Friday, 20 April 2018

Gold Loan Interest Rates Depends On Credit Score?


Ankita is a housewife who plans to start her own business and for that she is planning on taking a loan. She is faced with a hurdle; she has no credit history since she has no credit cards or loans in her name. She was disappointed but her banker friend suggested that she consider taking a Gold Loan. Ankita heeded to the advice offered to her friend and was able to kick start her business venture.
What are Gold Loans?
A gold loan is a loan that is sanctioned against gold as collateral. Thus the applicant can pledge jewelry; ornaments or gold in any other form and the lender will sanction a loan based on the value of the loan offered as collateral and also the loan to value ratio which has been fixed by the RBI and at 75%. Thus the applicant can get a loan up to 75% of the gold that is given as collateral. Getting a gold loan is fairly easy as documentation for it is simple; disbursal is fairly fast; some lenders may lay down minimum income criteria while others may not. Thus these loans are often simple and quick to procure when compared to other loans and can offer financial assistance in the time of a crisis.
Gold loans and Credit Score: How are they Related?
Often people with no credit history or low credit score prefer to seek a gold loan. Many lenders may agree to sanction a loan to the applicant without seeking their credit report or even if they have a low CIBIL Score.  The reason for this is that liquidating gold (in case the borrower defaults) is much simpler that trying to sell a car or a home in case of a car loan default or home loan default by the borrower. Thus the lender is assured of the safety of their funds and may be willing to lend to those who have no credit score or a low score too!
Often gold loan thus is a choice for those without a credit history or no credit history. Generally interest on loans (mostly) are affected by the credit history, lenders may be willing to offer loans at lower rates to those who have a good credit score as the lender in this case assumes a lower risk and for those who have a low score the interest rates on loans may go up but this is not the case when it comes to gold loans. As stated above most lenders do not even seek the credit report when an applicant applies for a gold loan, which is usually the first step in most other loans. If the lender finds the credit health of the applicant satisfactory then only they go to the next step when scrutinizing applications for home, auto, personal loans and so on.
Interest on gold loans is of course dependent on the market conditions, the lender’s policy and one more factor, the LTV ratio. Though the RBI fixes the upper limit for the LTV ratio lenders can choose to offer loans at a lower ratio too. So when the loan is offered at a lower ratio then the lender may be willing to extend the loan at a lower interest rate as compared to when the LTV ratio is higher. So if the value of the gold offered is Rs. 50,000 then loan value can go up to Rs. 37,500 but if the applicant needs or agrees for a loans of a lower amount, say Rs. 30,000 the lender may be willing to offer a loan at concessional rate. Thus unlike in the case of other loans, gold loan rates or their sanction is not dependent on the credit score but the LTV ratio may impact the interest rate.

Wednesday, 11 April 2018

On What All Properties Can I Get Lap?


LAP or Loan Against Property as the name suggests is a loan sanctioned against property and this makes it a secured loan. While most banks offer LAP, the eligibility conditions and also the product features may vary from one to another. LAPs can often be used as an alternative to personal loan when in need of funds as the interest rates for these loans is much lower than that of personal loan. Approval is quick and documentation required is minimal; however the crucial question that arises is what are the properties against which these loans can be secured?

On What Properties Can You Get LAP?
To put it broadly a loan against property is available for a self occupied residential properties, any plot of land or a commercial property. An important requirement for this loan requires that the applicant (owners) have full control over the property without any restrictions what so ever. In case of joint ownership, all owners have to be co-applicants for the loan which means all owners have to be on board for the idea of taking a loan against that said property.

Most lenders do mention the property type against which they might be willing to give a loan. As per the SBI website the loan is available for “non-encumbered, non-agricultural and SERFAESI compliant residential house/flat in the name of borrowers/guarantors. However, loan under this scheme will not be made available on mortgage of an open plot, commercial/industrial property and under construction property”.  This is a fairly broad definition which reveals that SBI does not offer loans against agricultural land or open loans or under construction property.

Both ICICI and HDFC bank list that the loan can be secured for residential as well as commercial property owned by the applicant. Getting a loan against vacant land can be a challenge as most lenders may not see it as an economically viable option in case of default. A vacant land will not be easy to rent or dispose of in case it is required by the bank to do so. Small or local lenders may agree to do so but it will depend on each lender’s policy. However most lenders would be willing to offer a construction loan if the applicant requires that to build a house on a piece of land owned by him. Eligibility criterion for these (construction) loans, although similar to home loan eligibility criterion varies from lender to lender.
Lender may differ on their policies regarding what is acceptable to them as collateral for a LAP  thus one should check with the individual lender or visit their website before looking at applying for the loan.
Loan Against Property Eligibility Criteria:
Like any loan there are eligibility conditions for getting a LAP sanctioned. Though these may vary from one lender to another but some basic conditions remain same.  So if you want a LAP you should fulfill the following conditions (generally), rest can be checked at the lender’s website.
Ø  Salaried employees who are permanent employees and professionals like architects, doctors, CAs, engineers etc can apply for it.
Ø  Self employed people can also apply for these loans as long as they pay regular income tax.
Ø  A good credit rating is also a must for the loan to be sanctioned, low CIBIL score could be an impediment in getting the loan sanctioned.
Ø  Some lenders may have minimum income eligibility criteria while others may assess the income, current debt and expenditure levels to assess if the borrower will be able to repay the dues.
Ø  Value of property is an important criterion when deciding about LAP.
If you have a property and you are in need of some quick funds then borrowing against it an option worth exploring however one should avoid taking a loan against a property that the live in or the one which is occupied by their family. If this is the only property owned then other options of borrowing should be explored.

Thursday, 5 April 2018

How Much Will A 5 Lakh Car Loan Actually Cost U?


Automobile sales have seen a rapid growth in the past decade. A personal car is the first thing that the young generation of today want as soon as they land a job. Most of the car buyers finance their purchase through a bank loan. While entering into an agreement what most people are concerned about is the monthly instalment. But EMI is not the only thing one should be bothered about. One should take into account the total cost of financing a car and compare it across multiple banks before taking a final decision. Find out the rate of interest charged by the bank and their processing charges. Also determine whether you can arrange for the down payment, since most banks give 85-90% of the car value. If you think you can prepay the loan, find out if the bank levies any prepayment charges. A dealer may offer you ad-ons like extended warranty, insurance, theft protection etc. which may further increase the amount that you need to borrow.
Your EMI amount goes towards the payment of 2 components- Principal and Interest. Principal is the actual loan amount that you borrow i.e the car value minus the down payment. Interest is the amount that the lender charges for taking the risk of lending you money. In the initial part of the tenure, the interest component forms a major portion of the EMI.
The cost of the loan depends majorly on the interest rate. This APR varies from individual to individual depending on several factors like CIBIL score, total tenure and whether the vehicle is old or new. A high CIBIL score and shorter loan tenure will help you get better interest rates. The interest rate on loans for new cars is usually less than those for old cars. If you have a low CIBIL score, your APR on the car loan would be higher and that would translate into a higher EMI amount.
You can use the auto loan calculators available online to estimate your monthly payments that you need to pay towards repayment of the car loan. You will need to provide information relating to the loan amount, interest rate, tenure, processing fee etc. and the calculator will give you a breakup of the payments. You can key in different loan tenures to see how it affects the EMI. Usually a longer tern will lower your monthly outgo, but it will increase the total cost of your loan.
Let’s take an example of an HDFC car loan. The factors that affect the HDFC car loan eligibility include income level, tenure, CIBIL score and prior relationship with the bank. Your CIBIL score plays a crucial role as it helps in determining the HDFC Car loan interest rate.  A high score is an indication of low risk for the banks and helps in getting discounted rates. HDFC offers upto 100% of car loan value for a tenure ranging between 1 to 7 years. One can use the EMI calculator to get an estimate of the EMI. Say the amount is Rs 5 lakh, and the HDFC Car loan interest rate is 9.25% for a new car. One can fill in these details and find out the EMI amount for different tenures.


2 years
3 years
5 years
7 years
EMI on 5 lakhs @9.25%
Rs 22,900
Rs 15,958
Rs 10,440
Rs 8,108
Total amount you pay to the bank
Rs 5,49,600
Rs 5,74,488
Rs 6,26,400
Rs 6,81,072
Total interest payment
Rs 49,600
Rs 74,488
Rs 1,26,400
Rs 1,81,072

The EMI amount is more if you choose a shorter duration. As the loan tenure increases the EMI amount decreases. But with a longer tenure you end up paying a higher interest amount. For a 5 lakh loan you pay Rs 49,600 as interest over a span of 2 years. But with a loan tenure of 7 years the total interest cost comes to Rs 1,81,072. So choose a loan tenure wisely. You will need to strike a balance between EMI affordability and interest expenses.

Saturday, 31 March 2018

Personal Loan VS Educational Loan


As the cost of education rises, it becomes difficult to fund higher studies from one’s own pocket. That is why taking loans to pay for the college fee is becoming quite common. The two most common financial options that one has are personal loans and education loans. There are different parameters based on which one can decide which option best suits one’s situation. If you too are seeking a loan for higher studies, this article will help you compare these two choices and help you make a sound financial decision.
An education loan is favoured because of the following reasons.
1.      Moratorium period
This period is referred to the time during the loan period when the borrower is not required to pay the instalments. In case of education loan there is a provision of moratorium period. The repayment begins 1 year after the completion of course or 6 months after one gets a job whichever is earlier. The interest during the moratorium period is also calculated on simple interest basis and added to the principal outstanding. You do have an option of paying the interest while you are studying if you have the resources to do so. But in case of personal loan there is no waiting period. The payment of regular EMIs begin as soon as the funds are disbursed. This essentially means that someone needs to shoulder the burden of repayments (on the borrower’s behalf) till the time one is studying and is without a job. In case your parents or relatives are not in a position to do this, personal loan no longer remains a choice. An education loan is better from this aspect, as it allows sufficient period to a person to settle in a job before the burden of EMI starts.
2.      Interest rate
An important factor that is taken into consideration while choosing among different loan options is the cost of borrowing. Since education loans have a specific purpose of providing a financial backing to students, they usually have a lower interest rate than the personal loans. Axis bank personal loan interest rate varies from 15-24% whereas education loan interest rate is between 10 to 13%. The processing fee is also lower in case of education loan. Hence it makes financial sense to go with this option.
3.      Loan tenure
Personal loans are usually offered for a period of maximum 5 years. Whereas education loan tenure goes up to 10 years. A longer tenure means that one can have lower EMI amounts which can be easy on one’s pocket.
4.      Loan amount

It is easy to get a personal loan of 4-5 lakhs, but if the education cost is much more than that, then personal loans sometimes not even remain an option. Maximum amount of axis bank personal loan is Rs 15 lakhs. One can get an education loan of Rs 50,000 to 1 crores depending on the kind of course one has enrolled for. Longer tenure of education loans helps in making the EMIs affordable even if the loan amount is high.

5.      Tax benefits

Personal loans do not offer any tax benefits. Interest payment on education loan qualifies for tax deduction under Section 80E of Income tax act. This benefit can be claimed after the loan repayment starts and for a period of 8 years. Such benefits reduce the total cost of taking loans.

But education loan comes with its own set of disadvantages. There are a lot of formalities during processing, and it takes a long time before the funds get disbursed. Banks have stringent eligibility requirements. They ensure that the applicant’s name is not in the loan defaulters list. They check the CIBIL score of the individual to analyse his past credit behaviour. With personal loans one can get funds instantly. If you meet the requirements one can get the loan within 3 days. There is no restriction on how the money is spent.

Weigh the pros and cons of both these options and consider which factors are more important to you considering your personal situation. In case your family can support the EMI payments till the time you study and the loan amount isn’t too high you can consider personal loan. However from the point of view of interest rates, tax benefits and loan tenure an education loan is a better choice.


Friday, 23 March 2018

4 Tips to Restore Your Credit Score in the Last Quarter of the Financial Year


It can take months, if not years to build a high credit score. However, many times it takes just one wrong decision or a single instance of carelessness to ruin your report badly.
Fortunately, you can reverse the damage in most cases if your committed to it and willing to make a few small sacrifices.
As we are nearing the final quarter of the financial year 2017-18, it’s a good time to improve CIBIL score and get everything back on track.
The following are the top 4 tips to restore your CIBIL score in Q4:

1. Diversify Your Credit Portfolio
How does report look like? Does it contain repayment details of a credit card, personal loan, home loan, etc.? Or is it unidimensional, with a credit history of only a single form of credit?
If your credit report doesn’t have a variety of credit forms, then maybe it’s one of the reasons why your score is not up to the mark.
To solve this problem, learn about how to check CIBIL score and CIBIL report and see what your financial history comprises of. If there are just credit card repayments, then maybe you can apply for a small personal loan or a car loan. Similarly, if it contains only the repayment of a home loan, then maybe you can apply for a credit card.
Diversification of credit portfolio is one of the simplest and fastest ways to improve CIBIL score in the final quarter of the current fiscal year.

2. Pay Your Credit Card Debt in Full
If you have been enjoying the convenience of minimum payments of the credit card bills for several months, then now is a good time to repay the accumulated debt.
Although minimum payments allow you to prevent penalties on credit card payments, they lead to high debt accumulation. Thus, you should always strive for full payments.
By taking care of your entire debt you can observe a major improvement in your CIBIL score. For even better results, it’s best to start repaying all your future credit card bills in full and on time.

3. Check Report and Remove Errors
A large number of people still don’t know how to check CIBIL score. However, what’s more unfortunate is that even those who do, tend to underestimate the importance of the same and end up with a low score.
To ensure that your credit report stays healthy and up to the mark, it’s strongly recommended that you review the same every 3-4 months.
If it’s been a long time since you checked your report, you should do it once again now that only a few months are left for the FY to end.
In doing that, you can identify errors and mistakes which when rectified, can improve your score. You can also find out about unauthorised transactions that may result from a case of identity theft. Thus, the benefits of frequently reviewing your report are many.

4. Limit the Credit Utilization
There is nothing wrong with using credit cards for payments, shopping, and other kinds of transactions. In fact, depending on what kind of card you have, you can actually save money by spending money via reward points and cashback offers. However, in all this, you must pay attention to your credit utilization.
If you want to improve your credit score, then it’s important to keep your credit utilization below 30% to 35%. So, to take an example, if the limit on your credit card is Rs. 1 lakh, then you should try to spend only Rs. 30,000 to Rs. 35,000 using the same. For other payments, you can use cash or mobile wallets, etc.
In a large number of cases, restoring credit score can take several months. However, the tips given above are most likely to get the desired results faster so that by the time you reach the next financial year, you can start with an improved score.


Friday, 16 March 2018

Which is the Best Credit Card?


If you are looking for a credit card, you will be surprised by the number of options available. While it may seem like a good thing as this means there is card available that suits your exact requirement but finding the right card amongst so many options available could be a challenge. So here we try and help you choose the right card as per your requirement.
Understand Your Requirements:
As we said earlier there are so many options that making a choice could be challenging. The first thing is to understand what your requirements are and then choose a card that matches it.  Without being sure of your own requirements choosing a suitable card for yourself is not possible. If you travel a lot then it makes sense to have a card that can be used with ease internationally, if you spend a lot on shopping then a card that offers an attractive reward structure and so on. It is also important to be sure about the kind of credit limit you want. A low credit limit could harm your credit score if you usage is usually higher than 30% of your sanctioned limit but your credit limit cannot be based solely on your choice. It depends on your income levels and also the eligibility criteria as specified by the card company.
Best Credit Cards As Per Features:
Below is a list of few cards that suit different requirements and hence you may find it useful.
Ø  Citibank Premier Miles Card:
This card is best suited for those who travel a lot. The user gets access to premium airport lounges across the world, 10000 miles are awarded on activation and subsequently there is attractive reward structure that lets the user earn miles on bookings and other transactions. These miles can be redeemed at over 100 airlines. The annual fee is steep at Rs. 3000 which may prove to be a deterrent and the card is issued only to those who already have another credit card, so it is not suitable for first time card applicants.
Ø  Standard Chartered Platinum Rewards Card:
This card comes at a nil annual fee; the applicant may be charged a joining fee of Rs. 250 upfront but that will be waived off when the card is used within first 90 days. This card is suitable for salaried people who use the card for a host of transactions. The rewards structure includes reward points for registering for online banking, using the card for dining and fuel and also cash back on Uber rides.
Ø  SBI Simply Click Credit Card:
This card is best suited for people who are in love with online shopping. The annual fee of Rs. 499 can be waived off if the user spends Rs. 1 lakh within a year of getting the card issued. The card is issued only to salaried applicants. Users get a voucher from Amazon worth Rs. 500 on joining; the card offers an attractive reward structure when shopping online with special benefits for Amazon, Cleartrip, Fabfurnish and many more. You can also get waiver on fuel surcharge and get an e-voucher from Cleartrip. 
Ø  Standard Chartered Super Value Titanium Card
This card could be a great choice for first time applicants who spend a lot on fuel, phone and utility bills. There is no annual fee for the first year, second year onwards there is annual fee of Rs. 750 which is waived off on case the user spends more than Rs. 60,000 in a year. The joining fee of Rs 499 is also waived off when the user spends more than Rs. 30000 in a year.  The user gets 5% cash back when paying for fuel, utility bills and phone bills.
Ø  ICICI Instant Platinum Card:
As the name suggests this card is available instantly, so if you are in a hurry then this card is for you. This card also offers another advantage; it is suitable for first time applicants who are finding it difficult to get a credit card issued for some reason. This card comes with no annual fee and can be issued against an FD which makes it a great choice for those who do not have running source of income.  The credit limit of the card is linked to the deposit amount. The card also comes with some attractive rewards but will be difficult to get one without holding a deposit with ICICI bank.
As we said right at the onset of this discussion the choice available for credit cards is huge and it’s not possible to discuss all of them. We have just picked a few based on the different features and utility they offer. There are many great choices available depending on what you need.

Wednesday, 7 March 2018

What To Do When You Have Too Much Debt On Your Credit Card


You would rarely find a financially independent person in current times who do not own credit cards whether single or multiple, multiple is more likely.  Most shopping and other transactions whether online or offline are done using the credit cards. These cards not only offer the most obvious convenience of buy now and pay later but also eliminate dependence on cash and of course there are attractive reward structures. So here is the good part but there is always a flip side, not being careful with their use could easily mean that you have too much debt on your credit card. What can you do if you find yourself in such a position?
Dealing With Too Much Debt on Your Credit Card:
Too much debt on the card has a lot of problems associated with it. This can be the cause of low CIBIL score, a high debt means the high incidence of interest and fines and of course it could be a potential debt trap. Here we offer a few suggestions that can help you deal with the situation:
Ø  Consider a Balance Transfer:
A balance transfer is an option of transferring the balance from one credit card to another; this could be done in the case of multiple cards too. While even after opting for a balance transfer you still have to pay the dues but you get a reprieve of 90 days in this case. The new card company allows you a credit free period of 90 days which may give you some time to get your finances in order and then pay the dues. Additionally, you could opt to shift your balance to a card with lower APR, thereby reducing your interest cost.

Ø  Start Paying Dues With Highest Interest Cost:
Credit card debt is known to be very expensive but there is a variation in the interest charged by card companies depending on their policies. APR (Annual Percentage Rate) on credit cards could be as high as 36% in certain cases. So when you have collected a large debt on your card, the first thing to do is to check for the APR of each card. While it is not advisable to miss paying any card dues but it’s a good idea to focus on the one where the interest cost is highest and pay that one off the fastest to reduce your interest cost and burden while continuing to pay the minimum dues on the rest.

Ø  Pay the lowest overdue balance first:
Another strategy that one could adopt is to start with clearing the dues on the credit card that carries the lowest outstanding balance. If you have more than one card then it is obvious that all cards will not have the same outstanding balance. Pay off the lowest balance first so that at least one of the cards balances is off your report. Then you could go on to the next credit card balance. So you could pay the entire dues on the card with the lowest balance and for the rest pay the minimum balance in the meantime.

Ø  Start Being a Disciplined Card User:
This may seem to be the easiest of all the above suggestions but yet the most difficult one to follow. Most likely (barring a few unexpected situations like a medical or personal emergency), the cause of too much debt piling on your credit card is being undisciplined while using your credit card. Spending more than you can pay at the end of the month, being an impulsive spender, paying only the minimum amount due on your cards frequently are some of the reasons that can lead to this situations. Thus being disciplined in paying you full dues and not carrying them forward and not missing any payments can help you overcome this problem. Budget your card expenditure and stay within it, avoid impulsive buying so that you do not add to the already existing debt burden.
Well, in an ideal situation one must not pile up too much debt on their credit card but in case this has happened, little planning and disciple can help you deal with the problem.