Friday, 27 April 2018

Does Credit Monitoring Hurt The Score?

A credit score has become an important financial number that affects several aspects of one’s life. It is not just helpful for people who are looking to take loans in near future. Everyone must improve credit score as you never know when an emergency situation strikes and you are in need of funds. More and more people are waking up to the importance of keeping their credit in good standing. Checking one’s credit report is an important step in achieving this goal. There are several benefits of monitoring your score and report. It helps one understand the current financial position before applying for a loan or credit card. Checking the score gives you a fair idea of your chances of approval and whether you will be eligible for discounted rates. Monitoring one’s credit also helps uncover fraudulent activities or mistakes or errors in reporting. But many people fear that monitoring the score will itself hurt the score. Is it true?
Not at all! It is a big myth that checking the score is bad for one’s credit. Let’s see how.
Enquiries made regarding your credit do affect your credit score to some extent. 10% of your score is based on the number of enquiries made. But these include only hard enquiries. When you apply for new credit, the checks made by the lenders to see if you qualify for credit are recorded in the history as hard enquiries. A number of such “hard pulls” indicate signs of financial trouble and hence damage your score. Checking your own score is recorded as a soft enquiry. They are not related to your search for new credit. Hence, these are not shared with the lenders and they are not included during credit score calculations.

Hence you can check your score on a regular basis is a sign of good credit management. It will help you in the long run. You can get a free credit report from all the credit bureaus once every year. Make the most of this opportunity to see whether your history is in good standing. If you wish to check more often than this, you can order your report online by paying a fee. You can also subscribe to credit monitoring services. Requests made by them on your behalf will be treated the same way as you make the enquiries. A credit monitoring company keeps checking your credit report on a regular basis. Since these checks are not done for the purpose of applying for a loan, these are considered as soft pulls. Whenever there is a change in the score, the company will alert you. It investigates into any unexplained changes that might occur. These regular updates are also useful if one is trying to increase credit score.

If you do not have sufficient time to monitor the credit yourself, or if you find these numbers too confusing, it is always better to consult a credit monitoring company. After all a good credit score will help you get approved for loans at discounted rates. You will become eligible for the best credit cards. All this will help in saving thousands of rupees in the long run. With a bad credit you will only be eligible for loans for low CIBIL score that charge exceptionally high interest rates.

Identity theft cases have become quite common. Any negative information on fraudulent accounts opened in your name can bring a sharp dip in your score. A credit monitoring company can also help uncover mistakes and fraudulent activities. If it identifies any errors it will even report it to the bureau on your behalf. The bureau will verify the error and correct it if it did a mistake. So monitor your credit without any worries, and stay on top of your financial goals.

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.