No need to press the panic button. You can still ensure your child has the dream wedding you envisioned.
Rajeev Mahajan | May 15, 2018 08:27 AM IST | Source: Moneycontrol.com
Preparing for your child’s wedding? You may want the nuptials to be fabulous – with a dreamy ambiance, excellent food and scented flowers. While Indian parents invariably create a decent corpus for the auspicious occasion, there may emerge a scenario when the budget spirals out of control and resources are just not enough.
No need to press the panic button just yet. You can still ensure your child has the dream wedding you envisioned. Read on for some easy options that can help you in organise the funds needed for the special day.
A personal loan is an excellent way to defray expenses without fretting over offering collateral. Most financial institutions, including nationalised banks and NBFCs, offer personal loans. Since it is unsecured in nature, the interest rate is a tad steep and ranges between 14 percent and 24 percent a year. There are, however, a few criterions for sanction, chiefly your monthly income.
Lenders also review your current financial health, monthly commitments, debt payments, assets, existing equated monthly instalments (EMIs) and unsettled loans. They look into your credit report and score. Simply put, lender needs assurance that you have the resources for loan repayment.
Loan against property
This is another option that provides you a financial buffer against unexpected wedding costs. You can pledge residential/commercial property or a plot of land at its prevailing market value to avail funding from a bank.
The approval for loan against property is straightforward, provided all valid documents are in place. Since it is a secured loan, the rate of interest is affordable as the lender can recover the borrowed amount by selling the mortgaged property in case of default.
One can also avoid a cash crunch by opting for a wedding loan. These loans are granted by many financial establishments under the personal loan category. A wedding loan is sanctioned on the basis of factors like your employment status, net monthly income, credit score, past loan history and your ability to pay back.
Given that no guarantor is required, the interest rates are high. Also, the tenure option is flexible. You can avail the pre-payment facility and settle the outstanding balance amount before the due date, thereby saving on the high interest rate.
Loan against securities
Another way to ease the financial burden of your child’s wedding is by opting for a secured loan. Banks and financial institutes offer assistance against mortgage of financial assets: term deposits, savings certificates or life insurance policies. The amount sanctioned depends on the value of the collateral. Since lenders have the security of retrieving their investment in the event of an interest rate default, the interest rate is low around 12-15 percent annually. Also, unsecured loans don’t require much documentation.
P2P lending platform
Do you have a less favourable CIBIL score? You may want to consider a peer-to-peer (P2P) lending platform to raise money for essential wedding expenses. The P2P route though still in infancy is being viewed as an attractive alternative to personal loans.
The online lending phenomenon is uncomplicated and allows you to borrow money directly from investors at attractive rates on the basis of your creditworthiness. What’s more, the entire funding procedure is accomplished with speed and without too much paperwork.
Looking for another alternative to bail you out from a stressful situation? Adopt the crowd-funding path to offset some of the rising wedding costs. It is an innovative measure that can help raise funds quickly to cover the shortfall. In recent years, crowdfunding websites have mushroomed in large numbers.
The concept is simple. Just create a compelling page online along with a target amount and then share the link with close friends, neighbours, relatives, co-workers, among others. You might be surprised at the number of contributions that come towards the wedding kitty.
Borrow from family members
Tried all the above options in vain and still running short? Seek the support of close family members to tide over the wedding expenses that have suddenly emerged. But before taking this step make sure you have a repayment plan in place after the big day.
This is important since loans taken from loved ones are interest-free and flexible with no signed agreement. The best way is to hand over a promissory note with the assurance that the borrowed amount will be reimbursed by a specific date.
Exploring the above funding options will help you in planning your child’s wedding without any financial constraints. It is important to exercise restraint and not exceed the wedding budget drastically, so that the borrowings do not lead to financial distress. At the end of the day, one must remember that the loan acquired is a debt that has to be repaid.
The writer is Co-Founder, CEO & Director of Antworks Money
STAFF REPORTER | MADURAI | UPDATED: APRIL 22, 2018 04:14 IST | The Hindu
Coming to the aid of a law student who sought an educational loan from a nationalised bank, the Madurai Bench of Madras High Court has directed the bank to consider the loan application and disburse the loan within two weeks.
Justice M.S. Ramesh, hearing the plea, observed that nationalised banks had time and again rejected loan applications based on the CIBIL reports of family members.
The student being the principal borrower, the status of parents and family members could not be a criteria for rejecting the application. CIBIL score should not be a ground for rejection of an application. It was a wilful disobedience of various orders passed by the court in this regard, making this case liable for contempt of court orders. The Head of Indian Bank, which had rejected the loan, was directed to issue necessary directions to all its branches in the State to refrain from rejecting educational loan applications on such grounds.
The court was hearing the case of M.Hariharasudhan, a law student of Prist University, Thanjavur, who had sought an educational loan of Rs. 70,000 from the Indian Bank. He moved the High Court after his application was rejected based on his father’s low CIBIL score.
To avoid last-minute hassles, it is always good to plan taxes and loans in advance.
Sep 15, 2017 06:29 PM IST | MoneyControl.com
In order to avoid any last minute hassles while filing your tax returns, you need to ensure that you plan your taxes in advance. If you have the right foresight and plan your loans and taxes properly, then you can surely save a lot of money.
Here are some key details on planning your taxes and loans…
There are a few components which can help in bringing down your tax liability. For this, you need to reallocate your salary. Like medical expenses which are reimbursed by the employer, certain food coupons, house rent allowance, leave and travel allowance etc., should be used efficiently to bring down your tax liability.
Proper use of tax exemption
There are several tax saving options under 80C and 80D. Under 80C, you have options like NSC, PPF, a premium of life insurance, 5-year FD with banks and post office etc. 80D includes premium paid in Mediclaim policies.
Your tax plan and financial plan must go hand in hand
Your tax-saving plan has to be in tandem with your financial plan. Opt for tax-saving options which will contribute to achieving your financial goal.
The loan factor
There are loans which can actually help in reducing your tax burden. So, you should ensure that you make use of this benefit to the maximum.
Exploiting the loan factor:
If you are planning to take a home loan for buying a home, then restructure it in the best possible way as it can give you tax benefits. Under Section 80C, the principal repayment of housing loan can give you a deduction of up to Rs 1,50,000 and under Section 24B, the interest paid on a housing loan can get you a deduction of up to Rs 2,00,000.
Now, if the home loan amount is huge, then it may cross the tax exemption limit. In such cases, you can opt for a joint loan with spouse or parents or siblings. This will help both the individuals to get the tax benefit. It, thus, becomes a useful tax-saving option for the entire family. It should be noted that stamp duty and registration charges that are paid while transferring the property are also eligible for income tax deduction under the Section 80C.
If you take a loan to buy a second home, then to you can get the advantage of tax deductions under Sections 80C and 24B. Under Section 80C, the principal loan amount will be considered and under Section 24B, the interest paid towards the loan will be considered.
Education loan can also be taken for self or for your spouse or children. You can get tax benefits if you take the loan from a scheduled bank or a notified financial company. You can easily claim a deduction for payment of interest. The tax benefits can be enjoyed for a maximum period of eight years or on the term of the loan repayment.
Personal loans also come with the tax advantage. Personal loans which are taken for renovating or repairing home are helpful. Personal loans taken to make down payment of home loan will also give you the advantage of tax benefit.
To sum up…
Thus, there are different ways and means of reducing your tax liability. Loans give you the dual advantage. They take care of your financial needs i.e., buying a home or higher education of your children and at the same time, they also give you the much needed tax-benefit. So, explore all the pros and cons of the various loans and use them to plan your taxes effectively.
By Namrata Dadwal | ET Bureau | Updated: Sep 18, 2017, 03.42 PM IST
A financial emergency can hit any time—a sudden hospitalisation, a natural calamity or even an unexpected celebration at short notice.
While money pundits say you must have an emergency fund equal to six months’ expenses in place, not everyone follows this rule diligently.
So, where do you get cash instantly to tide over a financial disaster? Don’t despair. There are a few ways you can get money in a pinch, depending on how urgently you want the funds. “The key things that will determine where you get the money from are how urgently you want the funds, the tenure of the loan, the interest and how expensive will it be to source the funds,” says Navin Chandani, Chief Business Development Officer, BankBazaar.com
Before you opt to borrow money, be sure that it is really needed. Even then, borrow as little as possible. Remember, it is a loan and you need to ultimately repay it. If you are unable to do it on time, you could end up in a debt trap.
1. BORROW FROM YOUR EMPLOYER
Interest rate : 5-8% ( Could also be interest-free.)
“If you need funds ASAP, consider your workplace first. Many companies extend an advance on salaries,” says financial trainer P.V. Subramanyam. The funds could be equivalent to 1-6 month’s takehome pay and will be deducted from the salary over 3-24 months.
Upside : The loan can be custom-ised to your needs, and you will be able to get the money within three days.
Downside : The loan will be taxable as part of your salary. It will be exempt only if the funds are used for certain medical treatments or if the amount is less than Rs 20,000.
2. CASH WITHDRAWAL ON A CREDIT CARD
Interest rate : 2-3.5 % a month
A credit card can be used to withdraw money from an ATM, the amount being equivalent to 40-80% of your card limit. However, there might be a cap on daily cash withdrawal. Most banks will allow you to over-extend your limit on a caseto-case basis. Be ready to cough up an over-limit fee over and above the usual interest rate on cash advance.
Upside : Instant cash, available anywhere, anytime.
Downside : A transaction fee of 2.5-3%. Interest is levied on the money from the day it is withdrawn until it is fully repaid.
3. TOP-UP LOAN
Interest rate : 9-13%
Already have a home loan? If yes, you can use it to get a top-up loan of up to Rs 50 lakh for a maximum of 20 years or till the balance tenure of your original home. This option works if you have repaid the original home loan for some years as the combined value of the home loan and the top-up cannot exceed 75% of the value of the house.
Upside : You can get a loan quickly, in three days, since the bank has your documents.
Downside : Any default in repayment could cost you big.
4. PERSONAL LOAN
Interest rate 13-24%
One of the quickest options for borrowing money. You can get a loan within 30 minutes to three days, depending on your relationship with the bank. In fact, you might already have a preapproved loan in your name from your bank which will make the process faster.
Upside: Quick disbursement if you borrow from your own bank.
Downside: High interest rate and processing fee of 2-3%. You will also have to pay GST on EMIs. For prepayment, a foreclosure fee of 2.5% of the outstanding amount is charged.
5. LOAN AGAINST PROPERTY
Interest rate 9.5-13%
If you want a large loan and own a house, you could take a loan against property. You can loan Rs 5 lakh to Rs 10 crore, depending on the market value of your house. The loan tenure varies between 2 and 15 years. Both residential and commercial properties can be used as collateral. Banks could to lend you up to 65% of the value of your property. However, the house must be insured. Processing fee is 1.5-2% while prepayment charges are 2-3% of the outstanding.
Upside : Quick disbursement, lower interest charges.
Downside : If portfolio value declines, you will have to put in the differential or pledge more funds/shares.
7. LOAN AGAINST GOLD
Interest rate : 10-17% from banks
14-26% from non-banking financial companies
You can get 60% of the value of your gold and can borrow from Rs 10,000 to Rs 25 lakh. The tenure is usually 6 months or 12 months but you can renew the loan at a nominal charge. While you can repay part of the loan whenever you want, gold you have pledged as collateral is released only after you repay the entire loan.
Upside : You can get funds within a day.
Downside : Gold appraisal charges of Rs 250-2,500. If you are unable to repay loan, you will lose the gold.
Your credit score indicates your financial health, thereby determining your creditworthiness. Credit scores are provided by institutions such as CIBIL, Experian etc., among which, CIBIL is the most popularly used mechanism for lending. Credit bureaus assign a score to you on the basis of evaluation of your loan repayment habits and credit card history.
By: Adhil Shetty | Published: March 24, 2017 12:46 PM | NDTV Profit
Your credit score indicates your financial health, thereby determining your creditworthiness. Credit scores are provided by institutions such as CIBIL, Experian etc., among which, CIBIL is the most popularly used mechanism for lending. Credit bureaus assign a score to you on the basis of evaluation of your loan repayment habits and credit card history.
How to read your credit score
The credit score is typically represented in a triple-digit number ranging between 300 and 900 points. While higher points reflect financial discipline and a good credit standing, lower credit scores reflect poor repayment habits—which, in turn, could reveal poor money management skills. Banks and lending institutions usually prefer a credit score of 750 and above for issuing a loan or credit card. A high credit score could help you get loans at the best interest rates available. For people who do not have a credit history, the credit score reflects to be -1.
What does your credit score say about you?
Let’s look at the various aspects of your financial life that your credit score throws light on.
Timeliness: A crucial component in computing your credit score is timeliness in repaying loans and credit card bills. CIBIL, for instance, gives timely repayment about 35% weightage in calculation of credit scores. If you pay your bills on time, you are considered to be disciplined and committed towards the repayment of your dues. While a one-off case of delay may be ignored by the credit card company, repeated delays would earn negative scores.
Trustworthiness: Banks and financial institutions consider you to be an eligible borrower if your credit score is robust, as it reflects trustworthiness. A poor score indicates increased dependence on credit and lack of timeliness in repayment, which after a point may reflect lack of integrity and therefore intent to pay back.
Credit hungriness: A credit report also indicates your dependence on credit. This is assessed in terms of your credit utilization ratio, which refers to the percentage of credit you use from what’s available. A high credit utilization ratio shows credit hungriness irrespective of when you repay it.
What if you don’t have a credit score?
It may be great to never have to take a loan. But from the point of view of developing a credit history, it’s important to have some form of credit, be it loans, credit cards, or EMI store purchases.
If you have never availed any form of credit, the credit bureaus and banks wouldn’t have a credit history to analyse you with. This could make things tricky for you if you approach a bank for loan in future.
So, how do you show a history of timely repayment? You can start with taking a secured loan or credit card and maintain a record of timely repayment to be on the good books of the banks.
(The writer is CEO, BankBazaar.com)
Source : https://goo.gl/RiZa4E
Rajiv Raj – CreditVidya | Aug 22, 2016, 02.26 PM | Source: Moneycontrol.com
Your CIBIL score is a measure of your own credit worthiness that does not get merged with your spouse’s after marriage. There are several myths about CIBIL score and some of them are related to marriage.
Marriage is a big decision that brings together two persons for life. Just like two individuals with completely different backgrounds with regards to education, lifestyle and career choices remain the same even after marriage, so does one’s CIBIL score. Your CIBIL score is a measure of your own credit worthiness that does not get merged with your spouse’s after marriage. There are several myths about CIBIL score and some of them are related to marriage. Today we will debunk some of these myths and also tell you when and where your spouse’s credit score matter.
Myth: CIBIL score drops after marriage
If you are marrying someone with a relatively less CIBIL score then it does not bring down your CIBIL score. Of course if you have taken a huge amount of debt on your credit card to fund a lavish wedding or an exotic honeymoon and are unable to repay it as stipulated, your CIBIL score may take a hit after the marriage, but that has to do with your credit behaviour and not with the act of getting married by itself.
Myth: CIBIL records get erased after marriage
If you are a lady who has decided to change your surname and take on your husband’s family name after your marriage, you do not need to worry as your CIBIL records do not get erased automatically if your name changes. Once you have changed your surname officially you make the changes to your official documents and pass on the information about the same to the bank. The bank in turn makes the changes internally and passes it on to CIBIL with your updated record. However, to be sure that the changes have been carried out as per your official documents, do check your CIBIL score and report after about a month or so of having updated your name change information with your lenders.
Myth: All your spouse’s debt becomes yours after marriage
Surely you have taken vows to be with each other through thick and thin, but getting married does not mean that all the debt burden that your husband or wife carries is automatically transferred on to you and you need to share his or her burden as it will impact your CIBIL score otherwise. The loans or credit card debt that your spouse is servicing continues to remain with him or her. Of course you may choose to assist him in meeting his debt commitments, but doing so does not have an impact on your own CIBIL score.
Where your spouse’s CIBIL score really matters
You only need to be concerned about your spouse’s credit score if you are making a joint home loan or any other loan application together. If either of you have a poor CIBIL score, the chances of your getting a loan may get thwarted as the bank will not look favourably upon one person shouldering all the load. Thus it is recommended that you work together to bring up both your scores to the level of 750 and keep it at that by maintaining good credit habits to prevent the rejection of a credit line when you are in need of it.
If you are newly married and have just come to know that the CIBIL score of your partner is not so flattering, do not fret as it has no impact on your own CIBIL score. Nevertheless, put your heads together to find out the problem areas and help each other to come up with solutions that will rectify the situation.
Your financial compatibility will be put to test through trying times. The basic thing is to stay put and work hand in hand to achieve a common goal of bringing up the CIBIL score. Just like with everything in life, being there for each other is what matters the most and that is what you should decide to do.
Source : http://goo.gl/4Xx0SL
Though most of us have heard about CIBIL score, there are so many things many individuals are not aware of.
Rajiv Raj Founder & Director, Creditvidya.com | Aug 01, 2016, 08.06 PM | Source: Moneycontrol.com
Awareness about credit score is quite low in India and the few who know about it also might not be aware of the finer details of the process of ascertaining the credit score or its importance and what impacts the credit score of an individual. As we move towards a more digital world, everything is more linked, which means that soon the importance of a CIBIL score will go up while taking a loan; it may impact employment prospects, insurance premiums and so on. Thus being aware of credit score nitty-gritty can be use full.
Q. Are credit report and credit score the same thing?
The first thing that we need to know is that credit report (CIR: Credit Information Report) and credit score are not synonymous. While the credit score is a three digit number or sometimes it can be NA/NH or -1, the credit report is a much more detailed document. The credit report carries the details of all the loans and credit card one holds, it lists personal information, contact and employment details, status of dues, credit enquiries etc. Lenders look at the report and not only the score to get a comprehensive picture about the debt status of an individual.
Q. Is CIBIL the only credit score company in India?
CIBIL is the oldest credit score agency for individuals in India. Since it was the first one and was the only one for a long time it is the most well known and almost synonymous to credit score in India. Apart from CIBIL there are three more agencies that provide credit score for individuals; they are Equifax Credit Information Services Private Limited, Experian Credit Information Company and High Mark Credit Information Services.
Q. Will my score across agencies be same?
No, the CIBIL score against various credit agencies will not be same. There may be a slight difference due to the scoring model of each agency. While the basics of calculating the credit score remains the same, each agency may use a different algorithm for calculating the score which can cause some variation. However if an individual follows the basic tenets of responsible borrowing then his/her score is expected to be good across all agencies.
Q. What impact does settling an account have on the Credit Score?
If one settles an overdue amount by paying a lesser amount then actually what was originally due then it will be reported in the CIR. How this is reported will impact the score either positively or negatively. If it is simply reported as paid then the impact will be positive as the overdue no longer exists. However if the lender reports it as “settled” then it could lower your score. While negotiating with the lender, make sure you clarify this aspect.
Q. Does checking your own score impact in negatively?
When a financial institution asks for the CIR of an individual it is known as a hard enquiry and impacts the score negatively. However, when an individual seeks his/her report it is known as a soft enquiry and has no impact on the credit score whatsoever.
Q. What does NA or NH mean?
A score of NA or 0 means that the individual has a credit history of less than six months which is not sufficient for a credit score for 300 to 900. NH or no history means there is no credit history so obviously no rating can be provided. Score of NA/NH is not a bad thing but may cause hiccups in trying to get a loan.
Q. At what CIBIL Score can I get a loan?
As per the CIBIL website 79% of the loans get approved for a score of 750 and above. Having said that there may be some flexibility as per the rules of the lender, the kind of loan, special tie-up with corporate and so on. Banks may be willing to consider a lower score for employees of a company with they have tie-up or some co-operative banks may be willing to lend at lowers score at higher interest. While a score of 750 and above is generally considered good, there is still some room for flexibility at lower scores and sometimes a score of 750 may also not be sufficient as the applicant may be overleveraged or there may be some negative comments in the report.
Hopefully the above discussion has helped you in getting better insight into the credit process. As stated earlier the importance of this statistical tool is increasing as we move towards a more credit driven and digital economy.
Source : http://goo.gl/a7sCtz
Currently, an individual has to shell out Rs 550 for a report and a onetime credit score in the PDF format from CIBIL
BS Web Team | Mumbai | July 22, 2016 Last Updated at 10:53 IST | Business Standard
The Credit Information Bureau of India (CIBIL) has decided to provide individuals with one free credit report a year, the Reserve Bank of India chief Raghuram Rajan said.
“Going forward, by the end of the year, the Credit Information Bureau of India will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies,” Rajan said.
Currently, an individual has to shell out Rs 550 for a report and a onetime credit score in the PDF format from CIBIL.
Most Indians are unaware of their credit score and have never bothered to check their credit report either. Consequently, they may not know that there may or may not be issues present in their report.
Financial institutions, including banks, check the credit worthiness of an individual before extending credit or loan, through these credit reports. “When an individual knows that a default will spoil their credit rating and cut off future access to credit, they have strong incentives to make timely payments,” Raghuram Rajan said at a seminar on ‘Transforming Rural India through Financial Inclusion’.
Other than CIBIL, there are two other credit bureaus in India — Experian and Equifax. But at the moment, the governor has only talked about CIBIL providing a free report.
Praising the credit bureaus further, Rajan also said: “Credit information bureaus have helped tremendously in solving both the information and incentive problem in retail credit.”
Rajan also pitched for the need to expand the reach of credit bureaus in rural India, even bringing borrowing under Self Help Groups (SHG) into their ambit.
By Saloni Shukla, ET Bureau | Jul 07, 2016, 03.37 AM IST | Economic Times
Mumbai: Bank of Baroda for the first time is set to offer rating-based lending to retail mortgage loan seekers, which involves giving loans based on credit scores and not a uniform rate irrespective of the credit quality.
“We have internally switched to scoring-based pricing based on the CIBIL score,” PS Jayakumar, MD, Bank of Baroda, told ET. “With this, we can identify the right kind of borrower, our due diligence becomes easier, and the probability of a default will be minimal.”
Historically, Indian banks charge corporate customers based on their credit rating, but haven’t extended this policy to retail borrowers. Customers with a good loan repayment track record and strong financials may end up availing loans which are at least 50-75 basis points cheaper than a customer with a bad credit score.
The move is expected to improve the quality of bank’s retail portfolio as they will now disburse loans based on the customer’s credit profile. It will also provide an opportunity to the customer to maintain a consistent credit behaviour and increase his credit score to get the benefit of lower rates.
Banks have used credit information companies to reduce risk in their retail loans but failed to pass on the advantage to customers.
Between fiscal 2011 and 2014, while the total gross non-performing assets in the corporate sector grew by 300 basis points, non-performing loans in the retail segment fell by over 170 basis points, indicating that the use of information bureaus were one of the key drivers of retail non-performing assets.
Credit information bureaus such as CIBIL in general assign rating between 300 and 900 points. Low rating is assigned to individuals who are the least trustworthy and high rating is assigned to blue chip customers.
“It will remove subjectivity in decision making because it is a far more objective parameter,” said Jayakumar. “The adjusted pricing that the customer pays is more or less constant because lower scores have higher risk and higher scores have lower risk.” Home loans contributed to nearly 9% of Bank of Baroda’s total advances at Rs 24,975 crore.
Other retail loans, which include personal loans, contributed 7.64% to the total book at Rs 21,463 crore.
Source : http://goo.gl/EOWbLc
By Chandralekha Mukerji | ET Bureau|Jul 04, 2016, 09.25 AM IST | Economic Times
BENGALURU: A rulebook guides the inexperienced to make rational decisions. This is true for money management too. Money rules help you keep your finances on track. But rule of thumb that do not fit your situation can be a waste of time, or worse, actually worsen your finances. They may be oversimplifying a complex issue which can harm long-term prospects and be a poor substitute for analysis. Here are five personal finance rules that based on your circumstances, you can consider breaking.
Rule 1: Young should have equity-heavy portfolio
Risk appetite is independent of age. A young person usually has higher risk tolerance and a longer investment horizon and therefore advised to keep a heavier chunk of portfolio in equities. However, historical data shows that equity investment requires a commitment of four to five years for good returns. Even if you are 20-something, equities are not for you if you have a lot of debt and many dependents or are saving for short-term (read: 2-3 years) goals.
If there is an ailing family member and a medical emergency can arise unannounced, you should have your savings in debt as chances of capital corrosion are less while the penalty for early exit is not high. On the other hand, you may be 60 and retired, but have enough liquidity to manage your short-term expenses. Then, you must consider allocating a portion towards equities. “The first step to asset allocation is therefore knowing your risk appetite through a risk profiling exercise, step two is understanding the constraints in life and decide your equity-debt investment ratio,” says Vivek Rege, CEO, VR Wealth Advisors.
Rule 2: The key to financial success is cutting expenses
The key to financial success is not in cutting your expenses. It is in creating a surplus that can be invested, which can be done by reducing your costs or increasing your income.
While budgeting is a must, however, some costs can’t be snipped beyond a point. Your financial planner may then advise you to either reduce your goals or push back the target dates or re-prioritise your financial needs. However, what if the financial need can’t be compromised. Take the case of 35-year-old Pravin Kumar, who works for an IT company.
“Although his earnings were enough to meet his present needs, he wanted an overseas education for his 10-year-old daughter, which was not possible considering he had already taken a huge home loan,” says Mimi Partha Sarathy, MD, Sinhasi Consultants and Kumar’s financial planner. One of the constraints for Kumar to earn more was his qualification, so he decided to take up an executive MBA in marketing from a top B-school. “With this new addition to his resume, he negotiated not only a promotion but a 40% increase in his salary with an increased role,” Partha Sarathy. It was then easy to allocate the necessary funds for the child’s future needs.
Rule 3: Debt is bad. Try to avoid debt at all cost
Debt is not always bad but you shouldn’t borrow beyond your repayment limits. Loans can help you lead a lifestyle that you desire by drawing from current and future income. “While in the previous generation, our parents had to wait till they saved up enough to buy a house, we are able to do that easily today through a home loan. Loans give us a lot of flexibility to enjoy a lifestyle today rather than in the future,” says Priya Sunder, director, PeakAlpha Investment Services. However, in case of financial distress, you lose all flexibility since EMIs will have to be paid, with very adverse consequences in case of default.
“Hence it is prudent to create a Plan B in case of a loan default such as hrough insurance covers or collaterals,” adds Sunder. Having an open credit card limit with sufficient insurances is a great emergency planning. “It is a much better idea than building huge emergency corpus,”adds Bhuvana Shreeram, a Mumbai-based Certified Financial Planner. If you are a good borrower, even credit cards are not bad. “Apart from using credit wisely, you can use debt to create appreciating assets like a home not only to gain through appreciation but also tax savings,” says Manish Shah, CEO, Bigdecisions.com.
Rule 4: Realty is the best asset
Too much of anything is bad, especially an unpredictable and illiquid asset like real estate. However, most Indians have a portfolio terribly skewed towards real estate. “They overestimate the returns real estate gives. If they did the math, they would know better,” says says Shreeram. “Even when real estate had a good bull run in the last 10-12 years (2002 to 2014), most investors have made about 9% to 10% after accounting for interest repayment on loans, tax benefit, cost of maintenance etc., which may be better than bank deposit but not worth taking 20-year loans at 10%,”adds Shreeram. Also, the bull run does not last long. So, the investment is not as safe or liquid as bank deposits. The time during 2011 to mid-2014 was a very challenging time for those who had invested in the stock markets. “Many HNIs moved to real estate during this time and at high levels which is now close to impossible to liquidate,” says Partha Sarathy. Sunder of PeakAlpha Investments doesn’t recommend holding more than 60% of portfolio in real estate.
Rule 5: Re-evaluate your portfolio regularly
Yes, there is a need to regularly rebalance and evaluate your portfolio. However, too much tinkering is not good either. “There are people who have long-term goals but have a habit of tracking their investments on a daily basis and get carried away by the emotions of the market,” says Anil Rego,CEO, Right Horizons. Tinkering is either motivated by the need to earn more (greed) or by the need to save whatever is there (fear). “Jumping in and out of investments is the single-most wealth destroyer, followed by waiting in the sidelines and losing precious time,” says the expert. Every investment has a time horizon for it to achieve its expected returns and this must be respected and adhered to.
ET Bureau | May 30, 2016, 10.01 AM IST | Times Of India
The term ‘social worth’ is changing from one’s standing in society among peers to a figure derived from one’s popularity in social networking sites
MUMBAI: An individual’s social worth may come to mean more than one’s popularity with friends and colleagues. Social worth may become a tool to assess a person’s creditworthiness, especially for those who’ve just started working, and some agencies have already started using it.
Those looking to get a loan application processed quickly or at a lower rate of interest would do well to ensure they have the right contacts on LinkedIn and a good set of friends on Facebook. Just as the income tax department tracks your holiday photos on Facebook, banks and financial companies are increasingly looking at the ‘social worth’ of people to determine if there’s a risk of defaulting on payments.
The term ‘social worth’ is changing from one’s standing in society among peers to a figure derived from one’s social media connections, personal details and bank statements – an indication of how much a person can repay.
“This is becoming the norm mainly for first-time borrowers, for whom there is hardly any credit data available. To be able to lend to this section, banks are using alternative sources of data to decide on creditworthiness,” said Ranjit Punja, cofounder of CreditMantri, which has developed a proprietary software for this purpose. “We already have a public sector bank , a private bank and a large NBFC using our alternative data sources for their loan processing.”
While CreditMantri offers credit analysis, EarlySalary is a lender. This Pune-based startup, which has a non-banking finance company licence, provides instant credit to applicants by judging them on their social media contacts.
In 90 days of operations, EarlySalary processed applications for more than 1,000 borrowers worth Rs 1.4 crore across Pune, Bengaluru and Chennai.
“We are mostly lending to the youth who have just joined the workforce and are credit hungry. To be able to underwrite such advances, we are using the individual’s Facebook, Google Plus and LinkedIn data, which gives us a peek into the kind of person he is,” said Akshay Mehrotra, CEO of EarlySalary.
Mehrotra explained that it is mandatory for someone to have a social media presence to be considered for credit on their platform. They look at ‘mirror customers’ – similar people on the applicant’s contact list who have a credit score.
Source : http://goo.gl/4Re6Ac
The platform owners & investors hail the move as regulation gives RBI’s stamp of approval to a business that is completely banned in countries like Japan & Israel
Anup Roy & Abhijit Lele | Mumbai | April 29, 2016 Last Updated at 00:25 IST | Business Standard
The Reserve Bank of India (RBI) on Thursday came up with a discussion paper on peer-to-peer lending (P2P), seeking to regulate the fast emerging crowdfunding platforms as the new financing model has assumed importance too significant to be ignored.
Interestingly, the platform owners and investors welcomed the development as regulation gives RBI’s stamp of approval to a business that is completely banned in countries like Japan and Israel.
“Any space where money changes hand should be regulated. Regulation is good for the industry, but it should be light regulation” said Mohandas Pai, former board member of Infosys and investor in Faircent.com, a P2P lending platform. “Regulation will help us in our business and we can approach the court of law as legal entities for our needs and even for recovery,” said Bhavin Patel, co-founder of LenDen Club, a P2P platform.
In fact, RBI itself is aware of this and sounded a little hesitant in giving this recognition to the business model. But the central bank officials, including Governor Raghuram Rajan, have said the RBI cannot remain indifferent to new innovation in financing activities and growth in P2P sector. To allow regulation, RBI’s discussion paper said the platforms should adopt a company structure that can then be regulated by the central bank. Currently, the P2P platforms are run by individuals, proprietorship, partnership or limited liability partnerships — areas outside RBI’s jurisdiction. The P2P platforms are largely technology companies registered under the Companies Act and acting as an aggregator for lenders and borrowers thereby, helping create a match between them.
“Although nascent in India and not significant in value yet, the potential benefits P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored,” RBI said.
Presently, there are around 30 start-up P2P lending companies in India, RBI said. Globally, the cumulative lending through P2P platforms at the end of fourth quarter of 2015 reached £4.4 billion, from just £2.2 million in 2012. While banned in some countries, in some other jurisdictions, the P2P platforms are either considered part of banking, or are intermediaries.
RBI’s own discussion paper favoured the platforms to act as intermediaries, to be registered as non-banking finance companies with a minimum capital of Rs 2 crore, so that promoters have “skin in the game”. The discussion paper also sought to curtail the freedom of these companies significantly and said funds raised through the platforms should go directly from the lenders’ bank account to the borrowers’.
P2P LENDING BUSINESS
- The business size globally is £4.4 billion but nascent in India
- Completely banned in Israel and Japan but allowed elsewhere
- RBI plans to treat it as intermediary NBFC
- Minimum capital requirement is Rs 2 crore
- Should not take deposits
- Cannot show lending and borrowing funds in its balance sheet
- Money should go directly from lender to borrower
- Can only take fees, provide creditworthiness info
- Should not provide cross-border transactions
- Management should be stationed in India
Source : http://goo.gl/HB0yhG
TNN | Apr 25, 2016, 06.05 AM IST | Times of India
Surat: Police arrested a disabled person, who has an MBA degree, and his wife for allegedly running a bank finance assistance service racket and duping at least 26 people to the tune of over Rs10 lakh here on Saturday. The accused charged heavy commission from loan seekers to help them apply to financial institutions and when their applications were rejected, they refused to refund the money. The accused did not enter into any written agreement with his victims.
Source : http://goo.gl/ZHFdmF
By Rishi Mehra | 20 Jan, 2016, 10.17AM IST | Economic Times
It is common to have debt in some form or the other and it is not bad to have them. However, there may come a time when runaway debt may cause problems and you may need professional help. A look at some scenarios that can indicate you need help to tackle your debt.
Caught in minimum payments – This is especially true for credit cards. When your credit card is generated there are two payment terms in that statement. One would be total amount due, while the other is the minimum amount, which is about 1 % of the principal amount outstanding. Minimum amount, being a small percentage of the total amount due, largely consists of interest and fees. This would mean if a person pays only the minimum amount outstanding on the card every month, it would take him decades to pay the entire amount. If you find yourself caught in the trap of minimum payments, it may be time to get professional help to get out of the situation.
Over reliance on credit cards – Being caught in the minimum payment trap may not be the only indicator that your finances may be off track. When debt increases, servicing it may lead to over reliance on your credit card. Having to use the credit card for daily expenses may be proof that your finances are not in shape. However, paying by credit card because you chose to and not because you have cash crunch is okay. Similarly, if you are making payments by credit cards to earn points, rewards or cash back, it makes perfect sense. However, when you start feeling your cash drying up and having to resort to credit cards to fund your monthly need, it may be time to talk to a financial advisor to get your finances in order.
Getting a loan to tackle debt – Unless it’s a credit card debt, or the new loan has substantially lower interest rates, taking a loan to settle another loan defeats the purpose. This can be very counterproductive, especially in cases when you increase the tenure of the loan to ensure you pay lower EMIs. The very idea of taking a loan should be to reduce your debt at the earliest and most frugal manner. By increasing the tenure you may be making things easier for yourself, but the interest outgo will be much higher. You also run the risk of being under debt for a longer time. If you have any debt, your first priority should be to pay them off at the earliest. If you find yourself in a situation where you think you may need a loan to settle another loan, it is best you consult an expert first to get an opinion.
Little or no savings – When your entire income goes on servicing your debt and catering to your daily expenses, it may be time to get help. When you start your career you may not be able to save immediately, but as you progress in life, you should start having some form of saving. What products appeal and suit you can differ, but it is imperative to save money, especially for periods after retirement. However, if your savings are negligible or you have no products that help you save money, you may be in a tricky situation. Get help on what products will be ideal for you and start saving diligently. Failure to do so may be painful when you grow old or during an emergency.
Difficulty in drawing or sticking to a budget – To build some sort of order and responsibility between what you earn, what you spend and what you need to set aside to cater to your debt, it is important to draw up a monthly budget. This helps you come to grips with the regular expenses every month and the special ones that may creep in. This also helps you realize when you are overspending and the need to put money aside as savings. When you have difficulty in drawing a monthly budget or sticking to it despite having one, you may need to get help to figure out ways to correct your situation.
Consistently overshoot payment deadlines – This may be an early and a potentially important indicator to know if you are having problem with your finances. If you miss payment deadlines on your bills because you do not have the requisite money and have to wait for your next payday, things may be tight for you. Servicing your existing debt may be taking its toll and you should get help to see what can be done to address your financial situation.
(The author is co-founder of deal4loans.com)
Source : http://goo.gl/vehEzi
If it doesn’t meet a bank’s cut-off limit, you could be denied a loan. Here are ways to improve this vital number
Sanjay Kumar Singh | November 22, 2015 Last Updated at 23:49 IST | Business Standard
Before you apply for a big-ticket loan such as buying a house, get your credit report from one of the country’s four credit bureaus. The report would contain your score, a three-digit number that reflects your creditworthiness.
Banks and housing finance companies (HFCs) take this number into account in deciding whether to lend to you. If your score is above 675, you are in a happy situation. If not, you might be denied a loan (different banks have different limits). Here are a few steps you can take to improve the score.
Review your credit report: In the period prior to applying for a home loan, review your credit report regularly, say, every month. Such a review will tell you where your weaknesses are and what you need to do to improve the score.
Get mistakes rectified: Mistakes are common in credit reports. They could happen because there’s a mistake in a bank’s records or you’ve been mistaken for someone else. Or you might have been a victim of identity theft. In all these cases, get in touch with the bank or HFC and get the error rectified.
Improve payment history: Before applying for a home loan, make sure you have not been delinquent in the past six months at least. If any of your loans or cards has been “settled” in the past (which means your bank agreed to take only a part of the amount due and closed your account), you should fully repay the lender.
Make timely repayments: The most important factor in improving your credit score is to improve your repayment record. “Once a borrower has managed to pay all his credit card dues and has started paying his EMIs (equated-monthly instalments) regularly, his score will start improving,” says Mohan Jayaraman, managing director (MD), Experian Credit Information Company of India.
Close unused accounts: Close any loan account that you no longer use. In deciding on the loan amount you are eligible for, lenders can take into consideration not only the loan dues against your name but also the credit limits available to you. “To maximise the eligibility on a home loan, reduce overall exposure to other loans,” says Kalpana Pandey, MD, CRIF High Mark.
Space out applications: Every time you apply for a loan, the lender checks your credit score. When it does so, it leaves behind what is known as a credit application search footprint on your score. Each time this happens, your credit score takes a small dip. “Space out your credit applications, as this could signal to lenders that you are under financial stress,” says Jayaraman.
When it is time to apply for a home loan, don’t do so to several banks and HFCs at the same time, in the hope that one of them will lend to you. “Evaluate home loan products from lenders and then apply to one or two that are best suited to you,” says Pandey.
Use credit limits judiciously: Suppose you have a card on which you have a credit limit of Rs 2 lakh. Avoid using it fully. “Don’t use the credit limit up to the hilt. Generally, it is advisable not to exceed 40 per cent of the limit,” says Arun Ramamurthy, co-founder, Credit Sudhaar, a company that helps people improve their credit score.
Build a track record: Conventional wisdom would have us believe that our credit score should be high if we have never taken a loan in the past. Things don’t work that way any more. If you have not used any type of credit in the past, the bureaus do not have data by which to evaluate you and you end up getting a poor score. This makes it imperative that you start building a record of responsible credit usage through credit cards, personal loans, etc, as soon as you start working. Doing so will prove handy when you have to take a big loan, such as a home loan.
Use the right credit mix: Two types of loans exist, unsecured and secured. Unsecured loans require no collateral. Credit cards and personal loans are in this category. Lenders consider these to be riskier than secured loans, such as a home loan, where they have the house as collateral. Beside building a healthy track record of credit usage, it is also important to use a judicious mix of secured and unsecured loans. “Suppose a person has a credit card and no other type of credit. He might be paying his dues on time, but chances are that his credit score might not be very good. This is because the credit bureaus do not have adequate data on different types of credit to be able to score that person properly,” says Ramamurthy. The right credit mix for each person depends on his income and socio-economic background, he adds.
At present, most lenders use the credit score only to decide if to grant you a home loan. If your credit score is good, your loan also gets processed faster. As time goes by, the practice of the same bank charging different rates of interest from customers, depending on their credit score, will also begin. Even today, a poor score means the frontline banks and HFCs won’t lend to you, due to which you might have to approach a smaller player. The latter might agree to lend but at a higher rate of interest. Having a poor credit score can, thus, translate into lakhs of extra rupees in interest charges over the tenure of the home loan. Hence, improving your credit score and maintaining it at a high level has become imperative.
CORRECTING CREDIT REPORT ERRORS
- Get in touch with the customer care department of the lending institution and register a complaint. Note the complaint number
- Send an e-mail, quoting the complaint number and details of the issue, to the grievance redressal officer of the lending institution
- Send a copy of this mail to the credit bureau
- The bank or HFC should reply within 30 days, stating the correction has been made
- Forward the response to the credit bureau
- If you don’t hear from the bank within 30 days or the problem isn’t rectified to your satisfaction, complain to the ombudsman
- If the ombudsman doesn’t solve your problem, appeal to the RBI deputy governor
- Finally, you could approach a consumer court
Source : http://goo.gl/2DnQj6
Arun Ramamurthy | Oct 27, 2015, 09.55 AM | Source: Moneycontrol.com
A good credit score by CIBIL is necessary to gains loans on favorable interest rates. Here’s what those scores reflect and how they can be improved.
The CIBIL score is a 3 digit number which denotes how credit healthy a person is.
This score ranges from 300 to 900. More than 40 crore people in India have a credit score.
There are several misconceptions surrounding the CIBIL score. Some of these are a result of an acute lack of awareness while others are carefully cultivated myths based on a limited understanding of the subject.
With the concept of a score now gaining recognition and usage increasing, there are some myths and misconceptions surrounding it. Here, we give you the lowdown on what separates myth from fact. Read on!
CIBIL is the only credit bureau
There are four credit bureaus in the country today, namely CIBIL, Equifax, Experian and CRIF High Mark that are licensed to operate by the Reserve Bank of India. However, with CIBIL being the oldest of the four, the term CIBIL score/ report is used interchangeably with a credit score/ report. All bureaus provide individual reports.
Help! My loan was declined by the bureau
Credit bureaus do not make the lending decision; it is the lenders who obtain and review credit reports provided by bureaus. In this sense, the bureau only generates information basis data received from financial institutions. Hence, if your application for a loan or card is declined, you need to check with the lender as to the reason.
I’m blacklisted by a credit bureau!
It is important to know that bureaus or credit information companies do not create or maintain blacklists. If your application for a loan is turned down, it could be because of your previous repayment history and how much you already owe by way of existing loans.
Restoring a poor score is impossible
Having a low or a bad score may not have an immediate quick-fix solution. It is advisable to take the assistance of professional credit health management companies should you wish to better your score. However, this does not mean that over time with financial discipline and judicious planning it cannot be restored. Pay your outstanding in time; any delayed or late payments will negatively impact your score.
- Factors that do NOT generally Impact your Credit Score
- Income level
- Education level
- Religion, race, nationality
- Gender or marital status
- Employment or occupation history
- Inquiry made by you to obtain your own credit report
- Location of residence or length of stay at one place
- Wealth levels
- Closing outstanding accounts enhances your score
The best way to maintain a good score is by paying off any outstanding card or loan dues in a timely manner, on or before the due date.
Let us assume you have an auto loan outstanding of Rs. 2.50 lakhs. With an additional inflow of funds by way of a bonus from work, you choose to foreclose the loan. While this will indeed make you more solvent, remember that it may possibly have a negative impact on your score. How so? This is because old ‘good’ debt actually enhances your score! With a longstanding timely payment record, your credit history gets a boost.
Therefore, it may be wise to continue with an old loan, providing you make payments on time.
No loan equals a good score
In fact, this could prove to be just the opposite! Having a healthy credit history is a good indicator of your creditworthiness to a lender, and will in fact enhance your score. Of course, the key to a good repayment record is timely payments and avoiding CIBIL defaults , so do keep that in mind!
A good score guarantees fresh credit
It is important to note that a good score can help you get a new line of credit (be it a loan or card) at competitive interest rates and terms. However, it in no way is a guarantee or confirmation that a loan will indeed be extended to you. This is because while the score is a very important piece of information for a lender, it is not the sole deciding parameter on which a decision of whether to approve a loan is taken. Factors such as your income, repayment capacity and existing debt are also taken into account.
Hence, your score definitely needs to be healthy for the best deals, but getting a loan is not carved in stone as an outcome of the score.
Multiple enquiries do not affect your score
In actuality, applying for multiple new lines of credit can make your score take a nosedive, and fast! This is because each prospective lender will make an enquiry against your report, and each such ‘hit’ brings down your score. What this indicates is credit-hungry behaviour, and the possibility of your being insolvent – which in turn will make lenders stay away, even when you genuinely do require a loan!
I’ve checked my own report and my score went down
While as mentioned above multiple enquiries affect your score, this does not apply to your own requests for a report. Each bureau offers you a copy of your report at a nominal fee, and you are free to obtain reports from any or all of them. In fact, it is a good practice to keep track of your score at regular intervals, to ensure that your report is an accurate record of your credit health.
Knowing the facts behind scores, a good practice would be to obtain a copy of your report at periodic intervals and staying credit healthy. It would also help you to take appropriate measures and rebuild your score, should it need attention.
Written by Arun Ramamurthy , author of Unlock the Power of Your Credit Score : India’s first book on Credit Scores
Source : http://goo.gl/dSniQd
In order to get a loan at competitive interest rates, it is mandatory to have a CIBIL score of 750 and above.
By: CreditVidya | October 5, 2015 3:32 PM | Financial Express
In order to get a loan at competitive interest rates, it is mandatory to have a CIBIL score of 750 and above. This is a fact that most people are unaware of despite the information overload about credit score and its impact. There are a lot of articles online and offline about how it is mandatory to keep your CIBIL score high. Your CIBIL score is a measure of your credit worthiness. In other words, banks look at your CIBIL score to find out how you have handled your finances and whether or not you have behaved responsibly with the credit you have already availed of in the past. But the fact is, that people are still unclear about what exactly should they do to maintain a high CIBIL score. If you too are among those who are still confused as to what really impacts your CIBIL score, here is the lowdown on what really matters:
1. Make timely payments – The one top trick to pump up your CIBIL score is to make all your payments on time – very basic requirement, indeed. This is applicable to all the credit you already have. This includes credit card outstandings and EMIs on loans. Also make sure you make other payments such as insurance premiums etc on time, though it does not fall under the credit bracket. Even a single late payment on a home loan or an unpaid outstanding on your credit card, will bring your CIBIL score tumbling down and be a blemish on your CIBIL report.
2. The total amount of credit you have availed of – Credit is something that is easily available today. You therefore probably have at least two or three credit cards that you are using simultaneously, along with a home or a vehicle loan. While you are particular about repaying EMIs, you think its OK to pile on the debt on your credit card, because you are far from your credit limit. If you are under any such impression, stop right there! The amount you owe to your lenders makes a large impact on your credit score. The closer you are to your credit limit, the worse its gets! Ideally you should not be using more than 30% of your total credit limit at any given time.
3. For how long you have had credit – “Credit history” as it is called in financial parlance has a large impact on your CIBIL score. If you have availed of credit for a long time and have serviced it well, it certainly fetches you brownie points to increase your CIBIL score. A good credit history gives a prospective lender the confidence to lend to you.
4. Too much credit in a short period of time – If you apply for too many credit cards or loans close to each other, it sets the alarm bell ringing for any bank. As for your CIBIL score, it inches lower each time you apply for a new loan. Every time you apply for a new credit card or loan, there is a “hard enquiry” made on your CIBIL score and CIBIL report, bringing down the score a few notches lower each time.
5. Good and bad debt – Believe it or not, the kind of debt you avail of, makes an impact on your CIBIL score. While home, vehicle and student loans fall under the category of good debt because they are “secured” in nature, “unsecured” loans such as too many credit cards or personal loans spell trouble and bring your CIBIL score down.
Source : http://goo.gl/yqf81M
Mayur Shetty, TNN | Sep 29, 2015, 03.49PM IST | Times of India
MUMBAI: The country’s largest lender State Bank of India has been the first off the block to lower interest rates with a 40 basis point cut in its base rate to 9.3%. The reduction follows a 50 basis point reduction in the repo rate by Reserve Bank of India on Tuesday.
The rate cut, which is effective October 5, will put pressure on other home loan providers such as HDFC and ICICI. With this rate cut the gap between SBI and it’s rivals has widened. SBI currently extends home loans at 9.7% for women and 9.75% for others. It’s nearest rivals offer loans at 9.85% and 9.9%.
From October 5, the home loan rates will fall to 9.3% and 9.35%.
Unlike most other lenders who extend car loans at fixed rate, the SBI’s auto loans are linked to its base rate. This means that interest for existing borrowers will come down as well.
According to sources, both HDFC and ICICI Bank will announce new rates before the end of the week.
After lowering the interest rate by 50 basis points to boost economy, Reserve Bank governor Raghuram Rajan said the RBI will work with the government to ensure a faster transmission and also hoped that banks will pass on the benefits to customers.
“We believe that some (monetary policy transmission) would take place very soon and more will take place over time,” Rajan said during the customary post policy meeting with the reporters.
Rajan said markets have transmitted the RBI’s past policy actions via commercial paper and corporate bonds, but banks have done so only to a limited extent.
RAJIV RAJ | SEP 18, 2015, 03.48 PM | BusinessInsider.in
A bad Cibil score can limit your borrowing options. Kaushik Gowda, a Noida-based techie, was in for a rude shock when his home loan application was rejected by a leading Housing Finance Company (HFC). When he pulled out his personalized credit score, he discovered that it was a pathetically low score of 535. But that did not dampen his spirit. Despite lot of discrepancies in his credit score, he went ahead with strong support from his wife who had a healthy score of 790.
“Apart from starting the application process with the concerned bank, I also worked on removing the derogatory information on my credit file and many credit cards against my name weren’t held by me. Thankfully, my wife’s score was good and she had a good history, so we went to the bank and told the manager honestly about our case and requested him to consider our application and he obliged. We are waiting for the sanction letter now,” said Gowda.
However, there are other ways also to get a loan if you have a bad credit score:
Check your spouse’s score: If you are married and your better half has a better credit score, he/she help you out. Get your spouse to be a joint loan holder in that case.
Look for HFCs who offer loans to lower credit score: There are companies that offer loan to people with bad credit score. They may offer it to you at higher interest rate, but it is worth trying. In the long run, it would help you in building credit score. May be in a couple of years’ time, you could transfer your loan to lower interest rates, by then your credit score would have improved drastically.
Peer-to-peer lending: It is a widely established practice abroad. The concept is slowly picking up in India. The interest rates are a tad higher than the market rates and the loan size may be smaller, but there is an option.
Family banks: You will love India for its closely-knit families even more, if you know that many families across the country have a family bank. The members and customers of such banks are families themselves. In some cases, an outsider can get a loan with the guarantee and approval of a member.
Collateral loans: There are many such products available: loan against shares and securities, loan against FDs, gold loan and many others. Banks don’t really go digging into your credit history for such products.
(About the author: Rajiv Raj is the director and co-founder of http://www.creditvidya.com)
Source : http://goo.gl/0lr15Q
Neha Pandey Deoras,TNN | Sep 21, 2015, 06.46 AM IST | Times of India
In an ideal world, everybody would have enough money for all his needs. In reality, many of us have little option but to borrow to meet our goals, both real and imagined.For banks and NBFCs, the yawning gap between reality and aspirations is a tremendous opportunity . They are carpet bombing potential customers with loan offers through emails, SMSs and phone calls. Some promise low rates, others offer quick disbursals. Online aggregators help customers zero in on the cheapest loan and banks take less than a minute to approve and disburse loans. However, while technology has altered the way loans are disbursed, the canons of prudent borrowing remain unchanged. It still doesn’t make sense to borrow if you don’t need the money. Or take a long-term loan only to enjoy the tax benefits available on the interest you pay . Our cover story this week lists 6 such rules of borrowing that potential customers must keep in mind. Follow them and you will never find yourself enslaved by debt.
Don’t borrow more than you can repay
Don’t live beyond your means.Take a loan that you can easily repay .”Your monthly outgo towards all your loans should not be more than 50% of your monthly income,” says Rishi Mehra, Founder, Deal4Loans.com.
With banks falling over each other to attract business, taking a loan appears as easy as ABC. But don’t take a loan just because it is available. Make sure that your loan-to-income ratio is within acceptable limits. Take the case of Hyderabad-based Phani Kumar, who has been repaying loans right from the time he started working.
It started with two personal loans of `5 lakh six years ago. Then, he was paying an EMI of `18,000 (or 40% of his take home). Kumar took a car loan of `5.74 lakh in 2012, adding another `12,500 to his monthly outgo. Last year, he took a third personal loan of `8 lakh to retire the other loans and another top-up loan of `4 lakh. Today, he pays an EMI of `49,900, almost 72% of his take-home pay .
If your EMIs gobble up too much of your income, other critical financial goals, like saving for retirement or your kids’ education, might get impacted.Retirement planning is often the first to be sacrificed in such situations.
Keep tenure as short as possible
The maximum home loan tenure offered by all major lenders is 30 years. The longer the tenure, the lower is the EMI, which makes it very tempting to go for a 25-30 year loan. However, it is best to take a loan for the shortest tenure you can afford. In a long-term loan, the interest outgo is too high. In a 10-year loan, the interest paid is 57% of the borrowed amount. This shoots up to 128% if the tenure is 20 years. If you take a `50 lakh loan for 25 years, you will pay `83.5 lakh (or 167%) in interest alone. “Taking a loan is negative compounding. The longer the tenure, the higher is the compound interest the bank earns from you,” warns financial trainer P .V . Subramanyam.
Sometimes, it may be necessary to go for a longer tenure. A young person with a low income won’t be able to borrow enough if the tenure is 10 years. He will have to increase the tenure so that the EMI fits his pocket. For such borrowers, the best option is to increase the EMI amount every year in line with an increase in the income.
Assuming that the borrower’s income will rise 8-10% every year, increasing the EMI in the same proportion should not be difficult. If a person takes a loan of `50 lakh at 10% for 20 years, his EMI will be `48,251. If he increases the EMI every year by 5%, the loan gets paid off in less than 12 years. If he increases the EMI by 10% every year, he would pay off the loan in just nine years and three months.
Ensure regular repayment
It pays to be disciplined. Wheth er it is a short-term debt like a credit card bill or a long-term loan for your house, make sure you don’t miss the payment. Missing an EMI or delaying a payment are among the key factors that can impact your credit profile and hinder your chances of taking a loan for other needs later in life. Never miss a loan EMI. In an emergency , prioritise dues. You must take care never to miss your credit card payments because you will not only be slapped with a non-payment penalty but also be charged a hefty interest on the unpaid amount. If you don’t have the money to pay the entire credit card bill, pay the minimum 5% and roll over the balance.At an interest of 24-36%, credit card debt is the costliest loan you will take.
Don’t borrow to splurge or to invest
Never use borrowed money to invest. Ultra-safe investments like fixed deposits and bonds won’t be able to match the interest you pay on the loan.And investments that offer higher returns are too volatile. If the markets decline, you will not only suffer losses but will be strapped with an EMI as well. There was a time when real estate was a very cost-effective investment. Housing loans were available for 7-8% and real estate prices were rising 1520%. So it made a lot of sense to buy a property with a cheap loan. Now tables have turned. Home loans now cost around 10% while property prices are rising by barely 4-5%. In some pockets they have even declined.
Similarly, avoid taking a loan for discretionary spending. You may be getting SMSs from your credit card company for a travel loan, but such wants are better fulfilled by saving up.”It’s not a good idea to take a personal loan for buying luxury watches and high-end bags,” says Vineet Jain, Founder of LoanStreet.in. If you must go on a holiday, throw a party or indulge in luxury shopping, start saving now.
On the other hand, taking a loan for building an asset makes eminent sense.For instance, Mumbai-based Sandeep Yadav junked plans to go on a foreign holiday and instead used the money for the downpayment of a house, bringing down the overall loan requirement.
If you take a large home or car loan, it is best to take insurance cover as well. Buy a term plan of the same amount to ensure that your family is not saddled with unaffordable debt if something happens to you. The lender will take over the asset (house or car) if your dependents are unable to pay the EMI. A term insurance plan of `50 lakh will not cost you too much.Banks push a reducing cover term plan that offers insurance equal to the outstanding amount. However, a regular term plan is better. It can continue even after the loan is repaid or if you switch lender. Moreover, insurance policies that are linked to a loan are often single premium plans. These are not as cost effective as regular payment plans.
Keep shopping for better rates
A long-term mortgage should never be a sign-and-forget exercise. Keep your eyes and ears open about new rules and changes in interest rates. The RBI is planning to change the base rate formula, which could change the way your bank calibrates its lending rates. Keep shopping around for the best rate and switch to a cheaper loan if possible. However, the difference should be at least 2 percentage points, otherwise the prepayment penalty on the old loan and processing charges of the new loan will eat into the gains from the switch. Also, switching is more beneficial if done early in the loan tenure.
The same applies to prepayment of loans. The earlier you do it, the bigger is the impact on loan tenure. The RBI does not allow banks to levy a prepayment penalty on housing loans but they may levy a penalty on other loans. Some lenders do not charge a prepayment penalty if the amount paid does not exceed 25% of the outstanding amount at the beginning of the year.
Source : http://goo.gl/ocTwU6
by Harshala Chandorkar | Sep 14, 2015 13:12 IST | Firstpost.com
Your CIBIL Report and CIBIL Transunion Score provides a testimony of your financial discipline to banks and financial institutions for approval of your loan or credit card application. A healthy CIBIL Report and a high CIBIL TransUnion Score indicates that you are managing your loans and credit relationships well and are financially savvy. It is therefore vital to understand the various elements of your credit report well.
One of the most crucial element of your credit report, which has a significant impact on your credit score, is the “Days Past Due” (DPD) information. This information is part of the “Accounts” section of your credit report and indicates how well you have been servicing your loan or credit card- Are you paying your loan EMIs/Credit Card bills on time each month? Have you missed payment of EMIs/ credit card bill? If yes by how many days and in which month?
The “DPD” indicates how many days a payment on a respective account has been delayed. Anything other than “000” and “XXX” reflecting in your “DPD” section would mean that you have missed payments on your loan or credit card account. Up latest 36 months of payment history (with the most recent month displayed first) is provided in the accounts section of your credit report. In order to understand “DPD” better, let’s take an example of a loan whose payments started in March 2015. If the borrower misses a payment for 3 months from the month of April 2015, then the DPD shall reflect as follows on the borrower’s credit report:
The above “DPD” information implies that the borrower has missed payments on a loan for 3 months or 90 days. The payments were missed in the month of April, May and June 2015.
‘000’ indicates “no days past due” for that particular month and implies that you have been regular with the payments of your loan/ credit card.
‘XXX’ indicates that the member bank or credit institution has not reported information in this month to CIBIL on that loan /credit card account.
It is essential to understand that having DPD other that “000” or “XXX” on your CIBIL Report would imply that you have not been able to pay your loan or credit card dues regularly. This alerts the credit institutions as it gives them an indication of your inability to service the loan well. Therefore ensure that you never miss a payment on any loan or credit card account. All the payments must be made by the due date each month so that the DPD string on your report reflects “000” or “XXX” across all the months.
Ensure to maintain a healthy CIBIL Report and a high CIBIL Transunion Score in order to enjoy all the benefits associated with a good credit history.
Source : http://goo.gl/3RWzTa
Till a few years earlier, HDFC Bank’s benchmark lending rate was about 50 basis points (bps) more than the market leader
Manojit Saha & Nupur Anand | Mumbai | September 2, 2015 Last Updated at 00:20 IST | Business Standard
Till recently, State Bank of India (SBI), the largest public sector bank which controls 17 per cent of the loan market, showed the way and others followed. SBI was the first bank to cut deposit rate in September 2014, much ahead of the rate cycle cut started by the Reserve Bank of India (RBI) in January. It also became the first bank to cut the base rate – the benchmark lending rate to which all loan rates are linked. Others followed suit.
Till a few years earlier, HDFC Bank’s benchmark lending rate was about 50 basis points (bps) more than the market leader. The most valuable bank of the country kept on narrowing the gap. And, from earlier this year, they started to match the largest lender and the largest private sector lender.
Now, with a sharp cut of 35 bps in the base rate, HDFC Bank has ensured that no bank will be able to match them in the near future without bleeding on margins. This was the sharpest move by any bank in this rate cut cycle.
“It is not too clear on what is likely to be the response from other banks as they need to strike a balance between growth and NIM (net interest margin) outcomes… We expect other banks to follow but the quantum may not be the same; it may not be immediate with more action likely on deposit rates,” Kotak Securities said in a research report.
Why other banks can’t flex muscle like HDFC Bank It is the NIMs which gave HDFC Bank the room to cut rates sharply. Its NIM has ranged between 4.1 per cent and 4.5 per cent for many quarters, despite profit growth falling to 20 per cent from 30 per cent in the last four to six quarters. Compare this with other banks, which struggle to maintain NIM at 3.5 per cent. One reason for the high margins is the share of current and savings (Casa) deposits, the low cost ones. HDFC Bank’s share of the Casa ratio was 39.4 per cent as of June-end – one of the highest in the sector, though it fell sharply from 44 per cent a quarter ago.
“We think the ability of corporate banks to take such large base rate cuts is limited without impacting their NIMs as 70-75 per cent of their loans (FY15) are linked to the base rate,” Nomura Securities said in a note to clients.
According to the broking firm, HDFC Bank was able to take such a large base rate cut as only 30-40 per cent of its loan book is linked to the base rate. ICICI Bank, Axis Bank and public sector banks have 65-75 per cent of their loan book linked to the base rate and their NIM impact will be higher due to base rate cuts.
The consensus on the Street is while HDFC Bank will also see pressure on margins, it will still be able to maintain it at over four per cent. HDFC Bank has a significant portion of its loan portfolio consisting of automobile loans and personal loans, those are given at fixed rate. So, its return from existing customers will not be affected by this sharp cut. In addition, the bank doesn’t sell home loans – which are mostly floating loans – directly to the customers.
Suresh Ganpathy from Macquarie Securities explains that HDFC Bank is in a better position to take such a steep cut in their base rate because their entire loan book will not re-price immediately.
“Since they don’t have a home loan book, it is of help because the home loan is mostly floating and therefore the impact for them on margins would be lesser than other lenders which have a big home loan portfolio. I believe that because of this reason other lenders might not be able to reduce base rate in the same quantum at one go.”
Source : http://goo.gl/jjEJSm
Go for angel or VC funding if cashflows are likely to be uncertain. Else, borrow from family and friends
Anil Rego | July 25, 2015 Last Updated at 22:04 IST | Business Standard
Financial planning is crucial for any entrepreneur. That’s because entrepreneurship is a high-risk choice that can impact one’s personal as well as family’s well-being. Once salary income stops, it becomes much more difficult to take care of regular expenses such as equated monthly instalments (EMIs) for repaying home loans. This is especially so if your spouse is not working. After assessing cash flow requirements, the next step is to realign existing assets to provide a monthly income. Look at the worst possible scenario and assess how much time you would give yourself to exit the business if it is not successful. It is advisable to plan for three to five years of monthly income, or till business cashflows stabilise.
By doing this beforehand, you will know the time you have to self-sustain the business, or abandon the venture and get a job.The financial plan should include both the business as well as personal life goals, since both are integrated with one’s financial well-being.
Cashflow is the lifeline of any business. Unlike salaried income, cashflow from business is likely to be irregular. You need to forecast the cashflow requirement not only for the start-up phase but also when the business grows to different stages. In the initial years, you may have to fund the operating expenses of your business as well as your family’s personal expenses.
For example, if your monthly expenses including EMIs are Rs 80,000 and your business requires Rs 1 lakh a month, you need to generate a monthly income of Rs 1.8 lakh. You may need to take a call on whether you are okay with eroding capital for a few years if the capital you have built is insufficient.Apart from regular cashflow required to manage operational costs, there could be major investments required in the form of capital. Further, capital infusion is not limited to the initial phase but every subsequent/new phase (like expansion). Entrepreneurs have to make sure that there is adequate capital available to avoid getting into a debt trap or losing out on potential opportunities. If you plan to fund these cash flow requirements from your own assets, it needs to get connected to your personal financial plan.
Debt forms a part of one’s financial plan especially while starting a new business. Typically, cashflows while starting a new venture are managed by borrowing funds. However, debt always has an impact on one’s monthly cashflow since it needs to be serviced regularly in the form of EMIs. The quantum of debt you take would depend on the cashflow analysis you have done. In the previous example, some expenses maybe required upfront and one may need to use debt instead of funding it from your investments. For example, apart from Rs 1 lakh of operating expenses per month, if you are servicing another Rs 50,000 of business loan EMI, then you need to plan for a monthly income of Rs 2.3 lakh per month. If the returns from your investment are unable to cover Rs 2.3 lakh, set a limit for your self on how much capital you can afford to erode.
Servicing debt can become difficult if cashflows are irregular. Thus if an entrepreneur has taken debt or borrowed funds and is regularly paying EMIs, he needs to create a contingency fund which can be in the form of a separate liquid fund or bank deposit. The corpus in the emergency fund can be equivalent to three to four months of monthly expenses and should be touched only during emergencies. If the loan amount is too high, it is advisable to take a risk cover which is equivalent to the outstanding loan amount in order to cover the liability in case of an unfortunate event.
The first place you can go to for borrowing is family and friends as this is unlikely to come with an interest component. However, if there is an issue with repayment, it could impact one’s personal relationships. Banks and NBFCs are options but may not give you loans in the initial stages of your business. So, it is advisable to take loans while you are still working. Mortgage loans are a good option as the interest rate is lower; so is loan against securities like shares. Personal loans, however, can prove costly and should be avoided. If cashflows are not very certain, it maybe a good idea to get equity funding for your business from angel investors or venture capital funds.
Managing investments is crucial. Let’s assume you had a financial portfolio of Rs 1.8 crore, giving a weighted average return of 12 per cent, or Rs 21.6 lakh a year. The portfolio is spread across bank fixed deposits (40 per cent), equity mutual funds (40 per cent) and equity shares (20 per cent). You will need to generate Rs 2.3 lakh a month (as mentioned earlier). As such, there would be a yearly shortfall of Rs 6 lakh which would result in an erosion of Rs 30 lakh in a five-year period.
This portfolio will need to be rejigged to ensure sufficient liquidity and generate returns high enough to replenish the fixed income portion. For this, part of the amount in fixed deposits can be put into liquid funds with a systematic withdrawal option. Periodically, gains from equity shares/equity MFs can be used to replenish the fixed income.
Illiquid assets like real estate or concentrated equity like Esops should be liquidated.
On starting a new venture you will be losing out on the health cover from the company that you had been working for; so it is advisable to have a family health cover. One could go in for a family floater health insurance policy of Rs 10 lakh or more. Sufficient life cover through a simple term plan is necessary to cover your loans. If your spouse is working and you are able to get cover by virtue of her company coverage, then this requirement would be addressed.
Source : http://goo.gl/pi1xeW
But tax exemption will depend on the purpose
Priya Nair | Mumbai July 16, 2015 Last Updated at 22:33 IST | Business Standard
Balance transfer of home loans has become very common after the removal of penalty on pre-payment. Many banks are offering borrowers the option to avail of a top-up loan while doing the transfer. The advantage is the possibility to shift to a lower interest rate loan and getting a higher amount at the same time. The additional amount can be used for any purpose as long, as it is not speculative in nature.
Today, banks are willing to offer top-up home loans at the same rate as a home loan, as a strategy to entice borrowers to do a balance transfer, says Gaurav Gupta, of Myloancare.in, a home loan advisory.
“Most banks tend to price top-up loans closer to rates on loan against property (LAP). But to make balance transfers attractive, many are offering discounts on top-ups as an incentive,” Gupta says.
As compared to an LAP, the advantage of a top-up home loan is a lower interest rate and longer repayment period. Processing is also faster since the bank already has your property documents, says an official from State Bank of India. “We offer up to a maximum of Rs 5 crore and repayment period of up to 15 years on a top-up loan. If the repayment period on the original home loan is 10 years, the top-up can continue up to five years after that.”
Some reasons why people take a top-up loan include home renovation, home extension, childrens’ education, medical emergency, etc. In the case of businessmen, the loan can be used to meet a cash flow requirement. Remember that the tax exemption will be available only if the purpose is home extension or home renovation and not for any other purpose, points out Gupta.
“The bank will take an undertaking from the borrower about the purpose of the loan. If the purpose is children’s education or investing in business, then the top-up amount will not be eligible for tax exemption,” he points out.
A top-up loan can also be used for repaying off other loans like auto loan or personal loans, says Brijesh Parnami, chief executive officer, Destimoney Advisors. “If customers have the ability then we advise them to take a top-up and consolidate other loans, as it will work out cheaper. Today, with banks offering similar repayment terms as a home loan, it makes sense to take a top-up loan. We see lot of customers opting for top-up while doing balance transfer,” he says.
Typically, the rate on LAP is 11-12 per cent, while on top-ups it is around 9.5-10.5 per cent. The eligibility for top-up depends upon two factors — value of the property and the EMI paying capacity of the borrower.
Assume, borrower took a 25-year home loan of Rs 50 lakh at 10 per cent to buy a property worth Rs 65 lakh when he was getting a salary of Rs 75,000 per month. The EMI would come to Rs 45,435. Then after five years, the borrower wants to take a top-up loan.
Assuming the property value has grown at nine per cent, it will be worth around Rs 1 crore. The bank will offer home loan at a loan to value (LTV) of 75 per cent and top-up loan at 65-70 per cent LTV. In this scenario, the maximum top-up loan possible is around Rs 25 lakh (given that the home loan is still running). The combined LTV would be around 73 per cent.
Similarly, if the customer’s income has grown to Rs 1,25,000 per month, he would be eligible for a top-up loan of up to Rs 35-37 lakh. So, the customer would be eligible for the lower of the two amounts as a top-up loan – that is Rs 25 lakh in this case.
The eligible amount for LAP would be lower by about 20 per cent due to the higher rate of interest. The second issue is that since the house is already mortgaged to the bank for a home loan, an LAP might not be possible on the same property at the same time.
All said and done, borrowers should avail of loans only if extremely necessary. For those borrowing more or merely extending the tenure, they will end up paying more interest to banks, not prudent for their financials. But, if one is combining all other high-cost loans into a single top-up loan at a lower interest rate, it would be the best, provided the tenure is the same or lesser.
Financial cleaning is one thing that has to be done proactively. Check out these seven tips to clean up your finances and become a pro at managing money:
By: CreditVidya | New Delhi | July 20, 2015 2:21 pm | The Financial Express
A routine weekly cleanup at home involves clearing the accumulated and scrubbing all surfaces squeaky clean! The mantra that most people swear by is, ‘if it looks messy, clean it up’. Unfortunately, this approach is not extended to financial cleaning by most. An approach to cleaning, in general, is reactive. But financial cleaning is one thing that has to be done proactively. Check out these seven tips to clean up your finances and become a pro at managing money:
#1. Get a financial planner!
Yes. You need an exclusive planner to organize your finances. Financial planning definitely cannot share space with grocery lists and birthday reminders in your day to day planner. Your hard earned money deserves special attention. Use this planner specifically for chalking out the details of your finances. Premium payments, outgoing bills, EMI dates, FD records, and more can be tracked by making notes. Organize well and set up a process to track dates and documents. Free you mind space by jotting it all down in the planner.
#2. Clear your debts!
List down all the debts and then calculate the interest you are currently paying on each one. Also, evaluate how long you may have to continue to do so. This can be an eye opening activity! You shall see that few debts are turning out far too expensive. Figure out if you can clear any of these in the near future and draw up an action plan. Re organizing your debt can be a game changer! Pay off those debts and dodge the money black hole called interest payment.
#3 The magical tool – Budget!
If you don’t have a budget planned yet then stop everything and do it now! Budgeting helps limit your expenses. It’s a good idea to have monthly budgets and a review session every quarter. During reviews, check if the budget is helping you save and is in sync with your short and long term financial plans. Riding on a good budget is essential to reach your financial goals.
#4 Is you retirement planning on autopilot?
If you answer is “yes”, congratulations! Because at least you have a retirement plan in place! In case you haven’t planned it yet, this is your red flag. Retirement planning is crucial because that’s when you will be reaping the benefits of all the years of hard work. Putting your retirement plan on autopilot is a good way of believing that you are on the right track. Well, hold on! Investments which are a part of the retirement planning need to be re visited and re-evaluated periodically. How else will you know if the funds are going to be sufficient to lead a comfortable life if not for a dream life? This is a long term plan and definitely calls for good planning and smart thinking.
#5 Investing time can double your money!
To invest smart and invest better one needs to be aware of the various options available. Hence, invest your time in educating yourself. Speak to experts, subscribe to good financial magazines, follow blogs and sign up for updates on finance websites. Knowledge about financial products can help you choose a better product while being aware of the risk involved. That way you will also feel more confident about your finances. As we know, knowledge is power. Investing time in gaining knowledge will definitely fetch rich dividends.
#6 Open new doors!
It’s easy to get into a rut while facing the daily grind. But do not let this block your thought process for coming up with new and creative ways to make more money! Think about what you are passionate about and find ways to monetize it. Work on your hobbies and take up classes to learn something new. In today’s world, where the work environment is so dynamic it important to have a plan B ready. And you never know, you may be one of the lucky few whose business is to do what they love and do it to the best of their ability. So have an open mind and develop new revenue streams.
#7. That important number!
Obviously we are referring to the CIBIL score!Regularly checking this score should top your list. However, this activity easily gets ignored unless we need to submit the score for evaluation. At that time it’s too late to take any corrective action if the score is not up to the mark. Checking your CIBIL score regularly gives you a fair idea about how institutions are going to perceive your financial health. In case, you have to apply for a loan in the near future, problems which may arise due to the CIBIL score can be resolved in advance. An action plan to improve the score can be drawn up and implemented if we track the score regularly.
Make regular financial clean ups your obsession and we promise you a heavier wallet and lighter mind. Delay no further and start today itself. After all financial management is all about smart planning and organizing. The points mentioned above will definitely help you in that. Good luck!
Source : http://goo.gl/ixxAyK
Jehangir Gai | July 12, 2015 Last Updated at 22:06 IST | Business Standard
Customer cannot fault the bank to cover up his own default
Pradeep Bhupendrabhai Desai, a businessman, had an account with Hong Kong & Shanghai Banking Corporation (HSBC). The bank issued him a credit card. Later, a second credit card, too, was issued.
According to Desai, he used to make timely payment of all credit card bills. His record was so clear that the bank even sent a letter offering him a pre-approved personal of Rs 5 lakh at an interest rate of 14.95 per cent and one per cent processing fee. The loan would be repayable in 48 monthly instalments of Rs 13,903, payable by the 15th of each month.
The bank deposited the EMI cheques three to four days prior to the due date of the 15th of each month. There were occasions when the EMI instalment was credited two days prior to the due date. The bank also added one extra instalment of Rs 3,346.37 as the 49th instalment. Desai felt aggrieved as his financial planning got upset when the bank deposited the cheque before the due date. Some cheques also got dishonoured due to shortage of funds as he had not made the provision for payment prior to the due date. The bank also penalised him for the dishonour. This continued to happen in spite of his complaints to the bank. Consequently, he was branded a defaulted and his credit rating with the Credit Information Bureau (India) Limited also suffered.
Aggrieved, Desai filed a complaint before the Gujarat State Commission, claiming Rs 25 lakh as compensation for deficiency in service along with 35 per cent interest. He claimed another loan of Rs 25 lakh that had been sanctioned by ICICI Bank was not disbursed as his credit rating had suffered. He also lost his reputation because of the financial problems created by HSBC due to advance deposit of the EMI cheques.
The bank contested the complaint, claiming Desai had been explained the system in vogue by which the cheque would be deposited around the 10th of the month so that the EMI would be realised by the bank by the 15th. Accordingly, cheques were deposited a few days in advance to take care to the time it took for clearing. The bank also pointed out that Desai had filed the complaint to avoid his liability to repay the loan amount. The bank explained that the additional instalment of Rs 3,346.37 was towards charges for the overdue payment.
The bank pointed out that ICICI Bank had offered to advance a loan to Desai subject to his submitting certain documents and fulfilling certain conditions. The loan had never been sanctioned. Desai had lost his credit rating because he had defaulted on payment, for which he was not entitled to blame the bank. Refuting the allegation of any deficiency in service on its part, the bank sought a dismissal of the complaint.
The State Commission observed that Desai was academically well qualified and a businessman. He had signed the documents undertaking to repay the loan, but had defaulted. The Commission concluded that there was no substance in Desai’s complaint and that it was devoid of merit. It upheld the bank’s contentions and dismissed the complaint. Desai challenged the order in appeal.
The National Commission noted that Desai had admitted having defaulted on repayment of the loan, but had attributed this to be due to the bank’s action of upsetting his financial planning by depositing the EMI cheques in advance of the due date. The Commission observed that the entire dispute revolved around the question whether the bank was entitled to deposit the EMI cheque three or four days prior to the due date of 15th of every month. The Commission found that the documentary evidence on record showed that the bank had acted according to customary norms and practice and in accordance with the terms and conditions of loan repayment. The Commission indicted Desai for wanting to avoid making payment till the last minute.
By its order dated July 8, 2015 delivered by Suresh Chandra for the Bench along with V B Gupta, the National Commission concurred with the view taken by the State Commission that there was no deficiency in service on the part of the bank. Accordingly, Desai’s appeal was also dismissed.
A customer cannot fault the bank to cover up his own default.
The writer is a consumer activist
G NAGA SRIDHAR | HYDERABAD | JUNE 25 2015 | The Hindu Business Line
Some have been denied loans as their CIBIL records paint them as defaulters
Erroneous credit reports with little scope for speedy correction are giving some genuine bank customers nightmares.
Consider the case of N Krishna, who wants to apply for an educational loan for his son. A check on his CIBIL (Credit Information Bureau India Ltd) score gave him a shock. While some regular loan payments are not reflected in his scorecard, there are new loans, which he never took, against his name.
“This is a distorted image and my bank now says it cannot extend the loan, for no fault of mine,” he told Business Line.
There are others who have been shown as credit card defaulters and as having dues on loans that have already been closed.
What it means
About 80 per cent of all approved retail loans for individuals are based on the credit score given by CIBIL, which is seen as sign of credit-worthiness of a loan applicant, based on his financial track record for the previous 36 months.
CIBIL has access to data on 400 million bank customers, which it uses to generate scores ranging from 300 to 900. Loans are generally sanctioned for applicants with scores greater than 750.
However, the fixing of responsibility for wrong scores is not clear. While a dispute resolution mechanism is offered by Cibil, it claims that the real responsibility rests with the customer’s bank, which sends the data. “We need to go back to the bank and ask for updated information if there is dispute on a score,” said Harshala Chandorkar, Vice President – Customer Relations, CIBIL.
She did not reveal the exact number of wrong reports but claimed that only 0.001 per cent of total reports are disputed. She also declined to reveal the total number of reports generated by CIBIL in a given period.
If 80 per cent of total retail loans are sanctioned on the basis of these reports, the number of contested reports could be high even if they account for only a fraction of the total number of reports.
On their part, banks simply ask the customers to approach the rating agency to correct discrepancies, and customers end up shuttling between the two.
Take the case of G Subrahmanyam, a software engineer, who identified a property and applied for a home loan about two months back. “My credit report shows a loan that I never took. My bank asked me to get a fresh report when I explained. But I missed the identified property due to this delay, for no fault of mine,” he says.
No quick fix
CIBIL norms indicate that correction of discrepancies will take at least 35 to 45 days. But in reality it could take longer, particularly if a bank does not respond to CIBIL immediately.
So, what is the solution? “You better check your CIBIL score regularly like you’re doing a regular health check-up,” says Chandorkar.
Source : http://goo.gl/j2onrL
Ashwini Kumar Sharma | MON, JUN 15 2015. 01 26 AM IST | Live Mint
Use and possession of the secured assets differs depending upon the type of loan
Loans have become an integral part of our lives. Most people either service a home loan, a car loan, or a personal loan, or a combination of these. According to the Reserve Bank of India (RBI), as on 17 April 2015, total outstanding loans to individuals by banks was to the tune of Rs.11.77 trillion. These loans include those taken for consumer durables, housing, auto, education, credit card outstanding, advance against fixed deposits, shares and bonds. Most of these are secured loans (given against an asset). However, use and possession of the secured assets differs depending upon the type of loan.
This is the oldest form of a loan. Under this, the lender takes any asset as security in her custody or possession when giving the loan to the borrower. In case of default by the borrower, she has the right to sell the asset under her possession to recover the outstanding dues (principal along with interest). Common examples of loans by pledging assets in current times are gold loans and loans against securities such as shares, mutual funds or bonds. Typically, banks provide loans up to 50% of the value of approved securities.
Under this method, the lender provides a loan against movable assets. For instance, a vehicle loan (for a car, two-wheeler or any other vehicle). When you borrow from a bank to buy a car, the car gets hypothecated to the bank. The vehicle that is being hypothecated to the bank will remain in the possession and use of the borrower, but in case of default, the lender has the right to seize the vehicle and sell it to recover the unpaid loan amount. The total outstanding vehicle loan to individuals, as on 17 April, was Rs.1.26 trillion, according to RBI.
Another example of hypothecation loan is loan against goods or inventory (stock) and debtors. The borrower hypothecates the stock that she has to the lender and borrows a certain percentage of its value. The borrower has the right to trade the stock, but needs to maintain the minimum agreed value of stock. If the lender finds that the value of stock is less than the agreed value, it has the right to take the stock as pledge till the borrower pays the outstanding dues.
This is an agreement in which the lender provides a loan against immovable assets. A common example is a home loan. Of the total loan to individuals by banks, about 55% (Rs.6.42 trillion) is home loans. Just like hypothecation loan, here, too, the asset that is mortgaged to the lender remains in the possession and use of the borrower. But in case of a default or non-payment of estimated monthly instalment, the lender, say, a bank, can seize the property. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act), 2002, allows it to do so. If a borrower fails to repay her home loan, the bank can auction the property to recover the outstanding amount.
Source : http://goo.gl/ltYJri
By Anita Bhoir & Atmadip Ray | ET Bureau | 10 Jun, 2015, 04.22AM IST | Economic Times
When Reliance Industries with its triple-A rating goes to a bank for a loan it is sure to get the best terms possible. A company rated many ranks below may end up paying 5 to 6 percentage points more than Reliance. That reflects the difference between good credit and bad credit.
But when it comes to retail individual borrowers, banks do not provide the same benefit on cost of borrowing even if the applicants have a top credit score. More than 15 years after the credit information bureau, CIBIL, was born, neither are individual borrowers benefiting from good behaviour and sound financials, nor are banks treating retail customers the way they do companies, which are charged based on their financials.
Credit bureaus have helped banks in reducing their bad loans from the retail portfolio, and CIBIL assigns scores ranging from 300 to 900 based on the ability to repay with historical financial behaviour. Still, retail borrowers have continued to pay almost similar interest rates whether their score is 600, 890 or even 900.
All that CIBIL, the biggest credit information bureau, says is, “Higher your credit score, higher your chances of loan approval.” Almost four-fifths of bank loans to retailers are for those with a score of more than 750. This is akin to lending only to companies with triple-A to single-A, and not to those with lower ratings.
“Credit score helps retail customers in getting a loan,” says SBI’s Arundhati Bhattacharya. “We don’t give a loan unless a customer has good credit score. At present, we don’t offer an interest rate benefit to retail borrowers for a good credit score.”
Interest rates on home loans, car loans, or loans against property for investments or starting businesses are almost fixed at banks’ discretion. Home loans are charged between 10% and 13%, but within the bank, there is hardly any difference in interest rates between an individual with a credit score of 600 and the one with 890, or even 900.
In developed countries such as the US, credit information bureaus rank customers as prime, sub-prime and Alt A. Banks charge interest rates based on their rating, and do not just use that as a tool to decide on giving a loan.
“In advanced economies customers that are highly rated demand finer interest rates,” says Romesh Sobti, managing director and CEO, IndusInd Bank. “In India, banks run on the basis of portfolio pricing. Credit score has evolved, but it is being used to decide loan eligibility of an individual.” That retail borrowers are not deriving the benefits for good behaviour is partly attributed to the fact that consumer activism is not prevalent unlike in the West and that the regulator has not been pushing the case for banks to end the discriminatory stance between corporates and individual borrowers.
Furthermore, Indian banks, which are saddled with huge bad loans from lending to companies, partly offset their losses by charging more from retail customers. “Retail customers are paying for corporate clients,” says Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.
Economic slowdown and bad lending decisions on the part of banks has left them saddled with defaults. While the recovery is a long and difficult process, banks tend to offset their losses by charging other customers.
The banking sector has taken a loss of over Rs 50,000 crore as loans given to companies have turned bad at the end of March 2015. The economic slowdown and volatile recovery has taken a toll on corporate balance sheet.
Banks have restructured debt to the tune of Rs 2,86,405 crore at the end of March 2015 which is up 18.22% from Rs 2,42,259 crore last year. Loan defaulters include Bharati Shipyard, ABG Shipyard, GTL, Essar Steel, Sterling Oil Resources, KS Oil, Deccan Chronicle and Kingfisher Airlines among others, and their debt runs into thousands of crores.
Bad credit calls on the part of banks besides postponing the problem of bad loans will ultimately hurt good borrowers, for whom the cost will go up, Reserve Bank of India governor Raghuram Rajan has said.
“I am not worried as much about losses stemming from business risk as I am about the sharing of those losses — because, ultimately, one consequence of skewed and unfair sharing is to make credit costlier and less available.” Rajan said.
These huge bad loans are one of the reasons banks are reluctant to lower their lending rates even after the Reserve Bank of India reduced its policy rates. Indeed, the RBI governor had to publicly criticise banks for not doing so, after which banks reluctantly reduced the rates.
Although big lenders to retail customers such as SBI, ICICI and HDFC Bank may not be deciding on lending rates based on individuals’ credit score but rather, lend on the fixed-ticket rate, smaller banks such as Federal Bank do so to gain market share and boost their presence.
“We use the Cibil TransUnion Score to give retail customers a finer interest rate on loans,” says R Babu, consumer banking head at Federal Bank. “Credit score of 580 onwards get an interest rate advantage which could be around 200 basis points.”
Lenders like Federal may be few and far between to make a meaningful impact on the lives of retail borrowers in the next few years. But the transformation to credit score-related lending rates like in the West may be possible in the distant future.
“Using credit score to give customers an interest rate advantage is work in progress in India,” says Mohan Jayaraman managing director, Experian Indian Credit. “Very few banks are using this as a tool for rate differentiation. Globally, credit scores are used as an interest rate differentiation tool. This would be the natural progression in India as well but it will take time.”
Harshala Chandorkar | Updated On: June 09, 2015 12:58 (IST) | NDTV Profit
Before you start reading this article, please take this quiz:
- What is the three digit score which is one of the key factors that decides your access to loans or credit cards called?
- What is the range of this score?
- What is generally considered a good score by banks and credit institutions for approving loans and credit cards?
While most of you, who have taken a loan or credit card in the past, may answer this quiz quickly, some of you may still need help. This 3 digit number is your CIBIL TransUnion Score which ranges from 300 to 900. This score is calculated based on your credit history as reflected in your CIBIL report. Today an individual’s CIBIL TransUnion Score is one of the important factors that banks and credit institutions review before granting a loan or a credit card. An individual’s CIBIL TransUnion Score provides a credit institution with an indication on the likelihood of the individual paying his loan or credit card dues on time. Higher the score more favourably the loan application will be viewed by a credit institution. Most banks and credit institutions today lend to individuals, who have a credit score of 750 and above.
Therefore, it is essential to maintain a healthy credit score by following a disciplined credit behavior. Here is a list of 5 harmful credit behaviours that can hamper your CIBIL TransUnion score and derail your financial future:
1. Missing payments on loan installments: Most loan EMIs get auto debited on a set date each month from your linked bank account. Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit.
2. Delay or default on credit card bill payment: Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date.
3. Settlement on a loan or credit card: Making a settlement on a loan or a credit card is a harmful credit behaviour. If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as “settled” in the credit report. It is important to understand that though there will be no impact of the “settlement” flag on the customers CIBIL TransUnion Score, his credit history will show a “settled” status in his CIBIL report and there will be days-past-due reflecting on the report since the payment on the loan has not been timely. Each bank has its own policy of viewing at a “settled” status and will decide on the consumers future loan applications accordingly. Therefore it’s best to not ever get into a loan settlement.
4. Exceeding or reaching the limit of your credit card: Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card.
5. High credit exposure: The total size of your debt reflects on your credit report and has an impact on your CIBIL score. Having many loans or credit cards increases the total amount of debt you owe and increases your credit exposure. High credit exposure may impact your score. If you have many loans running ensure that you close some of them so that your total credit exposure is reduced, before you apply for new loans.
A disciplined credit behaviour will automatically ensure that your financial future is safeguarded and you are “credit ready” at any point in time.
(Harshala Chandorkar is Senior Vice President-Consumer Services and Communications at CIBIL)
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.