Thursday, 21 February 2019

Why you should stop from maxing out all of your credit cards?

Abhishek has two credit cards which he uses frequently; almost all his transactions are done on credit cards. His cards are always maxed out but he manages to always pay his dues on time. Since he has always paid on time and never faltered on his payments Abhishek assumed that this could never be a problem, till he required a loan which was rejected due to a low score.
Do you also like Abhishek feel that as long as you are paying your dues on time, how much of the card limit you utilize is not important? If yes then you need to reconsider your spending pattern and go through the discussion below.
Impact of credit card usage on credit rating:
All credit cards have a sanctioned limit; this is the limit till which you can use your card without having to pay your old dues. As long as the car holder spends within the sanctioned limit and pay his dues on time he/she does not have to pay any extra charges to the card company. This prompts the card holder to assume that since the card company is not collecting any extra charges or fines, the proportion of card limit they use has no relevance whatsoever. While this may be true from the perspective of card issuer; card usage impacts the credit rating of the user.
Let’s see how Abhishek uses his cards. He has two cards, the first with a limit of Rs. 100,000 and the second with a limit of Rs. 75,000. His average usage on the first card is around Rs. 80,000 to 85,000 and on the second card around Rs. 60,000 to 65,0000. This means that he uses almost 80% to 85% of his sanctioned limit on each card and his overall card usage of both cards combined is also 80% to 85%.
Credit score is a statistical tool that helps in assessing the creditworthiness of an individual. These scores are calculated based on five parameters which are as follows; repayment history, card utilization, loan tenure, credit mix and credit enquiries.
As is evident from the chart alongside credit utilization has a big impact on the overall score calculation. In fact it is the second most important factor in the overall score calculation after repayment history which has a 35% weightage in the overall score calculation.
So when someone overuses their credit card regularly and has a tendency to max on the cards then it could lead to a low CIBIL score even if they do manage to pay on time. Credit rating companies look at card utilization ratio in order to assess credit discipline and also judge the risk level associated with an individual.
High credit utilization is an indicator of overdependence on credit; it also means that there is higher risk of default associated with the person in case he/she losses the running source of income. High credit utilization also indicates poor financial planning. Ideally the credit utilization should be less than 35% to ensure a good credit score.
How to deal with overuse of credit card?
In case your cards are also maxed out then it is time to evaluate your card usage and figure out a way to reduce the card utilization ratio. The most obvious way to deal with a situation like this is to reduce your card usage and use other options for financial transactions. You may find it difficult to do so for two three cycles as you will need to pay the dues which can reduce your liquidity.
Another option is to get a bigger card limit if you are eligible for it. A bigger card limit will reduce the credit utilization ratio without the need to reduce the card usage. One can also opt for another card so that the overall card limit increases and the card usage is spread across all cards.
However it is important to remember that a new card and increased card limit should not be an excuse to increase the card usage further as it could lead you to a situation where you fall into a debt trap or find it difficult to repay your dues at the end of the cycle.

Thursday, 14 February 2019

Home loan with higher tenure with low EMI OR lower tenure with a high EMI?

You can certainly be sure about a lot of things in life and plan things according to the same. But, there are lot many factors which are not under your control and you tend to skip it or not bother about it, these are the two sides of the coin which regulates your life. On the contrary, there are some things which are always on the grey side and you are always confused about them. There are times you seek help from your loved ones or seek help professionally to solve such issues or at least get a fair idea on what should be done.
Same goes with a home loan. It starts being complicated right from the start when you think of applying for one. the very first thing you are supposed to do is to find a lender who will match your loan needs with the best possible options out there, like for example ICICI home loan gives you the best home loan deal in the market. The next thing you need to do is to check your credit history, if you are eligible for a loan and if yes, how much? You are not done here, then you go through the bank procedures day in day out to get your loan sanctioned and get it disbursed to the developer’s account. If by any chance, there is a problem in the bank’s procedure in the future, you will have to deal with it on your own and if you run out of luck you will have to go through the same procedure again to avail the loan.
After you get the loan sanctioned and you are paying all your dues on time and you receive a good bonus from your company as a gift to you as performance. You take suggestions from your family member and ask them what the funds should be used for? They suggest you to make partial payment towards your loan account and you agree to their suggestion. You check your free cibil report and see you are good to go. The next question which pops up in your mind is that, should I keep the high tenure and lower the EMI by paying the money or propose a lower tenure and keep the EMI high.
If you are on the same page, we are here to help!
Well, it all depends on your power and ability to make the payment of home loan. When you apply for a loan, you must have done all the planning for a long period and would have thought of sticking to it. Home loan is a long commitment and every decision you make towards it can either save you a lot of money or else take you to the grounds with you. If you can manage high EMIs with a low tenure the obviously you will be saving on a lot of interest money and if you are keeping low EMI for high tenure you will have some savings for yourself but you will be paying a lot to the bank as interest. It is simple math and you should consider all the possibilities when it comes to taking this kind of decision towards a home loan. As a slight mistake can not only cost you good money but will also cost you mental peace and you can see your credit score going down.
Long term loans always come with a lot of burden with it. Do a proper analysis, have few backup plans before you proceed further. If you dive into the long term loan pool and run out of money oxygen, you will hardly get any money support to survive.

Thursday, 7 February 2019

Can I apply for a personal loan if I have home loan?

We are bounded to have many type of loans in our lifetime. At starting phase of our life, to avail a bike you will have to opt for a bike loan and when the time proceed our need takes a different level and if we are planning to buy a car we take a car loan. Similarly your spouse asks you for an expensive mobile to be gifted, you will take a take a consumer durable loan which will help you to buy that phone. We are bounded around loans and no matter how many plans you make thinking you will not avail a loan in your lifetime, you will have to avail one.
Let’s take an example here, you are a good earner and on the basis of the same, you apply for a home loan and your purchase a home property. Seven months down the line when you are paying all your dues on time and when you think that life is sorted this way, a house emergency arrives and it demands a good amount of funds. You seek help from family and friends and learn that it is end of the year and they cannot help you. You then think of applying for a loan and the best option which lies in front of you is to avail a personal loan. Now you are in a fix, will you be provided a personal loan because you already have a home loan running? You start your research and find that you have ample number of personal loan options available in the market and axis personal loan is the best out of them. You are in two state minds if you should apply for one or not.
If you have the same question in your mind, you are at the right place.
The answer to this question is a yes! You can apply for a personal loan while having a home loan running already. There are a lot of criteria’s attached to it and if you fulfill all those criteria, you can definitely avail a loan with ease.
The criteria’s are as follows,
Income to debt ratio
Even if you have a home loan running, the EMI ratio should be less than your income and savings. For example, if you apply for a personal loan where your income is 50,000 rupees and your existing home loan EMI is 20,000 then the loan lender will consider giving you a loan on the basis of 30,000 only, he will not consider the other 20,000 which is the home loan emi.
Job stability
One of the main criteria when applying for any loan is that you must be in the same company at least for a year or two depending on what amount of loan your are availing. If you do not have a stable job and you are a job hopper, the bank will consider you instable and will not sanction you a loan.

Credit score
This can be the decider if you are eligible to get a loan or not. No matter how good you are on papers with high salary, stable job etc, if you have a low cibil score, you can kiss goodbye to your chances of getting a loan. This is the most important criteria of getting a loan and you should know your cibil score before applying for a loan so that you don’t have any surprises in the future.
You can definitely avail a loan with existing pool of loans and credit cards, but you will have to be very sure before availing one because multiple loans can lead you to bankruptcy and financial depression.

Friday, 1 February 2019

Is it advisable to take credit cards for your regular use?

We have always been told that credit cards are bad. Imagine you getting out of a collage and joined your first job, the company provides you a salary account with a reputed bank, which comes with its own privileges. Understanding your incomes and gains, the bank offers you a credit card with good limit. Now you are in a fix, if you should get the credit card or not as it’s always been a negative topic of our lives. We have often heard that these cards will ruin your life and they are not safe at all. Are you in the same situation as the above story?
As every coin has two sides, the same goes with everything you do in life. You will know the same when you are in the urge of getting a card. Credit card can help you in many ways and also can ruin your financial status if not adhered properly. Getting any line of credit is never a problem, but how you adhere is what defines you and your financial well being.
Talking about these cards, we will sight you some good things and also bad things of how a credit card can help you and also take you down if not adhered properly,
Source of emergency funds
This can be the ultimate tool when you are in desperate need of funds and you have nowhere to go. It can help you sort quick funds without any hassles and can get you out of quick trouble. This does not mean you will keep swiping your card every now and then in case of emergencies. It is always suggested to have some funds with you in savings so that it can help you, when in need.
That’s right! You can reward points to spend money. Who does that? Credit card companies have different norms when it comes to providing reward points. It depends from lender to lender and from type of card you hold. For every spent you make, you get reward points which you can later redeem to buy gifts from their website or even sometimes they give you option to en cash it. This way you save a lot of money while you are spending through the card.
Short term loans
Depending on your payment patterns, the card lender always opens prospect to small loans and keep it pre-approved for you. These are just pre-approved offers which you can avail in times of urgent situations and you short with cash. This loan amount does not block your credit limit, it is a different account all together and the EMIs are added towards your statement which you need to pay on the credit card due date. This is the privilege you get only if you pay all your dues on time.
Build credit history
It can be the best tool o build or rebuild your credit history. Credit card payments contribute more to your cibil score than any other loan as this is one type of an unsecured loan. If you happened to be in a low cibil score bracket, this can be a savior for you and can help you build your credit score in no time. Having a good credit history can not only help you get a quick loan in the future, but also can help you get through to many life problems.
Owning a credit card has its pros and cons, but if you know what the cons are, you can easily manage your card and can live a good financial plan. As we all know, we should understand the terms first when we are getting into something. The same principle goes in this and you can get the best out of these cards.

Tuesday, 22 January 2019

7 things that impact your loan against property eligibility

There are few loans that have the specific purpose at an end user level. A home loan is taken for buying a house, a car loan or an auto loan for buying a vehicle, education loan for studies, business loan for business purpose. But loans like personal loan or loan against property, do not have a specific purpose for the end user. They may use the amount received from a loan into any of the use they wish to. When we talk about loan against property, it is a type of loan which is a secured loan and could be taken by keeping a property as security to the lender.

The only difference between personal loans and Loan against property is that personal loan is a type of unsecured loan and LAP (Loan Against Property) is a type of secured loan. So what is the basic difference between secured and unsecured loan? As the name states, a secured loan is the one where the borrower will keep some security against the amount borrowed and in an unsecured loan, there are no such things kept against the amount that is taken. Also, it is easier to get a secured loan as in case of default the lender can compensate the money by selling off the security which is kept. However, one can not just get that by mere keeping the security and let us now look at the factors that impact the eligibility.

1. Credit score
A credit score as we all know is a three-digit number ranging from 300-900 where 300 is considered the lowest and 900 is highest. Made from five parameters, it shows that how responsible one is when it comes to credits they have taken. May it be any loan, secured, unsecured, Credit score is always checked while approving the loan as it is one of the major factors for any lender to check the creditworthiness of the borrower. When in such a case if the score is low, one may try for a personal loan for low cibil score in order to get an instant loan.

2. Documents of the property
While applying for LAP, the documents of the property are studied carefully.
• The property should be on the borrower’s name. Only then can the loan be approved.
• If the property is on forefather’s name, there must be proper power of atony which gives all the rights to the borrower to take any decision on that.
• The property should have no legal issues. That is if there is any dispute over the property, then, in that case, the loan is not sanctioned.

3. Source of income
If suppose, the property that is kept as the security in LAP against the money borrowed has the monthly repayment cycle of say 25,000 and the borrower has the income of 30,000 or maybe even less then in that case the loan is not sanctioned. The reason is, the borrower should be easily able to make the repayment of the loan taken after deducting the usual expenses he/she may have from their salary or the amount they earn.

4. Loan tenure
Strange fact, but even loan tenure of the loan applied for also plays an important role in getting loan sanctioned. If the loan is applied for more then 10 years in usual cases, it becomes difficult to get it approved. However, the purpose of applying a loan is also checked in such cases.

5. Employment status
Many times, an individual is not steady at one particular job. Do they keep on switching because of whatever reason and that gives a sense of instability to the lender as would they be consistent enough in repaying the loan amount?
6. Insurance on property
The insurance taken over the property also plays an important role. If in case something happens to the property, then in such cases the valuation may go down. But if the insurance is taken, then it could be recovered.

7. Age
Age is always a factor while applying for any loan. May it be a personal loan or home loan or car loan of loan against property. The average lifespan of any individual person is checked against the number of years they may work and the continuing source of income. Then the loan tenure is checked and approved it all are in sync.
Except for the above mentioned seven eligibility criteria, rejection of previous loans, bad credit history, type of land are few other criteria that are checked while the borrower is applying for LAP. One has to understand that just because this is a secured loan does not mean it will be approved in minutes. Ans always, when the credit history is weak or the score is low, one must try and apply for a personal loan for low cibil score.

Saturday, 19 January 2019

Frequent changing of jobs can affect your loan approval

Jobs always give a financial security and that’s the most required these days. Unlike ancient time where things worked with the barter system, today it is the money that is exchanged in terms of goods and services. It takes a lot find a decent job where one can adjust themselves, work and get settled. Sometimes this journey is very comfortable and sometimes it is full of a roller coaster. Not everything ever is as perfect as one wants it to be and hence working in the same organization for forever is not very common and in some cases not even advisable.

Many people change their jobs after a certain period of time depending on their individual needs. However, changing jobs too frequently also has its repercussion and effects. One may have to change a job for better perspective, good salary hike, newness or to get better comfort than in current organization. But, changing them too frequently also gives an idea about instability. When talking about loans and credits, before the approval of the loan, the employment status is always checked. The earning obviously is checked in both the cases if a borrower is a salaried individual or a self-employed individual as that is the indication of how much loan amount is to be sanctioned in order for the borrower to pay that loan easily.

There are few loans that are approved only when an employee is working in the current organization for more than one and a half or two years. The frequent change gives the loan approvers an idea that that must be a pattern that one follows. What if the job where they are working currently would not be a longer duration one, and he/she may switch and will not be able to pay the EMIs on time? It becomes a risky decision for the lender. Also, the cibil score will get affected if the borrower is unable to pay the EMIs of the loans and credit card bills on time. This would lead the score to go down and the report gets affected.

There are a few examples where an individual has genuine reasons for the switch of their jobs. But, they can’t be as fast as changing it every six-eight months or each year for a very long period of time. Once in a few years and some in a couple of years would not be very bad as it may happen that an employee is not very comfortable in the process and hence planning to change. But yes, if that is in all the jobs, then it gave an impression about the person not being stable and responsible enough to adjust.

Cibil score calculation may not directly has these criteria that a changing job directly affects it. But when one applies for a loan, the background is checked by the underwriters. Underwriters are the people who check the eligibility of the borrower or the applicant who has applied for a loan. For a few loans where the loan amount is higher, a reference check is done. To the people staying in the neighborhood, the HR of the organization where the individual works and sometimes maybe in a previous organization if the applicant has recently switched a job. In any of the cases, the inquiry definitely goes to the employer and if one frequently changes the job then, in that case, it gives a negative impact. With the reference check, the underwriters also take a personal discussion with the applicant to understand a few aspects when they can see frequent job changes or bad cibil score.

With all this, the bottom line is that one must be bey sure of the decisions they take. Today may not be a day where they want to apply for a loan, but tomorrow there can be a possibility that they have to. If not taken care today, it may affect it tomorrow!