Thursday, 26 May 2016

What is a suitable age to take a Home loan?

Is there a suitable age to take a home loan? If someone were to ask me this my first reaction would be whenever you can afford it and I guess that is what most people will think. Well after I gave some serious thought to the subject it seems that is not the case; taking a home loan has a strong co-relation to the age of the borrower and borrowing at different stages comes with its own baggage. So rather than waiting for the right time it is important that you know what is the right time to borrow and then plan accordingly.

Starting Young…..
Let us look at the scenario when one plans to take a home loan when they are young which means that they have just acquired financial independence (not like two months back); the job is new but still fairly stable and they have less responsibilities. This would generally be the age group 25 to 30, there is no hard and fast rule give or take a few years. Let us consider what are the advantages of starting young:
Ø  Fewer Responsibilities: In the initial years after one assumes financial independence there are considerably lesser financial responsibilities for a person as compared to in later life when the expenses rise due to a growing family. Thus paying the EMI can be simpler in these years and with passing years the EMI burden will ease out due to growth in income.
Ø  Longer Term Available to Repay: Though banks have the maximum loan term fixed as per their own rules but another factor that comes into play is the age of the borrower. The banks are not willing to extend the loan duration beyond the retirement age of the borrower. Thus the sooner you borrow the longer you have to repay the loan, which can ease the EMI burden considerably. The difference even a five year loan term makes to the monthly outflow is considerable and can easily be seen by using a home loans EMI calculator.
Ø  Effective Way of Planning: Buying a house is a great way of financial planning, it brings in financial discipline, helps in building an asset and also aids in tax planning. So the sooner one does the better it is. Also when one starts young there is still some leg room available to scout for the right property, do some research and wait, there is no rush.

On the flip side: 
While starting young has their advantage there is a flip side too, obviously! Since one is at the start of their career they might not be able to afford a big monthly outflow and similarly they may not have enough saved for the down payment. Thus they might have to limit their options to less steeply priced options. It can sometimes put financial pressure on the borrower too!

Don’t Panic If You Are Slightly Older:
Ø  Well if you have crossed that age there is no reason to panic. As obviously when one grows in their career they have more financial security and a higher income flow. Thus buying at this age gives one the edge to be able to bear a bigger loan burden and gives them more flexibility about choosing the right property because of a bigger available budget. Plus if both partners are working they could explore the option of taking a joint home loan. A joint loan has many advantages like bigger eligibility, share responsibility and greater tax advantage.

Do Factor In Other Aspects Too:
Well though the odds are in favor of starting young, the situation may vary from each individual to individual and also depends on some macro factors and of course conditions like financial stability, willingness to commit to a place and so on.
Ø  Property rates: Whenever one considers buying a house they should definitely look at the general market trend for property rates. It does not make sense to invest when property rates are inflated, better to wait for the right time.
Ø  Interest Rates: Home loans interest rates are a major consideration when deciding about from where to borrow and when to borrow. So again look at how the market interest rate trend is, no point taking a very expensive loan. It makes more sense rather to wait for the interest rates to soften.
Ø  CIBIL score: Irrespective of the age one decides to borrow, the CIBIL score is important. In case it is low, you might want to take some time and try to focus on how to increase credit score before applying for a loan. A good CIBIL score is a great advantage when applying for a loan.
Though taking a loan when younger is better; but like stated earlier focus on other factors too like one’s financial stability, employment status and the possibility to stay in one place. Macro factors should also be given due importance along. Borrowing when slightly older comes with its own set of advantages.

Thursday, 19 May 2016

Checklist to see Before You Apply for a Car Loan

In current times cars are mostly bought by taking a loan. Though taking a car loan is not as complicated as taking a home loan but still an individual needs to exercise caution and consider a few factors before applying for a loan. This will ensure that one gets the best deal and also does not have to face any negative impact on the credit score due to a rejected loan. Though the basic process is same there may be a few variations from one lender to another which makes it useful to check the lender’s process before actually applying for a loan.

Checklist for Taking a Car Loan:
Let us briefly discuss a few factors that must be considered before one applies for a car loan.

Ø  How Much to Borrow:  The first thing one needs to finalize is how much to borrow. This will be based on two factors; the first is how much one has saved for the down payment and the other is the EMI bearing capacity of the borrower. The loan requirement will depend on the cost of the car and the LTV policy of the lender. Having said that the amount one can afford to pay as installment and what is saved as down payment also influence the borrowing capacity. One can use a car loan EMI calculator available online to check how much they can pay each month comfortably.

Ø  Terms and Conditions of the Lender: Though the basic rules for auto loans will be same across lenders, there can be small variations in the terms and conditions which can make one FI more suitable for your requirements. If you have saved less for the down payment then one might prefer a lender that has a high LTV ratio. LTV for new cars is usually around 80% to 90% while in the case of second hand car loan it is around 60% to 80%.

For Example: Mr. Suresh wants to buy a car worth Rs. 800,000. He has saved around Rs 100,000 for down payment which is almost 13% of the car value. Thus he will have to approach a bank that has a LTV ratio of 90% for car loans as a lender who offers a lower LTV will not match his requirements.
Factors like processing time, charges, loan duration also impact the borrower’s choice and must be given due consideration before finalizing the FI.

Ø  What is your Credit Score? An individual’s credit score plays an important part in loan approval. Thus a few months ahead of applying for a loan one must access their credit report to see if there are any negative or disputed items in it. This will let give the person some time to try and improve upon their credit score if required and get a quick loan approval on favorable terms. In case of a low credit score one has the option to approach lenders that offer loan for bad credit score. Having said that, this option is highly avoidable as these loans are available at very high interest rates. Thus it is advisable to keep a healthy credit score which will allow one to access a loan on favorable terms.

Ø  Documents Required: No loan can be approved without the requisite documents. These will include the mandatory identity and address proof, income and employability proof and so on. Ahead of applying for a loan one must get the required documents ready so by checking with the lender the actual requirements. In case something is missing take necessary actions to get the requisite documents ready.

Consider the above when planning to borrow for buying a car. Being prepared will ensure that one does not waste time and effort when they actually apply for a loan and will also help in saving money and time.

Thursday, 12 May 2016

Disputing negative items from your CIBIL report

Mr. Mehta accessed his Credit Information Report (CIR) and was surprised to see a loan that did not belong to him. On further investigation he found out that it was a personal loan taken by someone else that was wrongly reported in his CIR.
Mr. Sharma before applying for an auto loan checked his CIR and saw a loan in his CIR that he thought did not belong to him but after going through the details he realized that it was a home loan that he had guaranteed for his brother. 

In the above examples Mr. Mehta has a genuine CIBIL dispute which requires that he take action to get the negative item removed from his credit report while Mr. Sharma’s is not a dispute but an oversight on his behalf.

Understand the Negative Term First:
Before trying to remove a negative term from the CIR it is important to first understand the reason behind the negative term. Negative term could be due to various reasons. There could be an instance just like in the case of Mr. Mehta when a loan that does not belong to you is reported in your CIR because of an error or sometimes due to identity theft which could have made it possible for someone to open a loan in your name. This is done by getting hands on fraudulent identity and address proof documents of a person and taking a loan based on those documents.

It can also happen that you have a running loan or a card and by error the lending agency has reported a delay or a default though you have paid on time. In both the cases despite you not being at fault your credit report could be impacted negatively. Thus these instances should not be ignored and must be immediately brought to the attention of the right agency so that the negative item can be removed from the report. CIBIL cannot do so on its own and will get in touch with the financial agency that has reported it to get it removed from your CIBIL report. Doing so might take time but it will immediately increase credit score.  

The negative item can also be a result of an actual late payment or a payment default, the lender will report to the rating agency about it and the same will be accordingly updated in the CIR. In such a case there is not much that can be done except pay the dues and try to settle the account. Depending on the nature of default the impact will last for a few years. 

Disputing the Negative Term….The Process.
As discussed above the negative term can be due to a multitude of reasons and depending on the reason the corrective action will have to be taken. If the negative term is due to an error on the behalf of a third party then also it should not be ignored and it has to be brought to the notice of CIBIL. There is an online process as per which the wrong entry can be reported and CIBIL will take the necessary action to get it removed from the credit report. It is however required that the report holder get their report or check CIBIL score online free to see if the changes have been updated or not. One can write to CIBIL too which will then get in touch with concerned lender and the lender will revert, as per the information received CIBIL will update the report. The entire process takes around 30 days.
When there is in actual default or delay then the borrower has to pay the dues so that it is not reported in the subsequent CIRs but the negative impact of the past delays cannot be avoided. When a payment has been made or an account has been settled then also one needs to get the CIR to see if the same has been updated in the report. Settling an account will impact the report depending on the type of account and how it has been settled.
A red band in the report indicates that there is disputed item in the report; till the time it is resolved the red band will appear in the report. Once the dispute is resolved after the information is received from the concerned lender the report will be updated.

Thursday, 5 May 2016

This is the right time to invest in your own home

A roof over one’s head is a cherished dream that every individual has, and for any middle class salaried person it turns out to be the most important financial decision he is called upon to take in his lifetime. If you are willing to take that big step ahead and thinking whether or not this is the right time to invest in your own home, here are some answers that you will find useful, before you go out seeking the best home loans in India and compare home loans. 

A conducive economic environment
Before making a purchase decision when it comes to property it is but natural that you need to check out the economic environment. The overall macroeconomic outlook for the nation has an impact not only on the real estate market but a direct bearing on home loan interest rates. From the latter half of the year 2015 there have been encouraging economic trends, with respect to the reducing inflation, cutting down of key short term rates by the Reserve Bank of India and a increase in GDP growth. With further rate cuts said to be in the offing, the stage is set for a revival in the real estate sector that has been in a state of turmoil over the past few years. 

Changing stance of developers
Developers have a natural affinity to invest in big housing projects that have investors flocking in and raking in the big bucks. However, with a slowdown in the economy over the past few years, developers found themselves stifled with unsold inventory. As a result there have be property price cuts in the range of 20-30% across markets in India.

 Besides, there was a gaping demand and supply gap as there was a severe shortage in housing in urban India. With a rapid growth in urbanization, developers are now realizing that affordable housing is a notion that is here to stay and notwithstanding the problems associated with dealing with buyers who come from the middle to lower income group, developers are realizing the tremendous potential that lies in this segment. 

The Government too, in the latest Budget sweetened the deal for developers who are now eligible for a 100% deduction of profits for undertaking housing projects for flats up to 30 sq meters in the four metropolitan cities and 60 sq. meters in other cities, so loan as the projects are approved by June 2016 and completed within 3 years. This is a considerable benefit for developers who can now reap the benefits of a 15 to 20% upside even after paying Minimum Alternate Tax (MAT). This would also give them the opportunity to attract foreign and domestic investment for housing projects. Given these advantages, developers have already begun advertising a slew of projects that bear the affordable tag. 

Advantage to the prospective buyer
The Government aims to extend the advantage of having a roof over one’s head to the entire nation. Towards this end, it has not just encouraged developers to launch more affordable projects with the exemptions as stated above, the new budget baits in the first time home owner who is willing to take a home loan of Rs 35 lakhs where the price of the property does not exceed Rs 50 lakhs. For such aspiring home owners, the Government has granted an additional tax exemption of Rs 50,000. Therefore, if you have been waiting in the wings to buy your own house, this is indeed good news for you. 

Before you apply
Before you go about checking your expenses on a home loans EMI calculator, here is a word of caution. The RBI has made it mandatory for all lenders to check out your credit score as a part of their credit assessment process. Therefore having saved up for the down payment of your house may not be enough if you do not have a CIBIL score of 750 and above. Ideally therefore you should have been making continual attempts at improving your CIBIL score, at least a year or six months ahead. Before you apply for your home loan, make sure you pull out your CIBIL score and CIBIL report and see that you have a perfect credit score. 

If there is anything amiss such as an error that has brought your score down, make sure it is rectified before you make that application. Finally, keep all your papers such as your salary slips, your bank statements, an employer certification and the likes in order before you apply so that your application process can go through smoothly. If everything is already in order and all you were waiting for was the “right time” to make the investment in your first property, there is indeed no better time than now!