Credit Scores: Know When to Hold Them

Your credit score will affect your life in more ways than you can think of. Although a large number of people think that credit score is necessary for getting a personal loan or credit card, etc. it’s only partially true.

Apart from affecting your chances of getting a loan or a credit card at an attractive interest rate, your free CIBIL score can also have an impact on your happiness as well.  If there is a big difference between your score and that of your spouse’s then it can affect your marriage. In fact, a low credit score can also lower your chances of getting a job of your choice.

There is literally no dearth of the reasons why you should increase CIBIL score. However, one might wonder, what does a low CIBIL score look like?

How to know where you stand?

If you want to maintain a healthy credit report, it would help you greatly to learn how a credit score works.

CIBIL, which is one of the most popular credit rating agencies of India and partner with a large number of banks and NBFCs, scores on a scale of 300 to 900.

In other words, you can have the lowest free CIBIL score of 300, and the highest of 900. However, the question is, when should you start getting worried?

Above 750:

A score above 750 is considered a good score. So, if yours falls into this category, then there is nothing to worry about. You have a good credit profile, which means not only you will be able to obtain loans easily, you will be able to do so on favorable terms and a low interest rate.

Between 600 and 750

A score ranging between 600 and 750 is considered an average score. What it means is that while you shouldn’t be worried, it would help to take an action. Below 600

If your score is below 600, then it should get you worried. Not only you need to stop your score from dropping further, you should act immediately and try to improve CIBIL score as fast as possible.

You never know when you are going to need a loan, and you want your profile up to the mark for the same.

Improving your credit score isn’t that complicated but it’s not easy at the same time.

The following are some of the most effective things that you can do to improve your score:

1. Improving Repayment Habits

Your repayment history plays the biggest role in the calculation of your CIBIL score. So, if you have made a lot of late EMI payments and credit card payments in the past, then your score won’t be able to increase.

To improve the score, it’s important to take every single loan payment seriously. No matter what happens, make sure that every payment is made on time, every single time.

If you are able to maintain a consistent repayment history, then you can enjoy an impressive credit growth.

2. Improving Credit Variety

What’s your credit history made of? Is it based solely on a personal loan or a home loan? When your credit history is unidimensional, it will help your score only so much.

What you need is to bring a variety in your CIBIL report. So, if you have only taken a personal loan in the past, then maybe you can apply for a credit card. Similarly, if your history is based on just a home loan, then you can apply for a car loan as well. This will surely help your score grow.

3. Capping Your Credit Utilization

Do you max out your credit cards frequently? If your answer is “yes”, then perhaps that’s the reason behind your low score.

You should always keep your credit card usage under control. Ideally, you should never spend more than 30-35% of the limit available on the credit card.

4. Avoiding Sending Multiple Loan Applications

Did you know that applying for a loan at multiple banks at the same time can have an adverse effect on your score? This is because it leads to multiple credit inquiries that are made by the banks to check your credit profile. This raises suspicions and damages your score.

To stop your score from taking any further damage, it’s important to hold off sending multiple loan applications. Instead, send them one by one with a decent gap between them.

For best results, keep an eye on your credit report. Observe the changes closely so that you can act accordingly on time.

I want to apply for a Used Car Loan, How do I Do That?

Whether one chooses to buy a brand new car or opts to buy an already used one, there is an option of getting a loan for either of them.  Most financers that offer loans for new cars, offer loans for used cars too. Thus depending on what you plan to buy, you could choose the most suitable option from the various options that are offered by financers. There are some similarities between both type of loans and also a few differences too! Here we explain the process on how one can apply for a used car loan.

What are Used Car Loans?

Used car loans are loans that are extended to buy pre-owned cars. The car model and how old it is determines a lot of aspects for the loan unlike in the case of new cars. Car loan interest rate is higher for pre-owned car loans when compared to loans that are extended to buy brand new cars. The loan to value ratio is also lower for pre-owned cars and the borrower can get loan varying from 60% to 80% of the car value, this will depend on various aspects and may vary from case to case.

Aspects to Consider Before Applying:

Certain aspects need to be considered before applying for any loan and few additional ones when applying for a used car loan.  As we said earlier the model and age of the car play an important part in getting loans for old cars. If the model is not being sold by the car company anymore and has been phased out or completely stopped then getting a loan for such a car could be a challenge. So if you are planning to buy such a car, either you need to modify your choice or you need to give up the option of getting it financed.

Another aspect to keep in mind is that the age of the vehicle and loan tenure should not be more than seven years. So if you are looking at buying a car model that is five years old then the loan duration cannot exceed 2 years; do keep in mind your repayment capacity when choosing the car as the tenure will also be determined by the age of the car.

How to Apply for a Used Car Loan

Below we give a diagrammatic representative of the process for applying for a used car loan.

As is clear from the above flowchart the first step is to choose the car model and check if finance is available for the model. You should compare between various offers based on the rates at which the loan is available, the loan to value ratio etc before choosing the lender. Each lender will have a different eligibility criteria so do check if you meet it before applying for the loan. Like for any other loan, you need to have a good credit history for getting your loan application approved. You can get a free CIBIL report online, to check your credit rating before actually applying for a loan. The next aspect is to then get all the required documents ready, this includes the identity and address proof, income proof and so on depending on what the bank’s requirements are. 

Once you have all the documents ready as per the lender’s requirement then you need to fill in the loan application form and submit it along with the supporting documents. When the lender gets the application for the used car loan, the lender’s valuators will estimate the value of the car and the loan would be sanctioned based on this valuation. 

When you struggle to repay the education loan!

When students take an education loan to pay for courses in various educational institutions, they do so in anticipation of securing a high paying job that would be enough to pay off the debt. But not everyone manages to get a good job after finishing their course. Many students do the courses from sub-standard institutions and end up defaulting on loans, since they do not find a suitable job. Many struggle to pay the education loan EMIs because of low salaried jobs. If you find yourself in the same boat then read on to find out what options you have to avoid getting into the bad books of the creditors.

The first thing that you need to realize is that delinquency can have serious repercussions on your financial life. If your loan payment is overdue for more than 90 days, it will be classified as an NPA by the bank. This information will be reported to the credit bureaus and it will in turn lead to a low CIBIL score. Both the borrower’s and the co-borrower’s (usually parents) credit history gets affected. Moreover such irresponsible behaviour may also put your collateral at risk. Hence it is extremely important to manage your finances well from the beginning and be responsible with your borrowings so that you achieve a high CIBIL score. A high score secures your financial life and makes it very easy to secure loans in future. A low CIBIL score will jeopardize the ability to access credit in future.

When you take an education loan, you must have a repayment strategy in place. Though you get a repayment holiday (one year after the course completes or six months after getting a job whichever is earlier) you can still choose to pay the interest on loan while you are persuing the course. This way when the loan amount is due for payment, the interest accrued during the study period will not be included in the EMIs. You may also get an interest subsidy of 1% if you pay the interest during the study period. Hence the burden of the EMI will be much less.

If you still find it difficult to pay the monthly EMIs because of low salaries, do not ignore the situation. Do not wait for the bank to issue a formal notice to you or take charge of the collateral. Such action from the bank will lead to a low CIBILscore. You should proactively approach the bank and discuss your situation. Tell them that you have every intention to pay pack the loan, but currently you are having trouble making EMI payments. They may offer you some of the following options.

Increase the tenure- Generally people take a shorter tenure loan of 5 to 7 years in the hope that they will earn better and repay the loan fast. But the situation may change after completion of course and you may struggle to find a good job. If the bank feels that your problem is genuine and temporary, they may agree to increase the tenure to 10 years. A lower EMI will become easy on your pocket. But remember a longer tenure will increase your overall outgo on interest payments.

Extend moratorium period- If you have good relations with the bank or strong negotiation skills, then the bank may even extend the moratorium period by 6 months to a year, so that you get an extended time to find a good job. Deferment of EMI payments can be a big relief when you are already struggling to meet your basic expenses. Sometimes the bank also agrees to extend the repayment holiday period if you take a top up loan to persue higher studies.

Restructure the loan- There are many relaxations that the bank may offer to make the repayments easier. Some banks allow the borrower to pay only the simple interest until they find a suitable job for themselves. The bank may also agree to lower the EMI in the initial years and then step up the EMI as the years go by.

Seek a part time job- If getting the right kind of job that matches your skills and expertise is taking time, you may think of taking up a part-time job till then so that you can meet your debt obligations in a timely manner. At the end of the day, the loan is in your name and you need to honour your commitments in whatever ways possible.

Always keep the communication channels open and inform the bank about your situation. Together you can work out an option that best suits the interests of both parties. There will be many high-ticket loans that you will be requiring later in life. Managing your education loan well will always serve in your interest. A strong credit history will always help you secure future loan approvals easily.

Your Personal Loan Eligibility Checklist, Let’s Check!

Loan is vital for modern man. You can avail a loan for all kinds of financial needs as well as for fulfilling your dreams. A loan is a sort of debt agreement between a lender and a borrower. The agreement makes it compulsory for the borrower to repay the whole loaned amount back to the lender along with some interest after some time.

Personal loans are basically unsecured loans wherein you don’t require a mortgage or do not entail a guarantor to avail the loan. But before applying for a personal loan, you are required to meet the eligibility criteria which may vary from bank to bank.

Personal Loan Eligibility Checklist

Both salaried person and self-employed can apply for personal loans. Some of the common grounds to check the eligibility are discussed below:

Age:
You should be in the age group of 21 to 61years, and if you are a self-employed person, it will be 60 years.

The Institution of the Borrower
The brand value of your organization can also be beneficial for you to apply for personal loan and you can get the loan at a good interest rate.

Income
It will be one of the important factors in this subject matter. You must earn at least Rs 4000 to Rs 20000 income per month. The maximum range of loan usually depends on the income of an individual.

Work Experience
You should have minimum 1 to 2 years work experience, and if you are working in a government sector, there will be more chances of getting the best choice loan.

Already Existing loans
If you already have these types of loans, you will obtain smaller loan amount but if your financial condition is good enough to pay for the additional loan the bank cannot decrease the loan amount. The ongoing loan reduces the repayment ability of the borrower.

Required Documents

•    ID proof

•    Residence proof

•    Bank statement

•    Job confirmation proof as well as Income proof

Role of Credit Score

The minimum credit score required for personal loans is 750. But it’s not only what you need. You must have to focus on your credit history and try to improve it as good credit score is more efficient for you.

How Banks calculate your eligibility?

The banks will calculate the applicant’s eligibility from their particular loan calculator. The loan calculator will accept your present monthly income or EMIs, your desired interest rate and repayment amount as an input. Through loan calculator, the eligibility can be considered in two different ways:-

The first one is multiplier method. In this process, you can calculate your eligible loan amount from your net salary and organization background. Usually, the bank has multipliers in between the range of 9-18 times of your net salary. You can apply the following formula for this purpose.

Loan Eligibility = (Your Net Salary) x (a number from 9 to 18)

The second method is Fixed Obligation Income Ratio (FOIR)- In this technique, your loan eligibility is determined by monthly installments (EMIs) with regards to net income. Banks usually receive 40 to75 percent of your net earnings as EMIs, current obligations and credit card outstanding debts. If your owed money goes beyond bank constraints, then the bank will decrease your loan money or raise the tenure of your loan. The overall obligations are considered before approving loan. But, if you aren't able to pay the loaned amount on your name, you can be shortlisted in loan defaulter list. So be sure before applying for the loan.

How to Enhance Loan Eligibility?

For this purpose, you need to understand few points. Firstly, stop paying for those loans which are almost on the verge of closure. Rather than paying last EMIs one by one, consider prepaying it. One time prepayment of previous loans can help you to talk with banks to acquire upper loan amount.

You can also negotiate with the existing lenders to move your current loans to a lesser rate and decrease the EMIs that might facilitate you to obtain a higher new loan.

In a nutshell, at last, you need to remember that you will own these loans only if you are sure about repaying back borrowed money.