Tagged: Balance Transfer

ATM :: Home loan overdraft accounts squeeze banks

Mayur Shetty | TNN | Updated: Jul 2, 2018, 14:40 IST | Times of India

ATM

MUMBAI: Well-heeled borrowers are parking larger amounts in their home loan overdraft account after running out of options for generating high returns. This has prompted lenders to hold back on offering this product to new customers.

The home loan overdraft facility allows the borrower to use the advance as a savings account and transfer surplus funds there. The advantage is that no interest is charged on the home loan to the extent of the extra money kept in the account.

But lenders are unhappy with more money being parked there as they lose out on interest income, while having to make all provisions required for outstanding loans. Traditionally, middle-class borrowers would use any additional funds to prepay loans, while savvy investors would avail of an overdraft facility and park surplus funds there. Kept temporarily, this surplus would be used for another investment.

Now, with both financial markets and real estate in a sluggish state, the idle funds in these overdraft accounts are rising. “If a substantial part of the loan amount is parked in the overdraft account, the bank loses money as there is no interest income but all attendant costs — commission to agents and provision costs — are there,” said a senior official with State Bank of India (SBI).

While banks are not withdrawing the product, they are putting additional conditions to apply for it. Some banks are refusing to take over loans where the customer has parked more than half the loan amount in the account. Others are not offering the loan for smaller amounts. Yet another multinational bank is charging an annual fee on the unused balance.

Sukanya Kumar, founder of RetaiLending.com, which acts as a direct selling agent for many lenders, said, “This is a strange situation where the banks have a product but they do not want to offer it to a customer. Even if they insist on a higher loan amount today, what will they do if customers park more funds in their account?”

Even otherwise, the overdraft version has traditionally never been pushed the way home loans are sold. It was initially offered by multinational banks to their wealthy borrowers to differentiate themselves from other lenders. This was soon picked up by private banks ICICI Bank and Axis Bank, and even state-owned SBI. Most of the multinational banks — including Citi, HSBC and DBS — are offering this to customers. Banks that have shifted focus to retail like IDBI Bank and IDFC Bank are also providing this product. But even as the number of banks has increased, lenders are becoming choosy.

Source: https://bit.ly/2MD9HRE

ATM :: How to reduce your home loan interest rate

RoofandFloor | AUGUST 09, 2017 10:00 IST | The Hindu

ATM

Nothing compares to the joy you experience when months of patience leads to the discovery of your dream home. This is followed by a home loan application, with the final choice being governed by the interest rates on offer.

While the current home loan interest rates available in the market have seen a reduction, even a little difference between the rates offered by the lender can be the difference. You might feel like you managed to strike gold with the rate you received from your lender, but here are a few things you can look out for to reduce your interest rate even further.

Shorter duration

While a shorter home loan tenure may increase your EMI, it ensures that your principal amount is repaid earlier. Since the rate of interest is calculated on the principal, once the bank recovers the principal amount, the absolute interest pay out decreases marginally. However one must be aware that higher EMI reduces your ability to borrow in future. With the regulator ruling prepayments on floating rate home loans should not be charged any penalty, the borrower can higher prepayments / EMIs keeping the base tenure longest.

Set EMI targets

Make it a goal to pay an extra EMI every year. This will help to get to the finish line much before than expected. Not only that, in the months your finances seem to have a better cushion, add the surplus to your EMI as it will help reduce your principal amount as well as the interest.

Increase your EMI annually

With your annual salary appraisal, get into the habit of increasing your EMI every year by at least 5%. This will allow you to repay the principal much faster and reduce your interest.

Refinance your housing loan

If you come across a financial institution whose housing loan interest rate is lower than the one being offered by your current lender, then think about switching to the other lender.

Your interest repayment burden can easily be reduced by refinancing your home loan at a lower rate of interest. However, before you take the plunge, do check the legal fee and the prepayment penalty associated with the process. It would be wise to do a cost analysis to make sure that the savings from a lower rate of interest are higher than the amount spent during the refinancing process.

Move to marginal cost of funds based lending rate

Post-April 2016, all banks moved from base rate to MCLR or marginal cost of funds based lending rate, as it allows borrowers to benefit from changes in the rate of interest.

If you took a loan before April 2016, then ask your bank to switch your loan to MCLR. Banks tend to levy taxes as well as a conversion fee of 0.5% on the outstanding amount that needs to be repaid, so a cost analysis would again be beneficial.

Though every borrower tries to avail the lowest possible rate of interest, make sure the option you settle for fits comfortably with your monthly financial budget. While your aim should be the repayment of the principal amount at the earliest, don’t set an EMI amount that starts to seem like a burden. Once that happens, you are bound to miss payments!

This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group

Source: https://goo.gl/gk2P4H

ATM :: How refinancing your Home Loan can help you save more

POSTED BY: IBADMIN | JULY 14, 2017 | http://www.IndiabullsHomeLoans.com

ATM

The joy of owning your own space, a home you can call your own, is a dream for many. But thanks to home loans, many are able to realise this dream. But there comes a time, after one buys a home, that the satisfaction of owning your own place may be dampened by the financial burden of EMIs.

Well, what if we told you there is a way? You can let nothing take away your happiness by simply refinancing your home loan.

What does refinancing your home loan mean?

Refinancing your home loan is nothing but a home loan balance transfer. It simply means the option to switch to another lender who can give a lower home loan interest rate. With home loan balance transfer, you can transfer home loan from one housing finance company to another. Home loan transfer occurs when the entire unpaid principal loan amount is transferred to another home loan finance company for a lower home loan interest rate or to avail a top-up on the original loan amount. The financial institution that had originally extended the loan to you gets the unpaid amount and you have to, in turn, now pay your EMIs at the new rate to the financial institution that has taken up the loan.

How do you go about it?

Knowing the value of your property is essential. The next step is doing a cost-benefit analysis i.e comparing the risks versus the rewards. Make sure that the profits you earn out of the lower interest rates are more than the home loan transfer charges you pay.

What are the advantages?

Lower Interest rates:

A lower rate of interest is one of the major reasons that borrowers transfer home loan from one lender to another. For instance, an individual is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go in for a new loan that brings down his total interest cost and consequently his EMI. It helps in increasing your savings due to the lower interest rates which result in lower EMIs.

Reduce your loan tenure:

The loan tenure is inversely proportional to the EMI payments you are making. Higher the loan tenure, lesser the EMIs, and vice versa. Similarly, the total interest paid is directly proportional to the tenure. The higher the tenure, the higher the total interest paid. One can opt to change the tenure in case of changing life circumstances like a promotion in your job, windfall gains in business which enables the person to afford a higher EMI payment and shorten his tenure, and get debt free earlier. Visit Home Loan Interest Rates page to know more.

Get additional loan opportunity:

Along with the lower home loan interest rate, one can also get an opportunity to get additional funds for registration purposes, home improvement or expansion purposes. One should only opt for a top-up of the loan if he is getting the benefits of lower rates.

Tax Benefits:

An individual taking a loan from specified housing finance companies is entitled to certain benefits and exemptions. Section 24 of the Income Tax Act states that Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. Rs 2,00,000 is the maximum amount eligible for deduction in the case of self-occupied property and for rented out property there is no limit of amount of deduction.

Diversify your investments:

You can also use home loan balance transfer to increase the tenure in order to reduce the monthly payments. This is a viable option if a better investment is found and you want to divert a part of the payments to that investment.

Source: https://goo.gl/1A7i6V

NTH :: SBI reduces home loan rates by up to 25 bps

By Saloni Shukla, Sangita Mehta | ET Bureau|Updated: May 08, 2017, 03.38 PM IST | Economic Times

NTH

MUMBAI: Country’s largest bank, State Bank of India has reduced home loan rates between 10 to 25 basis points, a move that will force other lenders to reduce rates. SBI has refrained from cutting its marginal cost of lending rate (MCLR) which stands at 8% for one year. SBI has the largest share on the home loan market.

The bank will now charge salaried borrowers 8.35% on home loans upto Rs 30 lakhs as against 8.60% For loan above Rs 30 lakhs bank will charge 8.50%, down by 10 bps. The bank will continue to charge 8.60% on loans above Rs 75 lakhs. The rate cut will help only the new borrowers since the existing borrowers are locked into one year fixed rate on interest as per the rule of arriving at lending rates.

The reduction in rates comes within a month of five associate banks merging with the parent bank. Recently SBI cut deposit rates sharply by 50 basis points across different maturities.

SBI has also said that an eligible home loan customer can also avail of an interest subsidy of Rs. 2.67 lacs under the Pradhan Mantri Awas Yojana scheme. SBI said that to supplement the affordable housing push, SBI has also come out with special offerings for construction finance to the builders for affordable housing projects. “This will give a dual push both for construction finance and also for home finance for affordable homes.”

Mr Rajnish Kumar, managing director, SBI said, “We have seen a steep hike in the home loan enquiries recently and reduction in rates will further help millions of home buyers fulfill their dream of owning a home. Individuals can apply for home Loans through multiple channels.”

Source: https://goo.gl/ReoG9P

NTH :: Now Transfer Your Home Loan To SBI At Zero Processing Fees

SBI, the country’s biggest lender is charging zero processing fee on home loan takeover till June 30, 2017.
NDTV Profit Team | Last Updated: May 07, 2017 07:45 (IST) | NDTV Profit

NTH

Do you have a Home Loan with any bank or housing finance company at higher interest? If yes, then it may be a good opportunity for you to transfer your existing home loan to State Bank of India, as the country’s biggest lender is charging zero processing fee on home loan takeover till June 30, 2017. Even you can get higher than the amount currently outstanding in your home loan from SBI if you match their eligibility criteria, the state-owned lender said in its website.

Here are the details you need to know:

Home Loan can be taken over from the following Institutions:
Scheduled Commercial Banks (SCBs),Private and Foreign Banks, Housing Finance Companies (HFCs) registered with National Housing Bank (NHB), Borrower’s employers if they are Central/State Governments or their undertakings or Public Sector Undertakings.

Criteria
The borrower should have serviced interest and/or installment of the existing loan regularly, as per the original terms of sanction.

The borrower should have valid documents evidencing the title to the house/flat.

Whether take over with sanction of Higher Loan Amount & extended Repayment Period is possible?
Yes. Based on the merits of the case and requirements/ eligibility of the borrower, the Bank may sanction an amount higher than the amount taken over from other bank/ financial institution for purposes of renovation/ extension/ furnishings. Similarly extended repayment period may be sanctioned provided that at all times the criteria regarding maximum permissible finance and security margin under the Bank’s scheme are not diluted.

What is the procedure for Take Over?
The borrower should address a letter to the bank/ financial institution from whom he has availed the loan asking them to deliver, immediately upon receipt of the loan amount, the title deeds and other securities, if any, direct to our lending branch;

The borrower should give to the branch a request letter for paying to his existing lending bank/financial institution the outstanding amount of his loan by debit to his loan account.

The borrower must give an advice of the actual outstandings (with up-to-date interest) in the loan account from the other bank/ financial institutions; the statement of Account for the entire period of loan or for the last 10/12 months where the loan has run for a longer period;

Confirmation letter from the financing Bank that they have created an equitable mortgage over the property.

Documents required for availing the loan:
Disbursal must be effected only subject to the above information being found satisfactory and completion of formalities as regards

Agreement to create Mortgage, Power of Attorney in the favor of the Bank authorizing the Bank to create equitable mortgage on the borrower’s behalf.

Interim security (Ex: Bank Deposit Receipts, LIC Policies, etc) and the security obtained in the interim period will be released after receipt of the title deeds then the other Bank and creation of a valid equitable mortgage subsequent to verification of the borrower’s title to the property.

Whether pre-payment penalty is funded?
Yes. Total loan quantum, will however, continue to be determined by eligibility criteria based on income, EMI/NMI ratio, LTV ratio etc. applicable to Home Loans scheme.

Whether takeover of Home Loan with Top up loan is permitted?
Yes

Source: https://goo.gl/F7sooH

ATM :: Still paying interest on home loan at old rates? Cut EMI by switching to MCLR-linked rate now

By Narendra Nathan, ET Bureau| Mar 20, 2017, 04.06 PM IST | Economic Times

ATM

Just like bank depositors, those borrowing from banks also need to be alert in order to protect themselves against unnecessary charges. Given below are the most common areas where banks tend to overcharge customers.

If you compare the interest costs of your friends and relatives on bank loans—housing, auto, personal loan, etc.—you will realise that they vary drastically. And these costs not only vary across banks, but across customers of the same bank—and not because of varying customer credit scores. Some banks have been offering loans at cheaper rates to new customers, while charging old customers a higher rate. “Banks continue to follow the discriminatory practice of offering differential rates for existing and new customers and this should stop,” says Ramganesh Iyer, Co-founder, Fisdom.

As the banking regulator, the Reserve Bank of India (RBI) should stop this discriminatory practice, which it is partly responsible for creating. The RBI introduced the MCLR (marginal cost based lending rate) method, effective April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates—earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans 4-5 years back, and did not ask their bank to switch to the newer regime, are still linked to the PLR. Those who borrowed when the base rate became the benchmark are stuck with the base rate. Now, while banks are giving new loans at cheaper rates, based on MCLR, old customers are still paying higher rates.

“Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help you bargain better with your bank,” says Dipak Samanta, CEO, iServeFinancial.

To reduce your interest outgo, you need to shift your loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move, say experts. “Though RBI’s stand is neutral now, rates may not go up from current levels. In fact, they may come down later—after an year,” says Balwant Jain, investment expert. Bear in mind though, in an upward moving interest rate regime, MCLR will move up faster than base rates, just like it falls faster in a reducing interest rate regime.

Still paying interest on home loan at old rates? Cut EMI by switching to MCLR-linked rate now

Loan reset charges
There are two types of loans: Fixed and floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. But this rarely happens. While banks increase rates immediately, they are very slow in cutting them. The introduction of new benchmarks has also turned out to banks’ advantage. They charge customers for shifting from one benchmark to another— from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements—stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%.

Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years. To illustrate, consider the case of a home loan borrower with Rs 50 lakh outstanding loan amount and a 15-year tenure. A 1% fall in interest— from 9.5% to 8.5%—will bring his EMI from down from Rs 52,200 to Rs 49,250, a reduction of Rs 2,950 per month. A total saving of Rs 5.31 lakh—significantly higher than the reset fee of Rs 25,000 even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. A threat of shifting to another bank often works. “Another way is to approach the branch manager. Based on the value of your relationship, they can reduce or even waive charges,” says Samanta. The ‘value of relationship’ here is crucial. If you have multiple relationships with the bank—savings bank account, credit card, other loans, investment, etc.—you have a valuable relationship and will receive a favourable treatment.

Source : https://goo.gl/FBRCpI

ATM :: Time to shop for best home loan deals

RADHIKA MERWIN | 20th Feb 2017 | The Hindu BusinessLine
With the RBI signalling the end of the money easing cycle, sharp fall in rates is unlikely

ATM

There has always been a lot of fanfare and expectation around the Reserve Bank of India’s monetary policy. Borrowers make a hard case for rate cuts. Depositors cringe every time rates head south. And banks are chided for being tardy in lowering lending rates.

The reaction to the recent policy was however more muted though, with the RBI keeping rates on hold. Also, after reducing policy rate by a whole 175 basis points since the beginning of January 2015, the RBI appears to have changed course, signalling the end of the rate cut cycle.

Here’s what borrowers — old and new — should do to ensure they get the best deal on home loans, before the tide turns.

Don’t wait

Are you waiting for rates to fall further before taking a home loan? Sorry to dash your hopes, but it may not be the best choice to play the waiting game .

Lending rates have already dropped by nearly one percentage point over the last one year,thanks to the new marginal cost of funds-based lending rate (MCLR) that the central bank introduced in April last year. This new lending rate structure has forced banks to lower rates at a faster pace.

Starting April 2016, lending rate on your floating rate home loan has been pegged against the MCLR which replaced the erstwhile base rate. As a borrower, you need not be bogged down by the complex difference between the two. Suffice to say that banks use the latest rates offered on deposits for MCLR computation, and hence the rates have fallen sharply in the past year, particularly post-demonetisation.

While the RBI has indicated a wee bit of a headroom to cut rates, don’t count on it and lose out on best deals. SBI, in January, shook up the home loan market by lowering its one-year MCLR (against which home loans are priced) from 8.9 per cent in December 2016 to 8 per cent in January 2017. Other banks too followed suit.

Bank of Baroda’s home loan at its one-year MCLR of 8.35 per cent seems the top draw for now. This home loan product is unique as it links the rate on your home loan to your credit score. If you have been settling your bills and loan payments on time, and have a credit score of 760 and above, then you are eligible to get home loans at this rate.

Other leading banks, for now, offer only one rate for all borrowers, irrespective of the credit score. Central Bank of India and Union Bank of India offer home loans at 8.5 per cent and 8.6 per cent respectively. Others such as SBI and Axis Bank price their home loans at 8.65 per cent.

Why now

Rates have fallen by one percentage point over the past year

Rate hikes cannot be ruled out in the medium term

Few banks offer waivers to switch to cheaper loans

Make the switch

While new borrowers have had a lot to cheer, old borrowers — who have taken loans against the erstwhile base rate prior to April 2016 — have not had much respite. While banks have been slashing MCLR, they have not lowered their base rate. SBI, for instance, after holding its base rate at 9.3 per cent from October 2015, has only recently reduced it marginally by 9.25 per cent. This is still far higher than the one-year MCLR at 8 per cent.

Hence, old borrowers still pay a far higher rate on their home loans. In case of SBI, few borrowers still pay 9.5 per cent interest (spread of 25 basis points over base rate).

Banks, however, allow borrowers to switch into the new MCLR regime at a cost. The switching charge is 0.5 per cent of the loan outstanding in most cases (minimum of ₹10,000). If you have an outstanding loan of ₹50 lakh with SBI, with a remaining tenure of 15 years, you could save over ₹4 lakh of interest over the entire tenure of loan.

But do take note of the switching options that each bank offers, before deciding to move. Remember that lower the loan outstanding and tenure, lower the benefit. Hence, it will make less sense to switch if you are at the fag end of your loan tenure.

If you are looking to switch from one bank to another, keep in mind that you have to foreclose your loan, and then approach a new bank for a fresh loan. Here, banks usually charge a processing fee, which ranges from 0.5 to 1 per cent of the loan. There could be an additional service charge too. But do look for waivers offered by banks.

Brace yourself

Whether you have a home loan under the erstwhile base rate or MCLR, time you braced yourself for possible rate hikes too. If inflation risks heighten, rate hikes could be in the offing over the next 18-24 months.

If the new MCLR structure has forced banks to lower rates at a faster pace during the rate cut cycle, it can no doubt pinch you quicker when rates move up. This is because lending rates may increase at a steeper pace under MCLR.

But this is all the more reason why you should move to MCLR now. The far cheaper rates currently offered under MCLR (compared to base rate) will help cushion the rise.

Also, borrowers may find some solace in the reset clauses under the MCLR structure. Unlike under the base rate system where a revision in base rate was immediately reflected in the lending rates of all loans benchmarked against it, under the MCLR-based pricing, lending rates are reset only at intervals corresponding to the tenure of the MCLR.

In case of home loans, since the loans are benchmarked against the one-year MCLR, lending rates will be reset every year.

(This article was published on February 20, 2017)

Source: https://goo.gl/pQkrni

ATM :: Is it the right time to transfer your home loan?

Adhil Shetty | Last Updated: February 15, 2017 | 13:23 IST | Business Today

ATM

Over the last two years, the Reserve Bank of India has steadily reduced lending rates. Any rise or fall in the RBI’s repo rate will have a direct impact on your home loan interest rate. Therefore, in the recent past, lenders have reduced their interest on home loan products in tandem with the lowering of repo rate. Additionally, several lenders took an axe to their own lending rates following the culmination of the 50-day demonetisation drive.

In an ideal scenario, existing loan owners should benefit from these rate cuts. But in the past, this wasn’t often the case, with repo rate cuts not being adequately transmitted to borrowers. Which is why the RBI mandated banks to switch to the MCLR regime from the base-rate regime.

Since April 1, 2016, all new loans are linked to the bank’s marginal cost of lending rate (MCLR). These loans are more responsive to rate cuts in the sense that the rates change automatically on specified intervals of time mentioned in a loan agreement.

The question now is this – if you have a home loan now, should you consider transferring to another loan with a lower interest rate?

What existing borrowers can do
If you borrowed before April 1, 2016, your loan would be linked to the base rate, which is known to be less responsive to rate cuts. Assuming that you’re paying over and above the prevalent interest rate (in the region of 8.6%), you may be tempted to move to a cheaper loan. But this decision should be arrived at after carefully calculating the benefits of the transfer.

Lower interest rates are not the only reason why you should transfer your loan. You also have to look at the quantum of long-term savings as well as loan transfer costs.

Here’s a look at how you can weigh your transfer benefits.

The transfer costs: Transferring to another loan with your current lender may not involve costs. However, transferring to another lender will cost you some money. You have to pay processing fee on the balance of the loan transferred, administrative expenses, pre-payment penalty if you had a fixed rate loan, legal charges, stamp duty, etc. The aggregate of these costs lower the savings you make on the transfer.

The Remaining Tenure: If your loan is nearing its end, a transfer may not make sense. You may save costs on EMIs, your loan transfer costs may outweigh any savings.

The Long-Term Savings: This the gross of what you will save over the remaining term of your loan through a reduction in your EMIs, factoring in the transfer costs. If your savings appear to be significant, you have a case for transferring to another loan. Don’t forget that any MCLR-linked loan you move to will have a fluctuating interest rate. Currently, the interest rates are low, but at some point in the future, the rates will start increasing again due to factors such as inflation.

When It Makes Sense To Transfer
Here’s a look at the illustration below to understand when transferring your home loan makes sense.

Suppose you had taken a home loan for Rs 25 lakh for 20 years at an interest rate of 10.50% per annum. You want to transfer this loan to another bank offering you an MCLR-linked interest rate of 9.5% per annum. Now, consider the two different scenarios.

Conclusion – Shift, Only If There Are Savings
As the illustrations reveal, opting for a loan transfer in Scenario 2 is not an economical option for the borrower. It could lead to a loss, therefore the borrower can stick to his current repayment plan.

In fact, he can make the best use of the prevalent low interest rates and pre-pay on his loan. This would help him make significant progress in terms of repayment, and put him in a stronger position when the interest rates start rising again.

Conversely, when there’s a sizeable part of the loan tenure remaining, there may be significant long-term savings from moving to a loan with a lower interest rate.

In conclusion, do not make a hasty decision related to your home loan transfer. Calculate all the costs of transfer. You can take the help of various online calculators to calculate these costs and your savings. You could also approach your lender to ascertain these numbers.

(The writer is CEO, BankBazaar.com)

Source: https://goo.gl/Z7yHVV

ATM :: Why it makes more sense to switch your home loan after this interest rate cut

By Sunil Dhawan | ECONOMICTIMES.COM| Updated: Jan 04, 2017, 11.23 AM IST

ATM

The start of the new year may have something to cheer for the home loan borrowers. Several banks have significantly reduced the interest rates charged on these loans.

The State Bank of India (SBI) has lowered its home loan rate from 9.10 per cent to 8.60 per cent and ICICI Bank from 9.10 percent to 8.65 percent, HDFC at 8.7 per cent, with other banks set to follow suit. Effectively, home loan rate has come down by an average of about 0.4-0.5 per cent after these announcements.

Noticeably, SBI’s one-year MCLR is at 8 per cent which makes the spread on its home loan 0.6 per cent. So, even though the MCLR of banks have fallen, the actual home loans are not at MCLR. Still, the writing on the wall is clear – there is more room to cut home loan rates by the banks.

Borrowers on base rate should switch now
If not all then at least the old borrowers who have been servicing their EMI’s based on the erstwhile base rate system of lending, stand to benefit. Even though bank’s base rate hasn’t come down as much, they now have a stronger reason to switch to the current MCLR-based lending. With the recent interest rate cuts on loans by banks the differential between base rate at which old borrowers are servicing their loan and the current MCLR is widening.

For those who had taken loans after July 1, 2010, but before April 1, 2016, the loans are linked to the bank’s base rate. And for most of these borrowers, the home loan interest rate is around 10 per cent. After the recent rate cuts announced by banks, the average MCLR has fallen to about 8.75 percent or even lower. This differential of 1-1.25 percent in base rate and MCLR will help old borrowers to switch to MCLR and save on total interest outgo.

Why to switch now
The primary reason to switch from base rate to MCLR has to be the sluggishness seen in banks’ passing on the benefits of RBI rate cuts to borrowers. RBI’s repo rate cuts were not reflecting in the bank’s base rate but are a part of the factors that goes into calculating the bank’s MCLR so, the moment repo rate changed, MCLR was impacted.

Further, the MCLR takes into account the marginal cost of funds which includes the rate at which the bank raises deposits and other cost of borrowings. With banks flush with funds post demonetisation, the bank’s CASA deposits (current account-savings account) have swelled and have given the banks the leeway to go for such major rate cuts.

The base rate, on the other hand, has seen only marginal reduction since last 24 months. Post demonetisation, banks are expected to wait and see the impact once the restrictions on cash withdrawals are removed. If the funds don’t move out from the banking system in significant amounts, further rate cut is expected.

MCLR based borrowers
For the new home loan borrowers who have taken loan after April 1, 2016, there’s not much immediate benefit from the recent rate cuts. For most MCLR-linked home loan contracts, the banks reset the interest rate after 12 months for their home loan borrowers. So, if someone has taken home loan from a bank say in May, 2016, the next re-set date will be in May, 2017. Any revisions by RBI or banks will not impact their EMIs or the loan till the reset date

What’s MCLR mode of lending
A new method of bank lending called marginal cost of funds based lending rate (MCLR) was put in place for all loans, including home loans, given after April 1, 2016. Under the MCLR mode, the banks have to review and declare overnight, one month, three months, six months, one year, two years, three years rates each month.

Watchouts
In a falling interest rate scenario, quarterly or half-yearly could be a better option, provided the bank agrees. But when the interest rate cycle turns, the borrower will be at a disadvantage. After moving to the MCLR system, there is always the risk of any upward movement of interest rates before you reach the reset period. If the RBI raises repo rates, MCLR too, will move up.

Options for base rate borrowers
When the interest rate on your loan goes down banks, on their own, typically reduce the tenure automatically (instead of reducing EMI amount) and thereby, transfer the benefit of lower rate to the customers.

The base rate borrowers now have two options – switch to MCLR based lending with the same bank or else transfer i.e. get the loan refinanced from another bank on MCLR mode. One may also continue the loan on base rate, especially if the loan term is nearing the end.

The RBI has made it clear that banks should allow base rate borrowers to switch to MCLR. The existing loans can run till maturity or borrowers can switch to MCLR on mutually agreed terms.

Switching from base rate to MCLR within the same bank
It makes sense to switch if the difference between what you are paying and what the bank is offering now as MCLR is significant. And also in cases where the time for the home loan to finish is not near.

Switching loan from base rate to MCLR with another bank (refinancing)
If your bank is offering a high home loan interest rate (MCLR plus spread) then look for refinancing. Get the loan refinanced from a bank offering a lower interest rate. You may have to incur processing fees. However, banks are not allowed to charge foreclosure or full repayment charges. Other charges may include lawyer’s fees, mortgage charges, etc. Remember, the bank may ask you to buy a home loan insurance cover plan, which is not mandatory. Get the loan insured through a pure term insurance instead, in addition to any insurance that you already have.

Conclusion
Switching to MCLR in itself should help you save a substantial amount. In addition to switching the loan from base rate-linked to MCLR and thereby saving interest, prepare a systematic partial prepayment plan to further reduce the interest burden. It’s after all better to up your home-equity rather than making it a highly leveraged buy-out.

Source: https://goo.gl/6R5mh0

ATM :: Cut Your Home Loan Debt

By Munir Kulavoor | Published on 05 Aug 2016 | IntegraFinServe.in

ATM

Interest rates are likely to fall in the short term, even if the RBI leave the offical rate on hold there are many ways to cut your home loan debt. Here’s few ways to do it.

1. CHOOSE THE RIGHT LOAN

  • Many customers focus too much on the interest rate and fail to examine the fees and charges associated with the home loan.
  • Choosing the right home loan is the first step any borrower should take before signing the dotted line.
  • Lot of home loans from many HFCs & Banks might look cheap but they have high application fees or a honeymoon rate (for e.g. 1-2-3 year fixed rate) post which they might switch to a more expensive rate.
  • Comparing all the fees and charges associated with a loan including post disbursement (for e.g. fees for reset of interest rate or EMI) will give you truer cost of what you will really pay as it is a long term debt.

2. TIP THE LOAN

  • When you first avail a home loan it will feel like you’re not making any headway into it but, if you do the maths, paying more early on will help you save.
  • Start by cutting back on those coffees, unnecessary lunches and takeaway meals and tip an extra Rs.2000 a week into your loan.
  • If you calculate, on a Rs.50,00,000 30-year loan with a rate of 9.40 per cent, this Rs.8000 (tip) will save you more than 50,00,000 in interest repayments and shave thirteen years and six months off your loan’s duration.

3. HIGH FREQUENCY

  • Often the lender will put you onto monthly repayments but this is simple to change, all it requires is a change in ECS
  • Making more frequent for e.g. fortnightly home loan repayments will help you pay off the debt faster.
  • Halving your monthly repayment and paying it fortnightly is a neat trick that can save considerable interest over the life of the loan.
  • There are 26 fortnights in a year which means you will be make the equivalent of an extra month’s repayments than when you make 12 monthly repayments.

4. OFFSET/OVERDRAFT

  • Overdraft accounts (for e.g. Smart Home/Home Saver/ Maxgain) OR a daily transaction account linked to a home loan are a great way to reduce your overall interest and many customers opt to balance transfer to Banks that offer these products.
  • You can get your rental income (from investment properties), dividend (linked to Demat Account) paid into this account, and it offsets the interest repayments and you are paying down more principal.
  • SBI customers for instance like putting all their savings in Max Gain account to reduce the interest costs.
  • In the above example Rs.50,00,00,000 loan, if you have a windfall Rs.10,00,000 in say a Max Gain account you will only pay interest on Rs.40,00,000 thereby shaving off 183 or 51% of EMIs off the 30years loan.

ATM :: Home loan rate reduction, should you opt for balance transfer?

Lower interest rate should not be the only criteria for initiating the transfer of your home loan.
By: Naveen Kukreja | Published: June 14, 2016 2:01 PM | Financial Express
ATM
Sachin had taken a fixed rate home loan of Rs 40 lakhs in December 2013, with 20-year tenure at 10.5 per cent p.a. Although the bank has progressively reduced its home loan rates since, he has not benefited from it as he had opted for fixed interest rate. His requests for converting the loan to floating-rate were declined by his lender. Finally, he decided to transfer his home loan to a new lender, at lower rate of interest.

Falling interest rate has been prompting many borrowers to opt for home loan balance transfer, like Sachin. However, lower interest rate should not be the only criteria for initiating the transfer of your home loan. There are other scenarios that work in favour of home loan balance transfer. Let’s look at what home loan balance transfer entails:

When to opt for home loan transfer
Lower interest payouts: Reduced interest payout due to lower interest rates is the primary driver behind the decision. However, remember that the earlier you transfer your loan, the more will be your savings. Opt for home loan transfer if the savings generated is large enough to leave you with sizeable amounts for further investment apart from covering the cost of transferring the loan.

Poor service from existing lender: Poor service from your existing lender can also be a valid reason for you to transfer your home loan. Opt for it if your existing lender does not extend special offers or privileges (even after consistently repaying your outstanding balance) or refuses to bring the interest rates at par with the ones offered to new lenders.

Non-approval of top-up loans: Consider switching your loan if your existing lender does not allow you to avail top-up loan. Banks and NBFCs may offer such loans to existing borrowers in case they need funds over and above the existing home loan amount. These are quite similar to personal loans in the sense that lenders don’t monitor the final use of loan proceeds and hence, you may use it for home renovation, buying consumer durable or even for meeting emergency expenses. The interest rates on top-up loans are usually lower than the ones charged on personal loans.

Renegotiation of terms and condition: As transferring your home loan is similar to availing a fresh loan, you can negotiate with the new lender for changing some terms and conditions. You can opt for increasing your loan tenure to reduce your EMI or for decreasing it if you are comfortable with paying higher EMIs. However, remember that increasing your loan tenure will increase your interest payout.

Freeing up collaterals: As you must have already paid a substantial amount of your existing home loan, your collateral for the new lender should be based on the outstanding amount. This will allow you to free up some of the collaterals. You can then use the freed up collaterals take new loans for your business or other uses.

When not to opt for home loan transfer
If fees and charges are high: As the new lender will treat your home loan balance transfer as a new loan application, the new lender will charge various fees and charges, such as processing fees, conversion fee and administrative charges. Calculate these charges and compare them with the amount saved on reduced interest payout. If the savings is not substantial, continue with your existing lender.

If existing loan is in its last leg: Transferring your loan at the end of its tenure will not make much sense as the reduction in interest payout will be balanced out by the efforts and costs incurred while transferring the home loan.

Opt for home loan balance transfer only if the benefits outstrip the costs and efforts involved by a significant margin. Have a frank conversation with your current lender about your intention to transfer the loan. If your current lender agrees to reduce the rates and the resultant savings is more or less equal to the savings from loan transfer, consider continuing with your current lender.

The author is CEO & Co-founder, Paisabazaar.com

Source : http://goo.gl/7Hw9ql

NTH :: National Housing Bank considering penalty for switching loans in first 2 years

By Shilpy Sinha, ET Bureau | 26 Oct, 2015, 07.17AM IST | Economic Times

NTH

MUMBAI: The National Housing Bank is considering allowing lenders to levy pre-payment penalty on housing loan customers who transfer the outstanding amount to another lender in the first two years of the loan tenure, a dampener for borrowers wanting to make the most of falling interest rates.

Sriram Kalyanaraman, chairman of National Housing Bank, the regulator for housing finance companies (HFCs), believes that home loan ‘shopping’ could lead to risks building up in the system as banks and HFCs are vying for the same customers to expand their market share.

“I think there should be some form of lock-in for the customers in the initial days, say 18 to 24 months, before they are allowed to transfer loans,” said Kalyanaraman. “Companies/HFCs/banks are trying to woo customers with lower interest rates, which is good for customers, but there could be a bubble due to everyone concentrating on the same segment and also topping up loans when they do balance transfer.”

In October 2011, NHB had waived off prepayment penalty on money borrowed from housing finance companies on floating rate. So, borrowers could prepay the loan by borrowing from a bank or a nonbanking finance company while moving to lower interest rates.

The following year, the Reserve Bank of India barred banks from levying foreclosure charges, or pre-payment penalties, on home loans with floating interest rates. In 2014, the RBI asked banks not to levy pre-payment penalties or foreclosure charges on all floating rate term loans sanctioned to individual borrowers.

Other than housing, floating loan products include corporate, vehicle and personal loans. Earlier, banks were charging pre-payment penalty of up to 2 per cent of the outstanding loan amount.

Banks, HFCs and non-banking finance companies try to woo customers with lower interest rates. As loan demand from corporates is yet to pick up, lenders are focusing on their retail portfolio, especially home loans, which is more secured lending.

The housing loan market continues to be dominated by the five large groups — SBI Group, HDFC Group, LIC Housing Finance, ICICI Group and Axis Bank. Together they accounted for 60 per cent of the total housing credit in India on December 31, 2014. Since then, a number of new HFCs have emerged in niche segments like affordable housing and self-employed customer segments, growing at more than 50 per cent and slowly gaining market share, according to recent report by rating company Icra.

With competition intensifying, lenders have dropped rates after the recent policy action by the RBI. SBI had recently cut its base rate by 40 bps but raised spreads on home loans so borrowers can look for loans at 9.55 per cent. HDFC, which prices home loans over a retail prime lending rate, had reduced rates by 25 basis points to 9.65 per cent.

The RBI has cut the repo rate by 125 basis points since January this year, while banks have reduced base lending rates by 50 basis points.

The Icra report said the government’s focus on affordable housing and favourable regulations could push overall housing credit growth to 20-22 per cent from financial year 2015-16.

Source : http://goo.gl/4p5R96

ATM :: Multiply Your Happiness

Amid falling rates, it makes sense for home-loan borrower to increase his EMI and accelerate repayment of principal
By: Saikat Neogi | October 13, 2015 12:08 AM | Financial Express

ATM

THE Reserve Bank of India (RBI) cut its repo rate by 50 basis points on September 29, taking the total reduction since January to 125 bps. But banks and housing finance companies offering home loans have cut their rates by up to 50 basis points only.

State Bank of India is offering interest rate on housing loan at 9.55% to salaried individuals. Similarly, HDFC is offering housing loan at 9.6-10.15% across all loan amounts and ICICI Bank at 9.6-9.65% for loan amounts less than Rs 75 lakh. So, if a new borrower takes a Rs 50-lakh loan for 20 years at 9.55% interest rate per annum, the equated monthly installment (EMI) will be Rs 46,770.

Lower risk weight
The central bank has also lowered the risk weights on select home loans of up to Rs 75 lakh where borrowers are willing to put in more money and lower the loan-to-value ratio. A Crisil research expects interest rate on home loans to come down by another 25-30 bps over the next few months because of this move. The RBI has lowered risk weights on housing loans of up to Rs 75 lakh from 50% to 35% in cases where the borrower puts in at least 20% of the value of the home as own equity for loans up to Rs 30 lakh and 25% of the value of the home as own equity for loans between Rs 30 lakh and Rs 75 lakh.

Home loan borrowers in smaller cities are likely to be the biggest gainers. In fact, Crisil estimates that around 80% of home-loan borrowers and 70% of home loans by value would meet the criteria for lower risk weights set by the central bank. The loan-to-value ratio for home loans has come down from 75% in the third quarter of FY10 to 66% in the same quarter of FY15, which means a higher proportion of new loans would meet the criteria for lower risk weights.

Increase EMI or tenure
Borrowers benefit from an interest rate fall, especially in case of a floating rate home loan. Also, one of the immediate benefits of a rate cut is that the new borrower’s loan eligibility amount increases. Ideally, one’s EMIs should not exceed 40-50% of his monthly income. If the EMI is much lower than this, increasing the EMI is an effective way to ensure the loan is paid out early. Increase in EMI can be requested at any point of time during the loan and, usually, there are no charges for such a request.

Whenever lenders reduce the interest rate of home loan, for an existing borrower, however, they either keep the EMI unchanged and reduce the loan term or reduce the EMI and increase the loan tenure. It always makes sense to keep the EMI amount unchanged. If possible, increase the EMI so that the interest outgo for the entire tenure is reduced significantly. Analysts say when the interest rate drops, the borrower should increase the EMI and accelerate the repayment of the outstanding principle.

For instance, an existing borrower of Rs 50 lakh who has paid for five years from the total tenure of 20 years, a 20-bps decrease in interest rate (1 bps a hundredth of a percentage point) will reduce his EMI by Rs 550 from Rs 48,583 to Rs 48,033. This would mean a total savings of Rs 99,000 as interest payment for the remaining period of the loan. On the other hand, if the borrower keeps the EMI amount unchanged and reduces the period of the loan by four months, then the net savings on interest would be over Rs 2 lakh, provided the interest rate remains the same for the entire period of the loan. One can opt to make partial payments at regular intervals, say, every six months or one year, to repay the loan quickly and save the interest as banks and housing finance companies do not charge any pre-payment penalty for principal repayment.

Loan switch
If your lender is charging you higher interest rates than others, switch the bank. Ensure that the difference in the interest rate between your existing lender and the new one is at least 75-100 bps as you have to pay processing (around 0.25% of the loan due) and legal fees to switch the existing loan to the new lender. Analysts say it will make sense to switch only if more than seven years of repayment remain. It is not always advisable to shift the home loan from one bank to the other just because of lower interest rate. The borrower must calculate the actual amount that he can save by switching the loan and after adjusting all the charges.

WHAT TO DO
* Ideally, EMIs should not exceed 40-50% of monthly income
* If EMI is much lower than this, increasing the EMI is an effective way to ensure loan is paid out early
* When the interest rate drops, the borrower should increase the EMI and accelerate the repayment of the outstanding principal
* If your lender is charging you higher interest rates than others, switch the bank
* Ensure the difference in the interest rate between your existing lender and the new one is at least 75-100 bps as you have to pay processing and legal fees for the switch
* Calculate the actual amount that you can save by switching the loan after adjusting all charges

Source : http://goo.gl/MIg3iL

ATM :: Balance transfer – the way forward for home loan consumers

VINEET JAIN CEO, Loanstreet.in | Moneycontrol.com
Balance transfer can help you save money on interest and at the same time allow you to raise additional money to retire high cost borrowings such as credit card debt and personal loans.

ATM

Electric switch at home gets the lights on, and brightness brings cheer. Switch a.k.a. balance transfer of your home loan is also like that.

First of the month is a great day, salary credited to account and lots of positive mood. But many-a-time the cheer goes away by third of that month itself as equated monthly installments (EMI) have been debited and all the bills have been paid. To protect the lifestyle one has, it is very important to manage the biggest expense every month and WHAT’s THAT? Of course, the EMI(s).

So, finding an alternative lender who is going to give a better deal for the loan makes perfect sense.

Benefits of balance transfer
In the floating return of interest era; lenders are quick to increase the EMI whenever monetary policy hardens the rate regime, but are slow in passing on the benefit when the reverse happens. Although, they do offer sweet deals to new customers they acquire. So, a balance transfer is sure way to get a reduction in rates and reduce the monthly outflow towards loan repayment.

With new zero foreclosure regime, cost of switch has become zero and one can get additional money against the same property and / or basis the same Income. It is also a fantastic self-controlled debt restructuring tool as additional money raised can be utilized to close any short term unsecured outstanding such as personal loan or credit card dues.

Self-employed segment loves the balance transfer product as they can use the same for funding their business finance requirements as an alternative to working capital finance products. They unlock the equity in their property by raising additional money on the same through the transfer route. As soon as the property appreciates and they see an interest rate differential available in the market, they can transfer to the best rate lender and take a higher tenure to get as much top-up loan as possible. They can then use this additional money; given at a longer tenure to retire their short term and higher interest debts such as unsecured business loans.

Who should apply?
If the rate of interest of the existing loan can be reduced by at least 50 basis points (half percentage point) by doing a balance transfer, one can consider the option. For illustration – An INR 50 lakh home loan with tenure of 20 years will save Rs. 1668 in EMI and Rs. 4 lakh in interest outflow over the tenure, if switched from 10.5% to 10% rate of interest. The same loan saves Rs. 2657 in EMI if switched to 9.7% rate of interest and saving in interest outflow of INR 6.37 Lakh. As quite a few banks are offering 9.70 % as the home loan rate now.

There can be three possible objectives for a balance transfer – reducing EMI, reducing total interest outflow or raising additional money. EMI and interest outflow comparison should be done keeping the tenure constant in both the existing loan and the new loan by the prospective lender; as a higher tenure will save immediate outflow but will result in a higher interest outflow overall.

But in case of additional loan amount as the main consideration, a higher tenure in the new loan is always beneficial as it will result in lower EMI, higher income eligibility and hence maximum amount of top-up, additional loan.

Factors to consider
One should always assess the following:
• Tenure of the new Loan,
• Any additional conditions by the new lender,
• Fees charged by the new lender
• Any government charges, such as 0.2% stamp duty charges in maharashtra
• EMI Saving,
• Additional loan amount as top-up

A word of caution is that a balance transfer might not work if the remaining tenure of the loan is low as the new lender might offer a higher tenure and give you lower EMIs but a fresh loan has high interest outflow and so overall, it is going to be more expensive than the existing loan.

Source : http://goo.gl/1vY0cQ

NTH :: Home loan rate cuts: Here’s why borrowers can cheer more

By Saikat Das, ET Bureau | 5 May, 2015, 10.34PM IST | Economic Times

NTH

MUMBAI: Home loan borrowers will now have a wider universe to avail lower rates as three more state-owned lenders including Bank of Boroda, State Bank of Bikaner & Jaipur or SBBJ and State Bank of Hyderabad or SBH have reduced base rates by 15-25 basis points each.

Lenders cannot lend to customers in less than base rates.

Bank of Baroda has cut base rate by a quarter of a percentage point to 10% effective from Wednesday, the lender said in a notice to stock exchanges. The bank offers home loans at base rate only irrespective of any maturity or quantum.

SBBJ and SBH, both SBI associate banks, have trimmed base rates by 15 bps each to offer at 10.10% and 10.05%.

Last Saturday, Bank of India announced a reduction in its base rate to 9.95% from 10.20% earlier.

Country’s largest lender, the State Bank of India cut base earlier in April by 15bps to 9.85% after the Reserve Bank of India governor prodded all banks for passing on the central bank’s rate cut benefits to end-consumers.

On competitive pressure, two largest private sector lenders – ICICI Bank and HDFC Bank – were quick enough to act pruning their base rates on the same day. ICICI Bank offers the lowest rate in the industry at 9.75% while HDFC Bank’s base rate is on par with the SBI.

“Banks marginal cost of funding has fallen, the notion that it hasn’t fallen is nonsense,” Raghuram Rajan, governor of RBI had said soon after announcing the bi-monthly monetary policy on April 7.

Among other banks, Union Bank of India and United Bank of India had lowered their base rate to 10% in February itself.

Private sector lender Axis Bank cut base rate by 20bps to 9.95% in April while Kotak Mahindra Bank reduce the same by 15 bps to 9.85%

The RBI had reduced the benchmark or repo rate, at which banks borrow short term funds from the central bank, twice by 25bps each between January and March this year. It is now 7.50%.

Source : http://goo.gl/FOuqNl

ATM :: Know Your Credit Card Better: Ten Most-Used Terms Explained

Creditvidya.com | Updated On: March 15, 2015 12:27 (IST) | NDTV Profit
ATM
If you are new to using credit cards or have been using one without knowing what a bunch of things mean on the credit card statement, let’s make things a little simpler for you. Let’s de-jargonise some credit card terms for you so that you can handle your credit responsibly and in turn help you keep up a good Cibil score.Many financial terms on your statement stand for basic things that are easy to understand. Here’s a closer look.

Credit limit:

The credit limit is the maximum amount of money that you can swipe or borrow on your credit card. This is a prestipulated amount that is fixed by the card issuer. How much of the credit limit you utilise, also has a large bearing on your Cibil score. Ideally the utilisation rate on your card should not exceed 30 per cent of the total limit that has been allotted to you. If you display good credit behaviour your credit limit may be enhanced by the lender, but do not use it as an excuse to become reckless on your spend. Reckless spending may lead you to penalties and as has been noted in some cases, even account suspension by the bank.

Cash limit:

The cash limit on your credit card should not be confused with the credit limit. The cash limit is the maximum amount of cash that you can withdraw from the ATM using your credit card. Issuers of credit cards often allow cardholders to obtain a maximum amount of cash with their cards where the cash limit is usually a per cent of the overall credit limit. This feature makes credit cards similar to bank debit cards. However, the striking difference between debit and credit cards cash withdrawal is that in the case of debit cards the cash belongs to you and is at your disposal whereas in case of credit cards, a very high rate of interest is applicable from the day the cash is withdrawn to the day it is repaid.Therefore, cash withdrawal through credit cards should be made only in emergency situations.

Annual percentage rate (APR):

The annual percentage rate (APR) is the interest rate charged on outstanding credit card balances outside the due date. APR is expressed in per cent per annum. A common misunderstanding about credit cards is that interest is charged on everything you swipe or borrow through your card. However, the truth is you will be charged for keeping an outstanding balance on your account over the interest-free grace period, which is usually 30-45 days from the payment due date (differs from bank to bank). So effectively if you pay the entire outstanding amount within the billing cycle, you will never have to pay interest on the money you use on credit.

Billing cycle:

The billing cycle is the time between the credit card bill statements. The billing cycle and credit card statement dates are confirmed to you at the time of the issue of your card by the card issuer. The due date remains the same each month. Since you already know the due date, it gives you the headroom to plan your credit in a smarter way and avoid making late payments.

Minimum amount due:

This is usually a small per cent (usually 2-5 per cent) of your total amount outstanding. This is the minimum amount a cardholder should pay within the pay-by date to keep the account from going into default.

Due date:

The due date is the date by which you must make at least pay the ‘minimum amount due’ in the case where you are not able to pay your bill in full. Paying outside the due date will cost you late fee charges as well as get reported on your Cibil report as a negative mark. Some card issuers allow you to set your convenient date for card payment and others set a standard due date. For payments whose due dates fall on weekends or holidays, the due date would be the next business day.

Charge back:

Sometimes during online transactions, purchases may not go through for various reasons – including the transaction being non-compliant with the merchant account rules or a dispute by cardholders. In such cases, the amount charged previously on the credit card is credited back to the card holder through a reverse (credit) entry. This is called a charge-back.

Late payment fee:

A late payment fee is charged when you miss paying the minimum amount due by the payment due date. Late payments may affect your Cibil score negatively even if your entire outstanding balance is paid in full at a later date.

Balance transfer:

It is the process of moving outstanding credit card balance from one card issuer to another, usually from a high APR issuer to a low APR issuer in order to reduce the interest charges for the cardholder. However, balance transfer also involves payment of fees to the low APR issuer.

Cash back:

It refers to rewards program on your card that return to you (by crediting your card account) a percentage of the total amount spent on your credit card over a specific period of time. This feature can be beneficial only if you use your credit card regularly and pay the entire outstanding amount on your bills every month.

CVV (card verification value):

It is a 3 digit number printed on the back of the card. It stands for “card verification value” code and helps verify the legitimacy of a credit card. The CVV number is essential while making payments online. Since this is sensitive information you must never reveal this number to anyone including your Financial Planner to the customer care executive at the bank.

Chip-and-PIN cards:

These cards use computer chips to store and process information instead of, or in addition to a magnetic stripe. A personal identification number (PIN) is required at the point of sale for the card payment to go through.Similar to CVV, this is also classified information that you should not be share with anyone.

Once you have these jargons demystified, it will be easier for you to understand how your credit card works and thus plan to make repayments accordingly.

Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Source : http://goo.gl/3FrGf8

ATM :: Six Steps to Get Out of a Credit Card Debt Trap

Creditvidya.com | Updated On: February 02, 2015 12:26 (IST) | NDTV Profit
ATM
The happiness of buying goodies and spending on parties you might have attended during Christmas and New Year may have come to naught for you, if you are staring a hefty credit card bill right now. While this is definitely not the best way to begin a new calendar year, the damage is already done. If you don’t have the money to repay your dues right away, here’s what you could do.

1. Take stock of the situation

The first and most important step to take is to acknowledge the problem in hand. If you become a defaulter on your repayment on your credit card, it will impact your Cibil score negatively. While making one late payment may not hit you immediately, but if you get into the cycle of late payments it may be difficult for you to get out of it over a longer period of time (ranging over 60-90 days), which will then shave the points off your Cibil score eventually. To ensure that your Cibil score remains intact, you need to handle your credit card debt pronto. There are several ways to do it such as a balance transfer, converting your debt into an EMI or opting for a cheaper loan to repay your debt. Let’s look into these options in greater detail.

2. Balance transfer

This is a facility that banks offer to people who have a large outstanding balance. In this facility you can transfer the outstanding balance from one credit card to another. You could opt for a fixed duration balance transfer (usually a 3-12 month window) within which you can make the repayment at an interest rate that is lower than what you would have paid on your regular credit card. The rate of interest is usually 9-10 per cent (differs from bank to bank). Some banks also offer a “lifetime duration” option to make the repayment, though the interest rate in this case is much higher (in the range of 12-24 per cent, depending upon the bank). In order to get this facility, you will have to pay a processing fee, which will be around 2 per cent of the outstanding amount you wish to transfer. After the bank verifies your details, they will send you the cheque or the demand draft in favour of your existing credit card that you can use to repay the first card.

Although a balance transfer sounds like a great way to handle credit card debt, and other banks will be more than glad to issue yet another credit card to you, you must take cognizance of the fact that it is only postponing your problem instead of solving it. Your attempt should therefore be to use this facility sparingly. Besides, if you get into the habit of frequent balance transfers, you will end up opening a large number of credit lines. A large number of open credit lines may also impact your Cibil score, albeit marginally, in a negative way.

3. Converting outstanding balance to EMI

If you do not want to go through the hassles of balance transfer from one credit card issuer to another you could consider converting your outstanding balance into monthly instalments. Banks may offer a rate of 1.49 per cent to 1.99 per cent per month to their existing customers, but this too may vary from bank to bank. However, the point to be noted here is that if you miss a payment cycle during the EMI repayment, the bank will revert to the regular interest charges and you will find yourself stuck back in the same situation.

4. Opt for cheaper loans

Of all the debts you service, the rate of interest you pay on your credit card is the highest at 36-42 per cent per annum if it is not serviced on time, so it makes sense to opt for a cheaper loan to repay this high cost debt as soon as you can. You could therefore consider a personal loan for a period of three years if you are in a position to service it. The interest rate you would pay for it would be in the range of 16-24 per cent.

You could also opt for security backed loans such as a top up loan on your home loan or a gold loan. If you have a good track record in servicing your home loan, you will be eligible for a top up loan which is available at an interest rate of 12 per cent. Similarly, if you have some gold jewelry stashed away in a locker, you could use it to get a gold loan at an interest rate 13-15 per cent.

If you have other investments such as a fixed deposit, you may also opt for a loan against it. Such loans are available at a rate of interest that is one percent higher than what is offered on the investment itself. For instance, if you are earning a rate of interest of 9 per cent on your fixed feposit, a loan against it will be available at a rate of 10 per cent. Loans against other investments such as traditional life insurance policies, mutual funds, etc. are also available at similar rates. If you have accumulated a large debt pile, you can also think about liquidating some assets to pay off your credit card debt.

5. Negotiate for a lower rate of interest

If you feel that none of the above options are feasible for you could pay a visit to the bank and explain your financial situation to them. If you can convince them about your willingness and intention of repaying, chances are, that you can get a low interest rate or a flexible repayment schedule depending upon the bank’s policies. However, do consider the feasibility of the other options discussed above, before you think of doing this.

6. Cash is your best friend

Till such time you have paid off your credit card dues, cut down on your expenses and live on cash. It’s a good idea to lock away your credit card till all the debt has been cleared on it. You will need to be patient as you atone for reckless financial behaviour, but this will probably serve as a lesson for a lifetime for you. Once you are in the pink of your financial health once again, you will feel good about your frugality.

A credit card debt pile can indeed be intimidating, so do be careful and responsible while using it in the first place. However, if things have gotten out of hand already, the above mentioned hacks can be used to get things back to normal. Once things are back in order, it is also recommended that you pull out your Cibil report. This is to ensure that your efforts to repay your debt are reflecting on your Cibil report and your Cibil score is in order.

Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Source :http://goo.gl/0w515k

ATM :: 6 steps to get out of a credit card debt trap

Rajiv Raj- Founder & Director -Creditvidya.com | MoneyControl.com

ATM

If you have reveled and gone overboard with your expenses on your credit card in the holiday season just gone by, it is likely that you find yourself straddled with a hefty outstanding balance. It is akin to a bad hangover you would probably suffer from on New Year’s Day after a great party on the 31st night! But unlike a hangover that can be gotten rid of in a few hours, credit card debt could be far more pressing! Here are some tips for you to consider if you are grappling with a debt pile that looks impossible to handle at the moment.

The happiness of buying goodies and spending on parties you may have attended during Christmas and New Year may have come to naught for you, if you are staring a hefty credit card bill right now. While that is definitely not the best way to begin a new calendar year, the damage is already done. If you are in a state of shock, for you certainly don’t have the money to repay your dues right away, here’s what you could do.

Take stock of the situation:
The first and most important step to take is to acknowledge the problem in hand. If you become a defaulter on your repayment on your credit card, it will impact your Cibil score negatively. While making one late payment may not hit you immediately, but if you get into the cycle of late payments it may be difficult for you to get out of it over a longer period of time (ranging over 60-90 days), which will then shave the points off your Cibil score eventually. To ensure that your Cibil score remains intact, you need to handle your credit card debt pronto. There are several ways to do it such as a balance transfer, converting your debt into an EMI or opting for a cheaper loan to repay your debt. Let’s look into these options in greater detail.

Balance transfer:
This is a facility that banks offer to people who have a large outstanding balance. In this facility you can transfer the outstanding balance from one credit card to another. You could opt for a fixed duration balance transfer (usually a 3-12 month window) within which you can make the repayment at an interest rate that is lower than what you would have paid on your regular credit card. The rate of interest is usually 9-10% (differs from bank to bank). Some banks also offer a “lifetime duration” option to make the repayment, though the interest rate in this case is much higher (in the range of 12-24%, depending upon the bank). In order to get this facility, you will have to pay a processing fee, which will be around 2% of the outstanding amount you wish to transfer. After the bank verifies your details, they will send you the cheque or the demand draft in favour of your existing credit card that you can use to repay the first card.

Although a balance transfer sounds like a great way to handle credit card debt, and other banks will be more than glad to issue yet another credit card to you, you must take cognizance of the fact that it is only postponing your problem instead of solving it. Your attempt should therefore be to use this facility sparingly. Besides, if you get into the habit of frequent balance transfers, you will end up opening a large number of credit lines. A large number of open credit lines may also impact your Cibil score, albeit marginally, in a negative way.

Converting outstanding balance to EMI:
If you do not want to go through the hassles of balance transfer from one credit card issuer to another you could consider converting your outstanding balance into monthly instalments. Banks may offer a rate of 1.49% to 1.99% per month to their existing customers, but this too may vary from bank to bank. However, the point to be noted here is that if you miss a payment cycle during the EMI repayment, the bank will revert to the regular interest charges and you will find yourself stuck back in the same situation.

Opt for cheaper loans:
Of all the debts you service, the rate of interest you pay on your credit card is the highest at 36-42% per annum if it is not serviced on time, so it makes sense to opt for a cheaper loan to repay this high cost debt as soon as you can. You could therefore consider a personal loan for a period of three years if you are in a position to service it. The interest rate you would pay for it would be in the range of 16-24%.

You could also opt for security backed loans such as a top up loan on your home loan or a gold loan. If you have a good track record in servicing your home loan, you will be eligible for a top up loan which is available at an interest rate of 12%. Similarly, if you have some gold jewelry stashed away in a locker, you could use it to get a gold loan at an interest rate 13-15%.

If you have other investments such as a fixed deposit, you may also opt for a loan against it. Such loans are available at a rate of interest that is one percent higher than what is offered on the investment itself. For instance, if you are earning a rate of interest of 9% on your FD, a loan against it will be available at a rate of 10%. Loans against other investments such as traditional life insurance policies, mutual funds, etc. are also available at similar rates. If you have accumulated a large debt pile, you can also think about liquidating some assets to pay off your credit card debt.

Negotiate for a lower rate of interest
If you feel that none of the above options are feasible for you, pay a visit to the bank and explain your financial situation to them. If you can convince them about your willingness and intention of repaying, chances are, that you can get a low interest rate or a flexible repayment schedule depending upon the bank’s policies. However, do consider the feasibility of the other options discussed above, before you think of doing this.

Cash is your best friend:
Till such time you have paid off your credit card dues, cut down on your expenses and live on cash. It’s a good idea to lock away your credit card till all the debt has been cleared on it. You will need to be patient as you atone for reckless financial behaviour, but this will probably serve as a lesson for a lifetime for you. Once you are in the pink of your financial health once again, you will feel good about your frugality.

A credit card debt pile can indeed be intimidating, so do be careful and responsible while using it in the first place. However, if things have gotten out of hand already, the above mentioned hacks can be used to get things back to normal. Once things are back in order, it is also recommended that you pull out your Cibil report. This is to ensure that your efforts to repay your debt are reflecting on your Cibil report and your Cibil score is in order.

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