Thursday, 1 December 2016

How do I Assess my Creditworthiness?

If you are going to apply for a SBI car loan, icici personal loan, or rather any kind of loan then your creditworthiness will be a crucial factor in the approval or rejection of your application. Almost all lenders base their judgement on the applicant's credit history, and other factors that sum up the creditworthiness.
Even though different lenders have different standards for measuring creditworthiness, almost all will take 3 C's into consideration. You can use these to assess your creditworthiness.
Capital: This refers to the capital you possess, or in other words- the balance in your accounts. Lenders also check your monthly earnings to understand your creditworthiness. If you are making a decent income, which is consistent, then you are likely to have high creditworthiness.
Collateral: Capital alone is not sufficient in determining how reliable you are credit-wise.  If you have any property that can be pledged for security then the lender can get comfort in the same, and feel safe with sanctioning your loan. However, if the property is already pledged against some other loan, then they can't use it for security, and may want to wait until the loan has been paid off.
Character: Believe it or not, your character can make a huge difference in your creditworthiness. Have you ever declared bankruptcy in the past? Has your name ever been on loan defaulters list? Does your credit report reflects poor money management? By answering these questions you can learn a lot about your credit-related actions, which actually affect your loan applications.
For personal loans that are to be used for business investments, lenders also take some additional factors into account for assessing the applicant's creditworthiness.  These are:
Conditions: Economic and industrial events may occur during the tenure that may affect your business. For instance, rise in the prices of raw materials that your business is dependent on, or employee strikes, etc. can damage your business, and pose a risk for the lender as you can have difficulty repaying the loan.
Inventories: The inventories that you own also affect your creditworthiness. However, unlike most people believe, a large inventory doesn't pass for collateral that the lender may take as a backup for security. In most cases lenders don't expect any business to make enough money selling off inventories for repaying their loan, especially in a short period. What they consider a good sign though- is how fast you rotate your inventory. This shows how efficient or successful your business is.
Other than the factors above there is one major aspect that is the most important for reflecting reliance to your lenders- CIBIL rating.
Your CIBIL score and CIBIL report will determine how likely you are to get a loan or credit card approved in the future. To get a personal loan for low CIBIL score is almost impossible in today's economy. Banks have become more stringent than ever. Thus, if you want to truly assess your creditworthiness, make sure you check your credit score first.
How to Check Your Credit Score?
There are a few major credit bureaus in India that provide credit reports for individuals and businesses. However, the one that's most recognized all over India is CIBIL (Credit Information Bureau India Limited). Thus, you can check your CIBIL score to get an idea of where you stand with your credit usage. Fortunately, obtaining a report is simple. All you have to do is go to their website and fill out a form, and upload a few mandatory documents. If all goes well, you can get your report within a few days, either via email or at your home via snail mail.
A CIBIL score ranges from 300 to 900 for everyone. Generally, a score that is greater than 750 is considered decent. If yours is lower than that, you can start paying your EMI's timely, and use your debt wisely to improve it. If your score is lower than 500 then it will be tagged as "poor". You will need to make a lot of changes in your credit spending habits to improve the score.

Thursday, 24 November 2016

Things That You Must Consider Before Taking a Home Loan

Having your own house gives you a strong sense of security; there are no two ways about it. However, real estate isn't cheap. If anything, it costs more than ever today. This is why many people have to take a home loan to meet the financial requirements of a home purchase. However, home loans have many moving parts, that you must become familiar with before signing any papers.
Here are some things you should know before taking a SBI home loan, IBDI home loan, or any other bank's loan:
Credit Score
If you are going for a conventional approach, then having a high credit score or CIBIL score is a must for any kind of home loan. Almost every bank you will apply the loan at, will check your CIBIL score when considering the application. Thus, make sure you check your credit score first, before you start applying. If your score is less than 750, then it is better than you spend some time to improve CIBIIL score.  Once your score is in decent shape, you can secure a higher chance of loan approval.
Types of Interest Rates
Not many people know about this, but there are two types of interest rates, which are- fixed rate, and floating rate. In a fixed rate, your EMIs remain the same throughout the tenure of your home loan. However, in a floating rate, your EMIs may change during the tenure, if the bank changes the interest rate in future. Both types of rates have their own advantages  and disadvantages:
·         Fixed Rate: This option is secure and stable. Since your EMI is fixed throughout the tenure, you can manage your finances easily. However, if your bank reduces the interest rate in future, then you won't be benefitted from it.
·         Floating Rate: Floating rate is risky, but it comes with a big advantage. If the bank lowers the interest rate in future, then your EMIs will also become smaller. The opposite situation brings a risk. That is, if the interest rate increases, then your EMI's will also become bigger.
When you apply for a loan, make sure you ask your bank about the type of interest rate that is associated with it. Choose your option wise, as both have their own set of upsides and downsides.
Extra Charges
It is important to know about the extra charges that may have to pay for taking a home loan. Depending on your situation, the cumulative charges can be a lot. Some of the common extra charges include administrative fee, service fee, processing fee, etc. Some of these could be directly proportional to the loan amount.
Make sure you get detailed information on the extra charges, and add it to the loan amount, so that you can make your final decision wisely.
Types of Home Loans
Depending on your requirements you can take the most suitable form of home loan, for the options are many. Here are some of the most common types of home loans:
·         Home Construction Loan: In this type of loan, you have to get an estimate of the home you want to construct, and then apply for the loan with the same amount. The lender will take the value under consideration, and approve or reject on the basis of the same.
·         Home Purchase Loan: In this you directly apply for a pre-constructed home. Since you already have the actual price in order, you don't have to do a lot of calculations, and merely apply for the loan at a bank.
·         Home Conversion Loan: If you already have bought a home through a loan, but now wish to buy a new home, then you can have the loan transferred to the latter. You don't have to repay the previous loan this way.

Taking a home loan is a big responsibility. Thus, you should do all your homework, and do as much research as possible, before finally zeroing in on one. Also, make sure you compare all kinds of viable loans, and choose the best one.

Wednesday, 16 November 2016

How Can I Get Best Deal on a Personal Loan?

In a perfect world no would need to borrow money for anything. However, truth is we don't live in one.  Majority of us would need to get a personal loan in life, at some point or the other.  Fortunately, banks and NBFCs have made it quite easy and simple to apply for a loan. Not only that, they often roll out exciting offers, such as low interest rates, flexible repayment options, etc. to attract their customers. You can even go for P2P (Peer to Peer) loaning options, that allow you to apply for a loan on the Internet, and get funds within a day or two. However, when so many options are available, it certainly begs the question- "how do you get the best deal on a personal loan?".

There are a lot of things that you can do to ensure you get the best possible deal on a personal loan. Some of these include:
There is a lot of competition in the banking sector today. Banks are vying against each other in the bid to attract customers towards personal loans. Thus, you can notice a considerable difference in the interest rates offered by different banks. The terms and conditions may also vary greatly. Thus, if you want to secure the best possible deal on a personal loan, it is important that you perform a through comparison among all the viable banks. 
Establishing the Upper Hand
You can only expect a good deal when you can prove that you have high creditworthiness. The easier you will make it for a bank to trust you, the easier it is to get a good deal. If you are going after a traditional bank for the loan, then your credit score will play a significant role in the process. Thus, by working on your score beforehand you can have the upper hand when negotiating rates with a bank. With a promising credit report you can take advantage of leverage, and convince the bank to offer lower rates.
Grabbing Seasonal Offers
If it is possible, you can wait for a festive season before applying for a personal loan. This is because a lot of banks release attractive seasonal offers. In fact, thanks to the tough market, banks have begun to implement all kinds of marketing techniques to increase the no. of sanctioned loans per quarter. If you can just wait for the right time, and thus the right offer, you may get the best deal on a personal loan.
Checking Out Online Lenders
Online lenders are giving tough competition to the traditional banks and NBFCs today. Whether it is about interest rates, tenure flexibility, or the entire process of obtaining the loan itself, they are able to excel in everything. Thus, you can check out if you quality for an online loan, and compare it with the traditional counterparts. Since there are plenty of online lenders that have emerged lately, you can compare them too.
Understanding The Method of Interest Calculation
If a bank or NBFC is offering you a personal loan at a really low interest rate, then make sure you go through the full details before signing up for it impulsively. Sometimes, to trick customers banks offer low interest rates, but these are flat rates, which don't consider gradual reduction of principal amount, and the interest amount.
What you should ideally seek in a personal loan is a diminishing rate, rather than a flat rate. With a diminishing rate, your interest amount gets smaller and smaller as you pay your EMIs. This is because the interest is calculated on the outstanding balance, which gets smaller with time. 
A loan is a huge financial responsibility, and since it stays with you for many years, it helps to get the best deal possible. In fact, the same goes for a home loan, higher education loan, used car loan, or any other kind of loan. Thankfully, with the help of Internet you can do enough research to find a loan that fits your budget, and your financial situation. At any rate, having a good CIBIL score always helps when dealing with a lender. So, make sure you have a good one before you get on board.


Wednesday, 9 November 2016

How to get the best deal on your personal loan

Loans are the need of modern life. There are so many expenses you can source from different types of loans. Personal loans are however one of the fastest disbursed loans wherein you also get flexibility to use credit for different purposes. Unlike auto loan, education loan or home loan, the purpose of personal loan is not defined. With minimum documentation, these small scale unsecured loans are easy bets in the times of financial emergencies.

However it is imperative that you know how to make best use of the different types of personal loans and find the best deal as per your requirement. Here are some quick tips to follow before you apply for a personal loan.
1.       Be it a foreign vacation with the family, education of your kid, medical emergency, renovation of your office/ home or a luxurious shopping spree for an upcoming celebration in your life, a good score would help you get a personal loan of choice.  However it is imperative that you do your homework well and compare personal loans offered by different banks.

Thus as a thumb of rule, compare different deals before you finalise one. Comparing not only helps you find the cheapest deal but evaluating different banks’ offers also educates you. This will help you compare the interest rates and total cost of the loan, and you would be able to make a learned choice at the best price.

2.       While comparing the personal loans interest rates, check out all the expenses. The cost of loan includes, monthly installment, bank’s processing fee, documentation charges and pre closure charges. So do not just stick to interest rate when comparing two offers.

3.       Next point in consideration should be an article for pre-closure of the loan. Some banks charge if you opt for pre closure of loan. So, if you wish to close the loan in the middle of the term you should clearly study this article and find the deal that doesn’t add cost to loan if you pre close it.

4.       There are many factors that can help you get a better loan deal. Take for example, you already have a loan account with ABC Bank and you are regular in your payments. The ABC bank may offer you a good deal as you are a steady customer. So if you use a credit card or have a loan from a bank, try to negotiate your request from the same bank. A bank is also interested in retaining its diligent, old customers.

5.       Not to mention, one of the most important factors that help you get the best loan deal is your credit score. A good score increases your credit worthiness and reduces bank’s risk metric. Thus with a good score you naturally become an eligible customer of a bank for lending money. According to CIBIL, 80 per cent of people with 750 or more score can access bank products as per their choice.

6.       A bank always prefer to lend to those who can repay the loan. So your job details, employer’s or company’s reputation, your personal assets such as a house, car or other assets besides your cibil score also add to your eligibility for a personal loan.

7.       Your interest rate would also depend on the number of years you want a loan for. Usually a long term loan has less steeper interest rate.

8.       As personal loans are unsecured loans, you would find that popular banks such as SBI, PNB, HDFC and alike, often offer the best deals. They are usually the first ones to announce the RBI’s repo cut on interest rates. They often offer good festival offers too. So festival time indeed could be the time to get the new credit line.

9.       If in case you lack a credit history or are just employed, you should apply for a credit card and get a secured loan. This would help you build a good history within six months and later on you can try other avenues of credit.

10.   Last but not the least, apply for personal loan only in case of emergency. For, there are other credit options that are cheaper. A secured loan is always cheaper because of collateral or security. But an unsecured loan is most risky offer by a bank. So without having an extra ordinary reputation, interest rate of personal loan is ought to be more than education, auto, or home loan.

Knowing these points I hope you are more confident about getting the best personal loan deal.

Thursday, 3 November 2016

How to Understand Car Interest Rates

A long-term car loan that comes with a low interest rate can make buying your favorite car affordable and easy. However, is it wise to just go with any kind of loan? To choose the best auto loan you must know how car interest rates work.
Here are 3 of the most important factors that you must take into account when choosing a car loan-
1) Car loan interest rate- If you will compare different auto loans that are available in the market you will be surprised to see the difference in their interest rates and conditions. For instance, the SBI car loan floating interest rate is 9.65% - 9.70%, of United Bank of India is 10.00% - 10.50%, and of Corporation bank is 10.20% - 10.70%. As you can see there is a good different between them all. Even though the difference is a small percent it can make a big difference in the long term.  According to most finance experts a car salesman can either give you a great deal on your car or an excellent financing. It is rare to get a deal that lets you enjoy the best of both worlds. So, unless you compare car loan interest rates that are available you can’t find the best deal.
2) Getting the Best Deal- Thanks to the high competition and the drive for closing-deals that car dealers have you are often offered incentives from the financer when you apply for an auto loan. However, they can choose to shape the deal the way they want and you have to understand what kind of system works best for you. For instance, if the manufacturer is providing discounts your dealer may instead offer you  lower EMIs. Say, you take a Rs 4-lakh loan at 12% interest rate for 5 years. The EMI will cost Rs 8,810. If the discount provided by the manufacturer is Rs. 25,000 your dealer could reduce it from the loan amount itself, making your EMIs as low as Rs. Rs. 8,200. Or, instead he can decide to tell you that he can give you a lower interest rate of 9%. Comparing the two a lower interest rate is a lot better in the long run.
3) Math of Car Loan Interest Rate
A car loan interest rate is calculated neither on “simple” interest rate system nor on “compound” interest rate system. Instead the interest is calculated on the outstanding amount that changes every month as you continue to pay EMIs that reduce the principal.
To help you understand how the calculations are done here is a schedule that is based on a car loan of Rs. 100,000 for 12 months at a car loan interest rate of 12%-
EMI Number
EMI Amount
Principal Paid
Principal Outstanding

If your bank is a private bank then the car loan interest rate is reduced on a monthly basis, and if your bank is a nationalized bank then in most cases it reduces on a daily basis.

Choosing a car loan often comes with a trade off. Having small monthly EMIs can be an excellent option if you are on a tight budget but it also means you will be paying a lot extra in the form of interest. On the other hand you can save a lot of money on the interest by paying higher EMIs but it can force you to cut down on your expenses. It all comes down to your own requirements and conditions. At any rate, make sure you compare different car loans before you zero in on one. 

Wednesday, 26 October 2016

Are Payday Loans Really A Quick Solution In An Emergency?

Financial emergencies are always uncalled for. They arise at the times you least expect them. Many a times an already faltering debt account mounts up into a huge liability. And you are bound to borrow more to meet the outstanding bills. Such emergencies are most difficult to deal with.

Thus it important that you keep track of your credit accounts and know your loan status regularly so as to not enter a financial muddle ever in your life. Nevertheless, even under huge financial crunch when you already have too many bills to pay, you still have certain cash solutions such as payday loans to take shelter to.

What is a payday loan?
A payday loan is basically a small unsecured loan drawn for short-term. It is also known as payday advance, salary loan, payroll loan or a cash advance loan. Anyone who is employed and have a fixed source of income, can apply for payday loans. Though these loans are not very popular in India, but are picking up as they provide instant solution to your monetary grievances.

Why payday loans are looked at as a solution in the times of emergency?
Payday loans are perfect for emergency as they are quick, convenient, easy to apply for or get approved of, at the same time.
For example, during the times when you have excessive debts and too many accounts it is always advisable to close small, expensive loans first and get a consolidated loan or limit the number of payable accounts. However to do so, you would require immediate cash to re-arrange your portfolio.
In such case, small term payday loan would work like a magic hand. You can get the cash via pay roll loan within 24 hours. So pay day loans are the best bet when it comes to draw an untimely credit line.

You should resort to payday loans keeping following tips in mind:
1. Apply only when you are looking for a short term loan. The pay day advances should never be looked at for long run as these are very expensive loans.
2. Apply for these loans when you are sure about generating cash in the near future. You need to be confident of paying back on time as failing to do so could be very bad for your financial health. Indeed it can build a financial catastrophe if not planned well.
3. So, never go for payday loans casually. Only in the times of utter emergency resort to payroll loans.
4. You can apply for these instant cash loans at institutions other than banks too. For example, if your name is in loan defaulter list and you want emergency cash you can apply for payday loan from some financial institution or corporative society. So payday loans are available outside banks too.
5. If you are employed and have a salary slip you would get a payday loan easily. Usually the lender would expect you to payback as you get your next month’s pay. These loans do not drive a credit check or back ground check, only a payroll and ID proof would be required to apply for payroll loans. Thus pay day loans are one of the easiest loan options to apply for.
However many people question the legibility of payday loans. Are payday loans really a quick solution in an emergency or a worse option to opt for?
One of the major cons for payday loans are they are expensive loans to apply for. So before you resort to this quick loan in an emergency it is important that you also understand the nature of these loans clearly. These are not only short term easy solution in the times of emergencies but are one of the most expensive loan options at the same time!
If you are a bit hesitant to arrange for cash next month or have too many financial bills lined up, it would be better to not increase added burden of interest rate. Instead try to follow following tips to manage your loans:
1.       Have a budget and spend accordingly.
2.       You should resort to saving all the time.
3.       It is necessary to look for more and more avenues of income and save.
4.       Try to figure out expensive loans and get rid of them as soon as possible.
5.       Clubbing small loans into one umbrella loan is also a smart option as it saves your time to manage various accounts.
6.       You need to ensure that you do not miss a re-payment at any cost and keep paying back regularly as it would not only rid you of your debts but would also build a good history that would help you in future.
7.       A quick loan like payday cash advance should be an option to get rid of a liability instantly. You should be confident to fill that loan next month.

8.       If however you would want to avoid high interest loans you could consider peer to peer lending option too.

Friday, 21 October 2016

Factors that impact the interest rates

Factors that impact the interest rates!

If you want to spend more money than the actual cash in hand you have, you will need to find someone willing to lend his surplus funds. For you as a borrower the interest rate will be the cost of borrowing money. It is the price that you will pay for gaining the ability to spend the money now instead of waiting for the time when you are able to save enough.  For example taking a home loan to purchase a house will enable you to own the house now, instead of waiting for the future when you accumulate enough cash. For the lender it is the protection against inflation and a compensation for bearing the risk of lending money. The purchasing power of the money lent today may decrease in future if there is a rise in inflation. Interest income covers for such risks and compensates the lender for forgoing the opportunity of earning money from investments that could have been made with the loaned amount.
The interest rates keep changing. While the rise and fall of interest rates is very difficult to predict they mostly reflect the changes in monetary policy, fiscal policy and economic growth of a country. They also differ based on the type of loan and the length of the repayment period. These factors that bring about changes in the interest rate are explained below.
Demand and Supply
Typically interest rates are determined based on the demand and supply of money in the economy. If the demand exceeds the supply of funds available to be loaned, interest rate rises until it reaches a state of equilibrium. Conversely an increase in the supply of money will lower the interest rates.
When people deposit their money in the bank, they are actually lending funds to the bank to use it for various investment activities. Since banks have more money to lend out to borrowers, more credit is available in the economy. As the supply of credit funds increase the rate of interest decreases.
Monetary policy and intervention by the government
The central bank of the country that is the RBI controls the liquidity in the market through its monetary policy. When it loosens the monetary policy and expands the money supply, interest rates get reduced and people are attracted to spend more money. This brings a spur in the economic growth. When it tightens the monetary policy, liquidity reduces and interest rates increase leading to a lower economic growth and reduction in inflation. Based on the economic conditions RBI changes its key policy parameters-repo rate, CRR and SLR; to bring about a balance in the money supply. These parameters serve as a benchmark for the bank’s interest rates.
Government also manipulates the supply of money in the economy through open market operations. By purchasing large amount of government securities it increases the money supply and by selling those government securities it reduces the supply of credit. This has a direct effect on the interest rates.
Growth in the economy 

The economic growth in the country has a profound influence on the interest rates. When the economy is prospering the confidence level of people to borrow and spend money is high. The demand for funds increases thereby pulling up the interest rates. During economic slowdown people tend to borrow less and spend less. As the demand for investment and consumption in the economy declines so do the interest rates.


Another important factor that governs the movement of interest rate is the rate of inflation. As the cost of goods and services increases over a period of time the purchasing power of the currency gets reduced. In order to protect the returns of investment against the risk of inflation the interest rate that lenders charge on the loaned amount exceeds the inflation rate. This compensates them for the decreased purchasing power of money that is repaid to them in future. Therefore when inflation rises so do the interest rates.
The interest rates also vary depending upon the amount of credit risk on different types of loan. In case the loan is secured the risk level of the lender is less so the interest rate levels are low. In case the risk of default is high then interest rates tend to increase to cover for that risk. If the lender is lending money to a person with a low credit score who has a history of late payments then he is at a greater risk of losing out on his investment. He will therefore charge a high interest rate to compensate for the higher risk that he is taking.

While most of the factors that affect interest rates are beyond our control, one thing that we can do to ensure that we get the lowest interest rates on borrowed amount is to maintain a clean credit history. A person with a good credit score can always bargain for the lowest interest rate possible when he shops around to borrow funds.