Tag: loan defaulter list

6 Important Things You Should Know Before Taking a Home Loan

Home loans have become inseparable parts of home deals today. For an individual the decision to buy a dream home depends on their eligibility to get a loan. Probably this is why people begin to plan for home loans much in advance.

To understand how home loans work, you should first understand that these are basic loans which all the popular banks offer for long run. Home loan is nothing but a monetary assistance offered by a bank or financial institutions to make a purchase of residential property. The purchased home usually stands as security until you pay back the entire loan amount with interest. Thus loans are secured loans and banks are always keen to offer home loans.

The basic requirement to get a home loan may differ from lender to lender. Usually to get a loan, you should have a fixed, dependable source of income. You may be employed and self-employed, it doesn’t hurt your stakes. You need to have a good financial history and banking transactions for at least 6 months. The age should be between 21 and 60 years of age for employed or between 21 and 65 years, for self-employed.

Let’s outline 6 important things you should know before taking a home loan.

How much you want to borrow?
First things first you must clearly know how much you want to draw from the bank. These days you can avail home loan up to 90% value of the property, however decision to borrow the amount should not be dependent on bank’s will only. The banks assess the loan amount by calculating your net income, i.e after deducting your current credit outstanding and day to day expenses from your income. Based on the net income they would calculate how much you could spare as loan EMI. As a rule of thumb, banks generally limit the loan installments at around 40 to 50% of the borrower’s salary.

Type of loan
There are two types of these loans based on the interest rate. One is fixed rate of interest and the other is floating rate of interest. When A person is taking fixed rate loan,it  usually charges a fixed rate across the whole tenure. Interest is constant for the full period of the loan. On the other hand, the interest on the floating rate changes with the market rates. For example, when the market rates rise, the interest rate on the these loan goes up and when the market rates fall the interest rate on the home loan goes down. The fixed rate home loans are generally higher than current floating rates.

Tenure of loan
Major lenders offers maximum 30 year tenure for home loans. EMI is lower when the tenure is longer. Being fat loans, people with limited resources opt for 25 to 30 year loan. However, it is advisable to take a loan for the shortest tenure if you can afford. Suppose, in a 10-year loan tenure, the interest paid is 57% of the borrowed amount. This can go up to 128% if the tenure is 20 years. So, always keep the tenure as short as possible.

Tax benefits
You can avail tax benefits with this loans and you should clearly know about the benefits in advance. You and the co applier both can get income tax deduction up to 2 lakhs for home interest. The property however need to be self-occupied to avail the benefits.

Loan defaulter
All those who have not repaid their loans will find their names enlisted in Loan Defaulter List. The default can happen when you do not pay EMI. So, the borrower must be careful about the add-on charges and penalties. It is not just the interest that you pay, there can be additional charges such as administrative and service charges or processing fees. Once blacklisted as a loan defaulter, it would take many years to restore the credit score.

Prepayment penalty
Before you sign the deal ask the lender if there is any prepayment charges. By prepaying the loan you close the account earlier than anticipated and reduce the cost of loan. Many banks charge a penalty on prepayment of home loan, so if you intent to prepay, look for the loan that allows you to prepay without a charge.
Following these six points you could be rest assured of finding a good home loan deal.

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6 Ways to Improve Your Credit Score

If you want to give your credit score a boost, then you must understand that it won’t happen overnight. Credit score improvement is a long process. You have to be patient and just work for it. However, if you are careful enough and take the right steps, then eventually you can easily attain a promising score.

The following are 6 of the best ways to improve CIBIL score:

  1. Watching Credit Card Usage

Credit cards can help build a good credit score. However, they can also ruin it. It all depends on how you use them.

Credit utilization is one of the biggest factors that affect your CIBIL score. Using credit cards excessively leads to a high credit utilization which is harmful to your score. However, there are two ways you can tackle this problem:

  • You can limit your credit card utilization by using cash or other payment methods save for credit cards.
  • You can divide your expenses on multiple credit cards. So, if you have to buy an air conditioner worth Rs. 30,000 and you have two credit cards, then you can charge Rs. 15,000 on each.
  1. Paying Bills on Time

Plain-vanilla timely payments can do wonders for your credit score. Not only you can minimize your debt this way, you can also make a strong case for yourself for potential lenders. Banks and financial institutions simply love those borrowers who have a long history of timely payments because it’s easy to trust them with their money.

  1. Fixing Credit Report Discrepancies

How often do you check your credit report every year? If your answer to this is “once” or “never”, then maybe that’s the reason why you are unable to improve score.

There are several benefits of monitoring your CIBIL report, one of which is the identification of mistakes or errors.

It’s easy to think that a mistake or two in your CIBIL report can’t do much harm. However, it’s completely false. Mistakes in credit reports can have grave consequences that include compelling you to get a loan for low CIBIL score.

Taking an example, if your name or address is printed wrong or if there are false mentions of late payments in your CIBIL report, then your score could easily fall by hundred points or so.

Checking your CIBIL report frequently can help you find and rectify mistakes that are hurting your score. Plus, if you identify anomalies or unrecognized transactions, loan inquiries, etc. then you can also prevent a potential case of identity fraud.

  1. Adding Something New to The Mix

A singular credit history can put limitations on your score. So, if credit report contains details of only credit card usage, or a personal loan account, etc. then you can increase credit score only so much.

Even if you are doing all the right things for your score, you can’t surpass a certain limit unless you diversify your credit usage. This is because the more diverse your credit history is, the better it’s for your score. So, if your score is solely based on your credit card usage, then you can make an improvement by availing a small personal loan, auto loan, etc.

  1. Saying “No” to Minimum Payments

Minimum credit card payments and credit score improvement don’t go hand in hand. You can only choose either of the two.

Banks highlight these “minimum payments” to lure more customers into applying for their credit cards. However, minimum payments lead to debt accumulation and lower CIBIL score. So, if you really want to enhance your score then you should always pay your credit card bills in full.

  1. Debt Consolidation

Debt consolidation is not a direct but rather an indirect way to improve credit score. In this, you combine all your loans into one. So, instead of paying several EMIs every month, you need to pay just one. The result is better money management and timely payments.

Many finance experts claim that debt consolidation can help improve CIBIL score really fast, especially if pay the EMIs on time.

If you don’t want a future in which you have to look for a loan for low CIBIL score, then it’s best you start caring for your credit report as soon as possible. In fact, today is as good as any.

Should you take a used car loan?

Many people who picture a used car think of a noisy clunker with a paintjob that has seen better days, uncomfortable seats that smell badly, and a shoddy interior that can definitely use some patching. However, that’s not usually the case. Used cars are in huge demand today, and with so many startups offering certified vehicles that have been tested and checked thoroughly, it makes more sense to get one of those rather than spend a fortune on a new car which is only slightly better than them.

If you are pondering whether you should get a used car loan, then perhaps it’s better to get some insight on the issue first.

Depreciation

New cars depreciate much faster than used cars. In fact, some new cars can easily lose as much as 40% of their value in the first year itself. Used cars on the other hand depreciate slowly. They can easily retain the same value for 3-4 years. Thus, it makes sense to sense to get a used car loan instead of a new car loan.

Another way to compare a used car loan with a new loan is to understand how you will be repaying the loan for at least a few years. In case of a new car, by the time you will pay the final instalment the resale value of the car itself would be too small. However, in case of a new car you can still get a decent amount by selling it.

New Car Fees

Many car dealers impose a variety of charges on new cars, such as handling charges (or logistics charges), registration charges, Life Time Road Tax, etc. Depending on your car these charged in combination can be quite high. A user car will be able to save you from most of these charges (which can go as high as a few lakhs). Thus a second hand car loan is certainly better for this reason.

Used Car Loan Interest Rate

When it comes to car loan interest rates then new cars certainly take a win. Most used cars come with high interest rates due to the following reasons:

  • Resale Value: Banks always have to keep in mind that if someday the loanee fails to repay or makes it to the loan defaulter list, then they may have to take possession of the car and get their money back by reselling it. Since, it is easier to predict the resale value of new cars in comparison to old cars they balance the risk with the latter with a high interest rate.
  • Credit Score: People who have high credit scores usually purchase a new car, and vice versa. While this may not always be the case the lenders still go by this. If anything, they know that the risk of repossession is lower with those buying new cars than those buying the old ones. Thus, they tend to offer higher interest rates on used cars.

Quality Risks

Unless you are buying an old car from a trusted seller who sells certified cars there is always the risk of getting a car that has low-grade aftermarket parts or alarms. For all you know you could be paying half the price of the car in repairs and upgrades after you have bought it. With the strain of a used car loan already on your shoulders, the additional expenses could pose a major challenge for you.  If you want to stay on the safe side, it is best to invest in a new car with a loan at a good interest rate.

Conclusion

Used cars and new cars have their advantage and disadvantages, which is clearly evident by the points discussed above. A loan for the former will be less of a burden than the former, but it may also be risky for the long term. Thus, in the end it is your call what’s important to you and what your long-term goals are. Be sure to go through each advantage and disadvantage and align them with your financial standing before making the final decision. Proper planning can save you from a lot of hassle in the future.