have a list of all good loan options that you want to compare before you start calculating the EMIs.
·         Record not just the EMIs but also other factors such as interest and tenure duration.
·         Use a spreadsheet for recording all the values for easy comparison.

EMI calculators save a lot of time that you would otherwise have to spend by calculating EMIs using a standard calculator. Thus, use an EMI calculator to choose the best loan easily.

Thursday, 9 February 2017

Hacks to Choose the Right Lender

If there is a need there is a loan! Well almost! So regardless of what you want there are loans that can help you meet your financial needs, most of the time as long as you fulfill certain conditions and of course as long as your desire is within the purview of reality and practicality. There is a home loan that can help you buy a house, an auto loan for a new vehicle, education loan to continue your higher studies and a personal loan for things that do not fit in one of the above categories. There are different types of loans and numerous lenders. Well you know which loan to opt for depending on your needs but which lender should you choose? Here are a few ways that can help you choose the right lender:
v  Look at Your Credit Score
Before looking at lenders, a good place to start your quest for the right lender is assessing your credit report. A look at your Credit Information Report (CIR) ahead of applying for a loan or looking at lenders can help you tremendously. By looking the report you will be able to assess if you are eligible to get a loan or not; most main stream lenders look at the credit score as a starting point to determine if the loan application can be accepted. If your score is good (above 750) then you have nothing to worry about and can approach any lender without a worry. Score lesser than that lower your negotiating power but a score till 650 is generally not a cause of worry. For scores less than that you may have to look at co-operative banks, private lenders etc or agree to pay higher interests. Of course the best thing would be to try and increase CIBIL score if you have the time to do so and can delay you loan for a while.
v  Research, Research and Research:
There is neither a substitute nor a shortcut to this one and in today’s world researching for the required information is not difficult. There is a lot of information available online and offline too. With the available information you can find out about lenders, their terms and condition and whether you match them, the interest rates at which loans are available and also the turnaround time taken by the lender to approve and sanction a loan. It makes sense to go to a lender who will be willing to accept you loan application based on the eligibility criteria and credit score and the lender matches your needs too. So if you need an instant personal loan and the lender has a turnaround time of 4-5 days then it makes no sense to approach such a lender.
v  Understand the Fine Print:
As they say God is in the details, so just don’t look at the interest rates and loan tenure when choosing a lender focus on the fine print too. This includes finding out about all costs that are to be paid upfront or later for a loan. This may include expenses like processing fee, legal fee, fore-closure charges etc. Some times in the case of a home loan an insurance policy may be bundled with your product without you being aware of it. Later you may realize that buying a home insurance policy might not be the only way to provide security to you loved ones, there are other options available too.  Check about approval time and other not so clear terms. Choose after you have clarity about all the policies and their implications. Talk to friends, co-workers and family members to find out about their experiences.
v  Compare Rates/Terms:
This goes without saying; the first thing anybody would do is to check the interest loan rates when choosing the lender. However looking at rates is not sufficient, it also important to find out if the rat is fixed or floating or semi fixed and what method of rate calculation is used? Is the interest calculated of flat or reducing balance basis? Generally loans that are available at fixed rate at lower interest rates but in the long run they could be more expensive then reducing loan rates. A loan calculator can be used to calculate the difference between two options.
v  Talk to a Few Lenders Before Choosing One:
Even if you have researched online and you think you have found the right lender, do get in touch with a few lenders before making the final choice. Do not apply at different places as this will lower the credit score due to hard enquiries but you should talk to the bank representatives to get a better picture of what is available and if your understanding is in the right direction. This will give you a better perspective and help you in making the right choice.
So whatever you need, choose the right lender with the help of above hacks. Choosing the right lender can help you save a lot of money and a little trouble too!