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.

Monday, 27 August 2018

Must To Do List Before Buying a Home


Buying your own house is kind of a big deal for people even today. Even with a lot of loan options available in market, one always stays at the edge when buying a dream home. Many of us make quick and wrong decisions when it comes to getting a property. The mistakes can be short term or long term. Short term includes your transactions with the property developer or the banker and long term may include you making silly mistakes while making the EMI payments. It is really important to understand these aspects before you dive into the property market pool.
If you are in market hunting for a home and do not know where to start, you are at the right place. Today we will cite you the must do list when it comes to buying a home.
  1. Know your credit score
It goes without saying that you will be opting for a loan when you are trying to buy a house and what is the main component when it comes to loan hunting, that’s right! Credit score. A credit score plays an important role when it comes to loan processing. Before you apply for a loan, know your credit score and understand where you stand in front of the home loan lenders.
  1. Start hunting for an ideal lender
There are many options available in market when it comes to home loans. Various banks and non-banking financial companies have different schemes related to home loans. You should know which lender will suit you better. The best suggestion would be to contact your home branch and see if you have any pre-approved loan options. ICICI home loans are the best lenders in the market who have attractive interest rates and less processing fees.
  1. Calculate total cost of the property
You may fall for various offers from the developers and the banks when it comes to buying a house. Many banks may portray that they give up to 95% funding on the house and after you make the 5% you come to know that the 95% funding was on the property price excluding government charges. Before you make the purchase, you should ask for the cost sheet from the developer and confirm what all components are included in the loan so that you do not have any surprises later. It is suggested to do a proper cibil score check to get maximum funding.
  1. Only buy what you are comfortable paying for
Many of us make this mistake. We go for a high value property just because we are eligible of getting the loan amount sanctioned. What about the future? We know nothing what would come across in the future. Before buying the house make a mental estimation stating if this is what you want? And if its worth it in the future to make life simple.

  1. Do a thorough check on the developer
You don’t want to be duped in this property tornado. You must have heard about a lot of examples where the developer has made a fraud and has run away with the money. Always buy property with reputed developers who have well known name in the market so that you minimize your chance o f being duped.
  1. Know the growth of your investment
It’s an amazing feeling of owning a house, but you will have to consider other factors as well when it comes to buying a house. Just make sure the property your buying should give you fruitful returns in the future. The property should be more like an asset rather than a liability.
  1. Pay EMIs on time
Buying a house on EMI is kind of risky, because if you do not pay your EMIs on time you may lose your property to the lender. This will not only affect you mentally but will also hurt your chances of getting a loan in the future.
Do not lose your sight on small mistakes you can commit while purchasing a house. This can cost you in the long home loan run.

Friday, 24 August 2018

Things to Take Care of while Applying for Personal Loan


Personal loan is an instant short term solution for cash strapped individuals. If you just search for “Personal loan” on Google you will get numerous options of lenders willing to offer loans at attractive interest rates. Some advertisements are so appealing that people simply get carried away and take the offer without finding out the important details. Here are some important things that one must take care of while applying for a personal loan.
Purpose of loan- The one key decision that one must make is whether to take a loan at all or not. One must draw a line between essentials and luxuries. While taking a personal loan for medical emergencies, education or repairing a house makes sense, one must not use it to finance a vacation abroad or invest in share market. Personal loan interest rates are usually very high, hence these loans must be take only in times of urgent need.
Research for options- One must not only compare the offers on personal loans provided by different banks, but also evaluate other options like a top up home loan or loan against property. Find out the interest rates, tenures offered, prepayment charges and other terms of various types of loans to get the best deal.
Check your credit score- Banks pull your credit report to assess whether you are a reliable borrower. They reject your application if you have a low credit score or else charge exorbitant interest rate to cover for the risk. It is wise to check your credit score before applying for the loan, so that you know your likely prospects of getting the loan sanctioned. If you have a low score, take some immediate steps like paying off your credit card debt to improve the score by a few points. A high score can be used to one’s advantage for negotiating for a lower interest rate.
Type of interest rate- Find out whether the bank charges a flat interest rate or reducing balance interest rate. Flat interest means that the borrower pays the interest on the entire loan amount for the entire tenure of loan. Reducing balance means that the interest is charged only on the outstanding loan amount. So as the EMIs get paid and the principal amount reduces, the interest payable also reduces. Flat interest rates are typically offered at a lower rate, but that does not mean that your total interest cost is less. Sometime reducing balance rate method results in lower cost of borrowings even if the rate is slightly higher.
Other charges- Apart from the interest rate, one must also find out about the processing fees and prepayment charges that a bank levies. Processing fee is usually 1-2% of the loan amount. Include it in the total cost of borrowing to compare the options you have. If you are struggling with cash flows find out how much late payment fees does the bank charge if you miss the deadline of paying the EMI amount. Prepayment fee is another charge that many banks levy in case you wish to prepay the loan when you have sufficient cash available. If you want to close the loan as soon as your cash situation improves then assess this cost before you make a choice.
Read the terms and conditions carefully- Sometimes the relationship manager hides a lot of things, just so that he can close the deal. Read the terms and conditions yourself before you sign the dotted line. You must know what you are agreeing to as the agreement becomes legally binding.
Avoid add on offers- Sometimes banks try to sell additional products with the loan like life insurance policies. Don’t believe them when they say you do not have to pay anything for it. It’s just that you do not pay anything upfront. The premium for such policies gets added in the EMI amount.
Borrow only what you need- Personal loan is a very expensive form of debt. Borrow only the amount that you need and not what you are eligible for. Bank executives use various sales strategies to get you to borrow a big amount. Do not give into such tactics. Why pay an interest on the amount that you don’t need?
Make sure you can afford the EMIs- Since personal loans usually have a shorter tenure and a high interest rate, the EMIs put a strain on one’s monthly budget. Do an honest assessment and borrow money only if you are sure of your capability to service the EMIs. Any missed or delayed payment will not only attract penalty but also pull down your score.

Friday, 3 August 2018

How to use the Compare Option to Decide on Best Car Loan

Abhishek wants to buy a new car, this being his first car he is very excited and wants to take the decision after careful consideration. As he began to compare the various brands and models he realized that there are so many factors that require attention. He did not get bogged down and did manage to find what he wanted and also something the fitted within his budget!
Just like buying a car is a decision that requires careful comparison between options, so does choosing the right lender too! You need compare the loan options available before choosing the right one.
Comparing Car Loans to Choose the Right Option:
If you are looking for car loan you would know that there are numerous lenders in the market that can be approached. So how do you decide which is the best option for you? Here are a few factors that can help you make decision:
  • Interest Rates:
Needless to say interest rate is the first and usually the most crucial factor when it comes to choosing a lender for any kind of loan. So do look at the rates at which car loans are offered by various banks/NBFCs before you choose one. Interest rates range from 9-5% to 14% depending on which FI you approach. It is important to mention here that if you have a good credit score then you have an edge. You can approach any lender without being worried about your loan application being rejected due to a low score and you can negotiate a good deal for yourself too if you have a good rating.
  • Processing Charges:
Processing charges as is obvious from the name are charges that are levied by the FI for getting the loan application processed. They are not similar across board, some may charge a flat rate irrespective of the loan amount, and some may charge it as a percentage of the loan amount while other may not charge any fee at all. Obviously you would like to approach the one who does not charge any amount as this fee could burn a hole in your pocket but bear in mind that other aspects also need to be considered when making this decision.
  • Loan to Value Ratio:
Loan to value ratio is the amount of loan that you can get as a proportion of the asset value. This again varies across lenders. LTV defines the maximum loan that you can get as a percentage of the car value, the rest you need to pay from your own pocket. Thus you should have the rest of the amount saved to make as a down payment. If you have a larger amount saved you could opt to take a loan lower than the LTV ratio too, this will reduce your overall interest cost. If you have no savings to make a down payment then there are few FIs that offer 100% finance but you will have to meet the car loan eligibility set by the lender in order to get the loan sanctioned.
  • Prepayment Charges:
Prepayment charge is an amount that may be charged by the lender in case the borrower chooses to pay the loan amount before the term ends. These are mentioned in loan agreement and may be also mentioned in product details. It is a good idea to have clarity about these and compare the charges that would be levied by various lenders before choosing one. While some banks may not charge anything at all for a prepayment, some may not charge anything after some time has elapsed while others may charge an amount as percentage of the outstanding amount.
So buy your dream wheels but before doing that compare the various options available before choosing one.


Friday, 27 July 2018

Can secured cards help in building your score?


Let us go back to time and relive the moment when you first got your driver’s license. We bet, it would be a proud moment for you and you would have a feeling of accomplishment. But before you got your driver’s license, you must have went through a process of obtaining a Learner’s License. You must me thinking why are these people sighting this story to us? The topic clearly is about secured credit cards.

A secured credit card is just like your learner’s license where you are not at risk while using it.
So first of all, what is a secured credit card exactly and how does it work?
A secured credit card is equivalent to a traditional card, unlike a prepaid card or a debt card. Its sole purpose is to help individuals who are in desperate need to improve cibil score. Also help people who do not have a credit history at all. Unlike other debit cards, a secured card has the same terms and conditions as of a normal credit card and you can enjoy the same privileges associated to a normal card.
As the name suggests, a secured card can be availed by depositing a particular amount as security, unlike normal cards which do not need deposits. With some banks, the bank will provide you high limit on your card as compared to the deposit you have made.
Now many people have a perception that if we do not make our payments on time, the bank can deduct money from our security deposit. This is absolutely not the case! As mentioned earlier, a secured card has the same terms as a normal card which compels you to make all your payments on time and avid keeping balances on your card.
The Big question here is how can a secured card help you build your credit score?
Now, if you have a bad cibil score, you probably must be thinking of getting a secured card but is it beneficial? How soon can you expect your score to see inclines?
The Answer to this is there is no quick mantra to improving your credit score in snap time. You will have to work hard on rebuilding your credit score, which eventually will take time. A secured credit card can help you achieve it as the credit bureau will consider your card just like any other financial product on your portfolio.
Tips to use your secured card wisely
Use it for small purchases
Owning a credit card does not mean you can go mayhem on your purchases. You should always remember the purpose to get a secured card on the first place. Make small purchases every month and try to make your payments on time. Only make purchases you can pay of easily without facing much of problem.
Do not go for minimum payment
Going for minimum payment can cause you a lot of damage, as these types of cards is availed on the basis of deposit money. You will have to pay additional penalties and other interests associated to the card. Try making the due payment in full to avoid such charges. You can feel pain interest and penalties for money your money.
Set payment alerts
No one is perfect; there are high possibilities on missing your payment due date. Set payment alerts to stay up-to-date with your payment dates to avoid unnecessary penalties and charges.
The best option is to opt for auto pay option
This is the best option available from every credit card lender these days. Be it a secured one or an unsecured one, you should always opt for auto pay option so that you do not face any problems of not remembering your payment date and the payment is automatically made on time.
A secured card can have some drawbacks of its own, but it can help you in the long run of building your ruined reputation on your credit report. It can help be secure a traditional credit card with an improved credit score.

Thursday, 19 July 2018

Five Points To Ensure That Your Loan Application Is Approved


There are various occasions when one needs an extra financial help. To buy a home, to study further, to start or expand the business, wedding, travel, to buy a car, to buy a bike are few of the examples where an individual might feel a crunch of cash and would want that help. Usually, that help is taken from banks or NBFCs (Non Banking Financial Companies). And that help is called a loan. A loan is basically an amount of money which is borrowed from someone or bank or NBFC that is expected to be returned with the interest decided on it. While one is applying for a loan, there is basic homework that needs to be done. In this digital-era, going through the bank’s website and getting the rough ideas is the best and the easiest way to work on it. One could easily get the basic information about the charges, document requirements, feasibilities and if the loan would be sanctioned or not. So they don’t need to practically go through so many banks and check to it.

Once the homework from the borrowers is done, its time to make sure that one should be well equipped with the things that would matter in getting the loan approved. Here are the five major points which banks see in order to sanction any loan

1. Credit Score / Credit Report
As the very well know the concept, credit score is a three-digit number ranging from 300-900 which comprises of the behavior of the credits one has taken and the repayments did. Any score higher than 700 have high chances of loan getting approved along with the lower interest rates. Credit Report is the detailed summary of all the credits taken and an individual whose score it is. An individual gets one Free Cibil Report every year from the credit bureau as per the RBI rules. Make sure that your credit score is always above 700, and if not go through your credit report and check where are the errors and try to correct them.

2. Repaying Capacity
There is a term called Debt Burden Ratio(DBR). DBR, as the name suggests, is the capacity of the individual to pay the debt against the expenses he/she has. It is usually considered 30:70 where the income should be divided into the 70% of expenses and 30% debt that one would be able to bare. If it fits perfect, the repaying capacity of the person is then considered and the loan amount is decided. Maximum it is compromised to 35-40 % in special cases, which would be the actual repayment capacity of the borrower.

3. Collateral
Except for the personal loan, whichever loan is processed would need the collateral. What is collateral? Collateral is basically any asset or property which is kept against the loan amount taken as a security. If in case, an individual is unable to pay the loan, the banks or the NBFC would acquire their asset to clear out the debt. The collateral value must match the loan amount taken, if it doesn’t, the loan is given only of the value of the collateral.

4. Personal Discussion
There are the representatives of banks or the financial institutions who would do the personal discussion with the borrower to ensure the reason of the loan, the characteristics of the individual, the intent of repayment etc. Based on this personal discussion, the representative decides if the loan amount would not turn to a bad-loan for them. If the cibil score is low, and the borrower is in the process to Improve Cibil Score, these people would understand the behavioral pattern and analyze the character of that individual.

5. Documents
Any loan that is processed, needs the documentation. Starting from the personal identification documents up to the required loan type documents are checked. When planning to apply for a loan or applying for a loan, one should be ready with all these papers to then avoid the delay.

If taken care of these points, and making sure that there is always a progress over these, getting the loan approved is just cake walk. One should always understand the thin line of importance in taking care over the five points mentioned above to missing one of them would make them pay a huge price which would help them achieve and conquer the dreams of better future they have seen.

Friday, 13 July 2018

How to repay Home Loan faster?


Owning a house of your own gives you one of the best feelings, but paying a hefty EMI on a monthly basis does put a strain on one’s finances. When a major portion of the salary goes in repayment of the loan, one is not left with enough money to spend on luxuries. Besides, the longer the tenure of the home loan, the more costly it becomes to own a house. With the high interest rate that one has to pay on home loan, it is always a smart decision to get rid of the loan as fast as possible. That is why repaying the home loan faster becomes a top priority for many people. Here are some simple ways that will help you pay your debt faster and save money in the long run.
  1. Avoid luxuries
You need to motivate yourself to build a corpus that you will use to repay your home loan early. Begin by having a close look at your monthly expenses. Identify where you can cut corners. Avoid spending on luxury items for a few years. You may avoid vacationing on a foreign location and save a lot of money. Let the peace of mind that you will achieve on becoming debt free motivate you to reduce your monthly expenses as far as possible.
  1. Increase the EMI amount as the salary increases
When you take a home loan, the EMI amount is usually fixed at 40%-50% of the monthly salary. Over the years, as your salary increases, the percentage of the salary that goes towards payment of the loan goes down. To repay the home loan faster, you should increase the EMI amount as and when your salary increases. If you maintain the ratio of salary that goes towards EMI you would be able to reduce the loan tenure whenever you get a hike in your salary. For example with a monthly salary of Rs 50,000 your EMI on a DHFL home loan would be fixed at 20,000. If your salary increases to 75,000 you must raise your EMI to 30,000. Maintaining this discipline will help you pay the loan faster.
  1. Pay the principal early
In the initial years of the loan repayment, a major portion of the EMI goes towards payment of interest. The rate at which the principal amount goes down is very less. If you plan to pay a slightly higher EMI, the additional amount goes towards the payment of principal amount. This helps in reducing your loan tenure.
  1. Make partial payments
Whenever you receive a lumsum amount, make it a habit to make a partial payment of the principal amount. You may receive a festival bonus or yearly performance bonus from your company, your fixed deposits may mature or you may get a gift from relatives. Use every such opportunity to divert funds to your loan account. Whenever you make a partial payment, you get the option of either reducing the EMI or the tenure of the loan. Make sure you reduce the tenure and not the EMI. Banks accept an amount as low as Rs 10,000 as partial prepayment of loan. But some banks do have a cap on the number of prepayments that you can make in a year. Check with you bank for details.
  1. Switch to a different lender
Since your home loan is a long term liability, the difference of even a small percentage in rate of interest can help you save a lot of money. If your current lender is charging a higher rate, you may shift to a different home loan provider. You need to consider the processing fee and other charges involved in the transfer to find out whether the shift is really worth it.
The long tenure of the home loan puts a strain on one’s finances. And if you have taken a loan with bad CIBIL score, your rate of interest would be too high. Paying your home loan fast is a smart way of getting in control of your financial life. You may have to make a few compromises, but you will surely save a lot of money in the long run.