Thursday, 30 March 2017

Do not shop around for loan. It may lead to rejection

If you were to apply for a college and school admission the strategy one would follow is to apply to maximum places and then wait for a favorable response. This would seem to hedge your risks. The same can be done when applying for a loan, right? That way you would be assured of getting a loan at favorable terms; no wrong. Applying for loans randomly is not a good idea; while it makes sense to compare interest rates for a loan and also the terms and conditions it does not make sense to apply at too many places as it could impact your chances of getting a loan approved.
Shopping for Loan: Why to avoid?

Before we understand why shopping for loans is bad it is important to understand about hard enquiries. Whenever one applies for a loan, the first step is the prospective lender seeking a Credit Information Report of the applicant from one of the credit bureaus. This generates a hard enquiry and is one of the five factors that go into the credit score calculation. Thus as many applications you make for a loan there will be as many hard enquiries corresponding to it as each bank will access your credit score. All these enquiries into your credit score are reported in the CIR and impact the credit score negatively. Thus if you are working on trying to increase CIBIL score a good way would be to stay away from making any loan enquiries.
So coming back to shopping around for a loan; when you make too many credit enquiries then it reflects that either you are credit hungry or are not qualified to get a loan or both! While at some point a hard enquiry may be unavoidable and it is mandatory before a loan is sanctioned it is best to avoid too many of them. Making too many credit enquiries can reflect that the applicant is credit hungry and is trying to access credit from multiple lenders at the same time or within a short span of time which obviously makes such a person a high risk candidate and lenders would obviously try to avoid such an applicant. Then another conclusion that can be drawn from a CIR which has too many credit enquiries is that the applicant is applying for loans with various prospective lenders but his/her application is being rejected thus leading to fresh loan applications. This will also make the prospective lender vary and could reduce your chances of getting a loan sanctioned. One or two hard enquiries a year will not have any adverse impact on your credit score.
Shopping for Loan: The Right Way:

Loans are usually a burden whether big or small depends on the loan quantum, interest rates and duration. In some cases especially like home loans even a small difference in the interest rate or the terms and conditions could make a huge impact financially. Quite obviously one would like to compare home loans, the terms and conditions, interest rates and other things too before applying so that they can get the best deals. But how to do this without reducing your chances of getting a loan approved.

Thursday, 23 March 2017

Focus on Credit Factors Rather than Credit Score

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

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

Friday, 17 March 2017

How to Compare Education Loans in India?

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

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

Thursday, 9 March 2017

How to avoid getting addicted to credit?

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

Here are some tips that will help avoid credit addiction.

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

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

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

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

Thursday, 2 March 2017

How to Get a Home Loan with Bad Credit?

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

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