Creditvidya.com | Updated On: February 02, 2015 12:26 (IST) | NDTV Profit
The happiness of buying goodies and spending on parties you might have attended during Christmas and New Year may have come to naught for you, if you are staring a hefty credit card bill right now. While this is definitely not the best way to begin a new calendar year, the damage is already done. If you don’t have the money to repay your dues right away, here’s what you could do.
1. Take stock of the situation
The first and most important step to take is to acknowledge the problem in hand. If you become a defaulter on your repayment on your credit card, it will impact your Cibil score negatively. While making one late payment may not hit you immediately, but if you get into the cycle of late payments it may be difficult for you to get out of it over a longer period of time (ranging over 60-90 days), which will then shave the points off your Cibil score eventually. To ensure that your Cibil score remains intact, you need to handle your credit card debt pronto. There are several ways to do it such as a balance transfer, converting your debt into an EMI or opting for a cheaper loan to repay your debt. Let’s look into these options in greater detail.
2. Balance transfer
This is a facility that banks offer to people who have a large outstanding balance. In this facility you can transfer the outstanding balance from one credit card to another. You could opt for a fixed duration balance transfer (usually a 3-12 month window) within which you can make the repayment at an interest rate that is lower than what you would have paid on your regular credit card. The rate of interest is usually 9-10 per cent (differs from bank to bank). Some banks also offer a “lifetime duration” option to make the repayment, though the interest rate in this case is much higher (in the range of 12-24 per cent, depending upon the bank). In order to get this facility, you will have to pay a processing fee, which will be around 2 per cent of the outstanding amount you wish to transfer. After the bank verifies your details, they will send you the cheque or the demand draft in favour of your existing credit card that you can use to repay the first card.
Although a balance transfer sounds like a great way to handle credit card debt, and other banks will be more than glad to issue yet another credit card to you, you must take cognizance of the fact that it is only postponing your problem instead of solving it. Your attempt should therefore be to use this facility sparingly. Besides, if you get into the habit of frequent balance transfers, you will end up opening a large number of credit lines. A large number of open credit lines may also impact your Cibil score, albeit marginally, in a negative way.
3. Converting outstanding balance to EMI
If you do not want to go through the hassles of balance transfer from one credit card issuer to another you could consider converting your outstanding balance into monthly instalments. Banks may offer a rate of 1.49 per cent to 1.99 per cent per month to their existing customers, but this too may vary from bank to bank. However, the point to be noted here is that if you miss a payment cycle during the EMI repayment, the bank will revert to the regular interest charges and you will find yourself stuck back in the same situation.
4. Opt for cheaper loans
Of all the debts you service, the rate of interest you pay on your credit card is the highest at 36-42 per cent per annum if it is not serviced on time, so it makes sense to opt for a cheaper loan to repay this high cost debt as soon as you can. You could therefore consider a personal loan for a period of three years if you are in a position to service it. The interest rate you would pay for it would be in the range of 16-24 per cent.
You could also opt for security backed loans such as a top up loan on your home loan or a gold loan. If you have a good track record in servicing your home loan, you will be eligible for a top up loan which is available at an interest rate of 12 per cent. Similarly, if you have some gold jewelry stashed away in a locker, you could use it to get a gold loan at an interest rate 13-15 per cent.
If you have other investments such as a fixed deposit, you may also opt for a loan against it. Such loans are available at a rate of interest that is one percent higher than what is offered on the investment itself. For instance, if you are earning a rate of interest of 9 per cent on your fixed feposit, a loan against it will be available at a rate of 10 per cent. Loans against other investments such as traditional life insurance policies, mutual funds, etc. are also available at similar rates. If you have accumulated a large debt pile, you can also think about liquidating some assets to pay off your credit card debt.
5. Negotiate for a lower rate of interest
If you feel that none of the above options are feasible for you could pay a visit to the bank and explain your financial situation to them. If you can convince them about your willingness and intention of repaying, chances are, that you can get a low interest rate or a flexible repayment schedule depending upon the bank’s policies. However, do consider the feasibility of the other options discussed above, before you think of doing this.
6. Cash is your best friend
Till such time you have paid off your credit card dues, cut down on your expenses and live on cash. It’s a good idea to lock away your credit card till all the debt has been cleared on it. You will need to be patient as you atone for reckless financial behaviour, but this will probably serve as a lesson for a lifetime for you. Once you are in the pink of your financial health once again, you will feel good about your frugality.
A credit card debt pile can indeed be intimidating, so do be careful and responsible while using it in the first place. However, if things have gotten out of hand already, the above mentioned hacks can be used to get things back to normal. Once things are back in order, it is also recommended that you pull out your Cibil report. This is to ensure that your efforts to repay your debt are reflecting on your Cibil report and your Cibil score is in order.
Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Brijesh Parnami | Posted at: Jan 12 2015 1:20AM | Tribune India
A home loan repayment, as we all know, is a major liability that often takes several years of your earning life. Sometimes, unforeseen circumstances such as a medical emergency in the family or a job layoff may turn out to be a heavy drain on your resources and may offset your calculations of repaying the loan in the scheduled phased manner. For a person who has a 10-year repaying timeline, a sudden layoff and downturn in the industry, may mean he or she may find it difficult to keep making the same repayment every month. Refinancing to a lower mortgage interest or a facility that enables you restructure your monthly instalments can come to your rescue in such situations.
It can also be to your advantage to refinance to a lower mortgage interest rate even when you are managing your finances well. This can enable you to invest in another lucrative venture or buy another property by sparing a greater monthly income at your disposal.
Qualifying for a lower interest rate on your home loan will save you money over the long haul. A lower rate of interest can also lower your monthly payments, which may help get you out of a financial bind if unexpected hardship strikes. If you find yourself falling behind in making your mortgage payments, being honest with your bank or financial institution may get you a lower interest rate without you having to refinance a new loan.
Often, in the absence of awareness about the facility of restructuring interest rates or lack of good advisors, people struggle with financial strains and continue to suffer hardships. Some, even default on their payments, or have to sell major assets to make ends meet.
All you need to do is gather your documents and speak to your bank. Most banks are ready to help create more congenial conditions that will allow you to pay back their loans successfully over the long run. As much as you do not desire to default on your payments, your bank too would be keen to ensure that the loan repayment is made smoothly.
Banks are also keen to make you stay with their services, rather than force you out to another lender.
Talk and negotiate with your bank
Speak to your bank executives and inquire about provisions to reduce your interest rate or make other adjustments to your loan terms as a way to decrease your monthly payment. Discuss your financial constraints and explain how you plan to go about the new repayment arrangements. Be prepared before entering into a discussion by making inquiries with other banks about current mortgage rates they are offering to individuals applying for home loans. This will help you be aware of the market rates and give you a negotiating handle.
Provide evidence of financial constraints
Meet your bank executives and provide them information and evidence about the financial problems you are facing lately. In case of a medical emergency, provide your medical bills to make evident the financial drain you are experiencing. Keep your documentation complete and write to the bank formally, if required with the request.
Not just proof of the additional financial burden, also keep ready the evidence of all your payments and expenses you incur every month vis-a-vis your monthly income to make your case. In case you have suffered a layoff or job loss, also provide proof of the same.
Check all options available
You bank may offer more than one restructuring offer after taking into account the problems being faced by you. If your bank is willing to modify the conditions of your loan, seek all details and terms of conditions in writing. Your lender might offer to lower your interest rate temporarily until you regain your financial abilities and catch up with your payments. Ask for all the conditions in writing at the time of negotiation.
Cite your payment history
If the borrower has a good repayment history, banks are more often than not willing to negotiate the terms of repayment when confronted with a financial situation. Cite your positive repayment history and if needed, also indicate to the bank that you might be willing to shift to another lender if the restructuring doesn’t work out here. In most cases, this will be enough to convince the bank to work out an alternative.
Be proactive about checking rates
Keeping yourself informed pays. Even if your finances are going all smooth, you should be proactive in keeping informed about the prevailing interest rates. Many banks continue to discriminate between old and new customers, charging the existing ones a higher rate than that being offered to new borrowers. If you are being charged a higher rate, ask your bank to convert it to the rate applicable to new borrowers. With the RBI abolishing the prepayment charges that were levied by banks, institutions or NBFCs, switching from one bank to another is not at all costlier now. It has boosted the spirit of the borrowers for going ahead with the negotiation discussion with their existing lenders.
The author is CEO, Destimoney Advisors. The views expressed in this article are his own
Source : http://goo.gl/8ZTetx
Rishi Mehra, Co- Founder, deal4loans.com | Nov 4, 2014, 05:44PM IST | MagicBricks.com
The Indian loan market has been given a boost owing to faster processing, rebate on income tax and flexibility of repayment.
The domestic loan market is expected to touch Rs 21,980.6 billion by 2016 at a CAGR of 18.7 per cent. Among loans, home loan holds the largest share in the market. According to a research by TechSci, home loan had a market share of 46.1 per cent in the Indian loan market in 2010. Declining rates, flexible repayment options and a spurt in housing schemes is seen as a catalyst for the growth.
A typical home loan runs for an average 15-20 years and it is advisable to continue monitoring the loan account and scout for better offers from other banks and not sit idle. A customer does not need to stick to the original bank and keep repaying the loan at the original rate. One can always switch and take advantage of lower loan rates and processing fees and no one can stop the customer from doing so.
Usually, an existing borrower is not eligible for a lower loan rate until he is about two years into the tenure. Though the Reserve Bank ofIndia has been insisting on lower interest rate benefits to be passed on to all existing borrowers, it is a rare occurrence. Customers, in such a scenario, can re-negotiate loan rates and if the bank is not agreeable, they can consider transferringthe balance loan to another bank.
Some case scenarios to be considered while deciding to switch your home loans:
Difference between current rate charged by the bank and available rates from other banks
If there is a difference of equal or more than 0.5 per cent in the existing rates to new rates one should go ahead and switch the home loan. If you switch your home loan from 10.50 to 10 per cent for a loan amount of Rs 50 lakh and a loan duration of 20 years, the savings will add up to Rs 4,00,298 for that period. For such savings one shouldn’t think twice, as there are no pre-payment charges at any bank or housing finance companies.
The new processing fee
One should switch to a new bank with lower processing fee as well.Processing fee is a one-time cost and eats into switching home loan savings, so try to get the bank with low charges and low processing fee.
Need top up amount on home loan
At times some customers need top-up loan and there are banks who offer top-up at the same home loan rate. So, one can switch when he is getting a new lender at a lower rate and is willing to top up your loan.
Talk to your existing bank and show the new offer
A customer should always talk to his existing bank and show him the new offer.If in such a case the existing bank agrees to reduce the rate and match the offer, one shouldn’t switch the home loan. But in case the existing bank can’t match the new offer, then it is advisable to go for the switch.
A home loan is usually for a period of 15-20 years and during such a long period one should be aware of offers from other banks and switch whenever it makes sense monetarily. The right re-finance option will depend on a person’s needs and the current financial situation. With the right re-finance rate quotes, one can really shift their payments so they can make their life easier.
Source : http://goo.gl/RG8sG3
While job security cannot be guaranteed today, a skilled or experienced worker can find another one before long. However, the interim period can be difficult if one does not plan one’s finances well.
“Having an emergency fund that can take care of at least three to six months’ expenses can be of enormous help,” says Suresh Sadagopan, a Mumbai-based certified financial planner. If you have an emergency fund, you won’t have to worry about money matters and can focus on hunting for a new job. However, if you don’t, what should you do? The following steps can help you manage your household till you find a new job.
Plan a new budget
Drafting a new budget is the first step and it entails cutting down the lifestyle expenses. A monthly budget has two components: fixed expenses such as rent, and variable expenses. The former include compulsory expenses, such as groceries, electricity bills, mobile bills and other utilities that you cannot avoid, whereas the lifestyle expenses would be weekend movies at multiplexes or restaurant dinners. “The first expenses to let go off during the unemployment period are these discretionary expenses,” says Kiran Telang, a financial planner.
Take independent health insurance
It is likely that your employer offered you and your family a medical cover. However, when you lose your job, you let go of the health insurance as well. This is the reason that most financial planners insist on employees buying an independent cover besides the group cover from the employer.
Medical emergencies can happen any time and paying medical bills while out of job can be excruciating. “Getting health insurance is of paramount importance. The cover should be at least `5 lakh,” says Sadagopan. Financial advisers suggest that you buy a separate family floater policy. The average premium for a family of four is usually around `12,000 per annum. You can port your group health insurance policy to individual health insurance by the same insurer. Check with your former employer’s insurer if this is possible.
“If your life or medical insurance premiums are due during the unemployment period, you must service them, even if it’s difficult to do so,” adds Telang.
Prioritise debt repayment
Most households have debts, such as a home loan, personal loan, and credit card bills. Make sure that you pay your EMIs, especially for the home loan. If you are finding it difficult to pay the instalment, request your lender to restructure the debt.
You can also ask for deferment of loan payment. If you have been a good borrower, chances are that the lender will oblige. Switching the loan to another lender who offers lower interest rate on the loan is also an option you can explore.
Credit card debt can prove very expensive if ignored, so pay at least the minimum amount due. You can also apply for a balance transfer to another bank’s credit card, which will reduce the minimum due amount. “If you have skill sets that can enable you to get a job within 3-4 months, you don’t need to aggressively look into restructuring debts. But if you are working in a lull sector and the overall job market is not looking good, it makes sense to restructure debts as soon as possible,” says Telang.
Tap into your portfolio
Even as you look for a job, you will need to tap into your investments. “Check your portfolio and take funds keeping your asset allocation in mind,” says Sadagopan. For instance, if you have a higher asset allocation in equities, you could sell a portion to meet your immediate needs and, in the process, balance your portfolio.
WAYS TO TACKLE LOAN INSTALLMENTS
The lender will increase the tenure of your loan, reducing the EMI.
You will have to convince your lender to give you a better deal in terms of interest rates.
Inform your lender that you won’t be able to pay the EMIs for some time, but assure repayment after the said period.
Switch the loan to a lender who offers a lower interest rate.
Source : http://goo.gl/OQ3nFq
By Preeti Kulkarni | ET Bureau | 2 Oct, 2013, 04.00AM IST
Guide to home loan borrowers, struggling with rising interests on loans amidst a financial crisis, to manage additional strain on their finances.
After the unexpected policy rate hike on September 20 by the Reserve Bank of India (RBI), many banks are contemplating an increase in their lending rates. If they decide to hike their base rates, home loan borrowers may have to deal with a ballooning EMI once again within a short span of time.
Several lenders, including the State Bank of India, ICICI Bank, HDFC and Axis Bank, had raised rates by 10-25 basis points during the last month. If you are one of those borrowers saddled with an unmanageable EMI, you need to consider taking some of these measures to deal with the challenging situation.
The elimination of prepayment penalty on floating rate loans has made it easier for borrowers to switch lenders. If you can secure a lower rate from another lender, you should consider switching your loan. “Customers should connect with their current lenders and seek reduction in rates on their loans. In case the negotiations fail, they should think of refinancing,” says Vipul Patel, director with mortgage consultancy firm, Home Loan Advisors.
“Only when customers begin switching proactively, will the lenders be forced to treat existing and new borrowers fairly.” You can save around Rs 2,000 per month on a Rs 50-lakh loan (with a balance tenure of 17 years) if your new lender’s rate is lower by just 25 basis points.
Another option is to go for the conversion facility. Banks allow you to switch to the current rate (which is always lower in order to attract new borrowers) in return for a one-time charge of 0.5-1% of the outstanding loan amount. It saves you the trouble of going through the documentation process all over again.
However, you need to do a cost-benefit analysis before making a choice between switching and conversion. “The conversion option may work for smaller loans in the under-30-lakh segment. But for higher loan amounts, it would be commercially wise to switch to another lender as processing fees are generally capped by most banks at Rs 10,000, or 0.25%, for balance transfers,” explains Patel.
Ask for a Repayment Holiday
If you are facing a financial crisis or staring at the likelihood of job loss, you should consider this option.
“A number of borrowers, who are approaching us these days, are struggling to service their EMIs after losing their jobs. In such cases, you have to discuss the matter with your lenders and apprise them of your financial situation. If the bank is convinced about the genuineness of your problem, it might grant you an EMI holiday for a short period or till the time you get another job,” advises VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. However, remember, granting such relief is entirely at the bank’s discretion as unlike corporate debt, there is no standard framework in place to restructure distressed individual loans.
Make a Part-prepayment
If you are sitting on huge cash surplus, you can consider this option. Part-prepayment brings down the loan amount and interest outgo. You can save a lot of money on interest, if the loan is relatively new. If you are a floating-rate borrower, you don’t have to pay any prepayment penalty as it has been abolished by the Reserve Bank of India a year ago.
“Many people hold investments that earn, say 10%, while their home loan interest rate is 11%. In such cases, they can look at liquidating those investments and use the funds for part prepayment. Unless, of course, they are meant for certain financial goals. In which case, they should not be touched. Reduction in loan amount, and hence EMIs, will ease your monthly cash flows,” says Harshvardhan Roongta, certified financial planner, Roongta Securities.
Source : http://goo.gl/oymzlQ
Investment Yogi | Hyderabad September 13, 2013 Last Updated at 08:46 IST | Business Standard
On the basis of good repayment track record, individuals can also discuss and re – negotiate with their current lender for better interest rates
If you are not happy with your existing Home Loan, then there is a ray of hope for you. Now you can transfer your loan to another bank. Loan Transfer or Refinancing of loan is an easy option through which most of the people nowadays are opting to take the benefit of lower interest rates prevailing in the market.
Existing Loan borrowers are the class of people who are repaying a loan for the past two or three years and upon whom banks do not get pass on the advantage of decreasing loan rates. However, on the basis of good repayment track record, individuals can also discuss and re – negotiate with their current lender for better interest rates.
Reasons for transferring Home loan apart from savings on interest
Not just the reduction in interest rates, there are several more reasons due to which one would want to change his current lender. Few of the reasons are stated below:
In case, you need to renegotiate on some terms and conditions with existing bank. For Example: you want to increase the tenure of your loan and decrease the amount of your EMI but your bank has not agreed to that.
Loan Top – up: May be the value of property has climbed much higher in comparison to its original value. Based on this, you might want to top – up your loan to meet further requirements like renovation of home. But the lender might not be open to these.
Sometimes, you are just not happy with the services & accessibilities of the bank and wish to transfer the loan.
Process of Home Loan transfer
The process of transferring of home loan is very simple and it is completed in a few steps. Firstly, you need to submit an application to your current lender requesting to transfer your current home loan to the other bank. On the basis of your request, the bank will provide you a consent letter or NOC and also statement mentioning your all outstanding amount. Then you need to submit these documents to the bank where you want to transfer the loan.
Afterwards, your new lender sanctions the loan amount to the old lender for the closure of your account. Once all the transactions are over, your property papers will be handed over to the new lender and remaining postdated cheques or ECS will be cancelled. The home loan switch is beneficial because the bank in which such loan is transferred offers you a lower rate of interest.
The Bank you are moving on will treat your home loan as fresh and you have to follow all the procedures again. It will include your credit appraisals, legal verification of your property credentials and also the technical evaluation by the new bank, etc.
On transferring to your account, you need to pay some processing fees to your new lender which ranges somewhere between 0.5% and 1.5% of the loan amount.
Things to consider before transferring your Loan
Banks and other financial companies are struggling hard to expand their business by offering lower rates of interest to new customers. Now, as a borrower, it is your duty to check all the facts thoroughly before transferring your loan.
Here are few points you must take into account.
• One should always check the timing of loan switch to new bank: Always try to switch the loan in the early tenure of loan. It is not advisable to transfer your loan after 2 – 3 years of loan payment. As you have already repaid most of the interest amount and in the process of transfer, you will shell out more amount as fees.
• Always study processing fees & other charges: One should always consider the processing fees, legal charges, valuation fees, stamp duty and other charges which a new bank is going to charge. Then accordingly compare it with the benefit of reduced interest rate.
• Check the Teaser loan Terms and Conditions: Of late, the home loan transfer has been most essential when the teaser loan scheme hits the market. One should always keep in mind that the teaser rate is for a limited time frame and will adjust after that time.
• Take Documents in Time: Always take statements from current lender that documents of property will transfer to a new lender within a stipulated time frame. It will lead to hassle free transfer of the loan.
Do remember that loan transfer is only possible when you are regular in loan repayments to your current bank. At last, one should not always be attracted to interest rate which is lower than existing ones. After all, banks are dealing with lending and why would they give loan at lower rates when they are earning higher margin from other customers. So, it is good to be doubtful and always ask questions regarding all aspects before switching from an existing lender.
Girija Gadre and Arti Bhargava | Aug 5, 2013, 08.00AM IST | Economic Times
Home loan borrowers can avail of the facility to switch to a lower interest rate by opting for conversion or change of spread for the existing loan. By changing the interest spread on the loan, one can get the lower interest rate being provided to new borrowers. The borrower needs to choose between the options of increasing the EMI or the tenure of loan.
Request letter: Once the choice is made, a conversion request letter needs to be submitted in person to the nearest branch. The bank may also ask for a promissory note to be issued in its favour for payment of the balance at the new interest rate.
Conversion fee: Banks levy a conversion fee, which is usually in the range of 0.25-1% of the loan amount. This has to be paid through a cheque issued at the time of submitting the documents.
Bank scrutiny: Once the documents are submitted, the bank scrutinises them and, if satisfied, converts the loan to one with lower interest rate. A letter confirming the conversion, along with the revised terms and conditions, is sent to the borrower.
Fresh cheque: If the borrower has chosen to increase the monthly instalment and the mode of payment is post-dated cheques, fresh EMI cheques will have to be submitted.
Points to note
> The conversion application has to be signed by all the loan applicants.
> Some home loan institutions also offer the facility of initiating the conversion process online, subject to the submission of signed documents at their office.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre and Arti Bhargava.
Source : http://goo.gl/8JXzcP