Wednesday, 26 October 2016

Are Payday Loans Really A Quick Solution In An Emergency?

Financial emergencies are always uncalled for. They arise at the times you least expect them. Many a times an already faltering debt account mounts up into a huge liability. And you are bound to borrow more to meet the outstanding bills. Such emergencies are most difficult to deal with.

Thus it important that you keep track of your credit accounts and know your loan status regularly so as to not enter a financial muddle ever in your life. Nevertheless, even under huge financial crunch when you already have too many bills to pay, you still have certain cash solutions such as payday loans to take shelter to.

What is a payday loan?
A payday loan is basically a small unsecured loan drawn for short-term. It is also known as payday advance, salary loan, payroll loan or a cash advance loan. Anyone who is employed and have a fixed source of income, can apply for payday loans. Though these loans are not very popular in India, but are picking up as they provide instant solution to your monetary grievances.

Why payday loans are looked at as a solution in the times of emergency?
Payday loans are perfect for emergency as they are quick, convenient, easy to apply for or get approved of, at the same time.
For example, during the times when you have excessive debts and too many accounts it is always advisable to close small, expensive loans first and get a consolidated loan or limit the number of payable accounts. However to do so, you would require immediate cash to re-arrange your portfolio.
In such case, small term payday loan would work like a magic hand. You can get the cash via pay roll loan within 24 hours. So pay day loans are the best bet when it comes to draw an untimely credit line.

You should resort to payday loans keeping following tips in mind:
1. Apply only when you are looking for a short term loan. The pay day advances should never be looked at for long run as these are very expensive loans.
2. Apply for these loans when you are sure about generating cash in the near future. You need to be confident of paying back on time as failing to do so could be very bad for your financial health. Indeed it can build a financial catastrophe if not planned well.
3. So, never go for payday loans casually. Only in the times of utter emergency resort to payroll loans.
4. You can apply for these instant cash loans at institutions other than banks too. For example, if your name is in loan defaulter list and you want emergency cash you can apply for payday loan from some financial institution or corporative society. So payday loans are available outside banks too.
5. If you are employed and have a salary slip you would get a payday loan easily. Usually the lender would expect you to payback as you get your next month’s pay. These loans do not drive a credit check or back ground check, only a payroll and ID proof would be required to apply for payroll loans. Thus pay day loans are one of the easiest loan options to apply for.
However many people question the legibility of payday loans. Are payday loans really a quick solution in an emergency or a worse option to opt for?
One of the major cons for payday loans are they are expensive loans to apply for. So before you resort to this quick loan in an emergency it is important that you also understand the nature of these loans clearly. These are not only short term easy solution in the times of emergencies but are one of the most expensive loan options at the same time!
If you are a bit hesitant to arrange for cash next month or have too many financial bills lined up, it would be better to not increase added burden of interest rate. Instead try to follow following tips to manage your loans:
1.       Have a budget and spend accordingly.
2.       You should resort to saving all the time.
3.       It is necessary to look for more and more avenues of income and save.
4.       Try to figure out expensive loans and get rid of them as soon as possible.
5.       Clubbing small loans into one umbrella loan is also a smart option as it saves your time to manage various accounts.
6.       You need to ensure that you do not miss a re-payment at any cost and keep paying back regularly as it would not only rid you of your debts but would also build a good history that would help you in future.
7.       A quick loan like payday cash advance should be an option to get rid of a liability instantly. You should be confident to fill that loan next month.

8.       If however you would want to avoid high interest loans you could consider peer to peer lending option too.

Friday, 21 October 2016

Factors that impact the interest rates

Factors that impact the interest rates!

If you want to spend more money than the actual cash in hand you have, you will need to find someone willing to lend his surplus funds. For you as a borrower the interest rate will be the cost of borrowing money. It is the price that you will pay for gaining the ability to spend the money now instead of waiting for the time when you are able to save enough.  For example taking a home loan to purchase a house will enable you to own the house now, instead of waiting for the future when you accumulate enough cash. For the lender it is the protection against inflation and a compensation for bearing the risk of lending money. The purchasing power of the money lent today may decrease in future if there is a rise in inflation. Interest income covers for such risks and compensates the lender for forgoing the opportunity of earning money from investments that could have been made with the loaned amount.
The interest rates keep changing. While the rise and fall of interest rates is very difficult to predict they mostly reflect the changes in monetary policy, fiscal policy and economic growth of a country. They also differ based on the type of loan and the length of the repayment period. These factors that bring about changes in the interest rate are explained below.
Demand and Supply
Typically interest rates are determined based on the demand and supply of money in the economy. If the demand exceeds the supply of funds available to be loaned, interest rate rises until it reaches a state of equilibrium. Conversely an increase in the supply of money will lower the interest rates.
When people deposit their money in the bank, they are actually lending funds to the bank to use it for various investment activities. Since banks have more money to lend out to borrowers, more credit is available in the economy. As the supply of credit funds increase the rate of interest decreases.
Monetary policy and intervention by the government
The central bank of the country that is the RBI controls the liquidity in the market through its monetary policy. When it loosens the monetary policy and expands the money supply, interest rates get reduced and people are attracted to spend more money. This brings a spur in the economic growth. When it tightens the monetary policy, liquidity reduces and interest rates increase leading to a lower economic growth and reduction in inflation. Based on the economic conditions RBI changes its key policy parameters-repo rate, CRR and SLR; to bring about a balance in the money supply. These parameters serve as a benchmark for the bank’s interest rates.
Government also manipulates the supply of money in the economy through open market operations. By purchasing large amount of government securities it increases the money supply and by selling those government securities it reduces the supply of credit. This has a direct effect on the interest rates.
Growth in the economy 

The economic growth in the country has a profound influence on the interest rates. When the economy is prospering the confidence level of people to borrow and spend money is high. The demand for funds increases thereby pulling up the interest rates. During economic slowdown people tend to borrow less and spend less. As the demand for investment and consumption in the economy declines so do the interest rates.

Inflation

Another important factor that governs the movement of interest rate is the rate of inflation. As the cost of goods and services increases over a period of time the purchasing power of the currency gets reduced. In order to protect the returns of investment against the risk of inflation the interest rate that lenders charge on the loaned amount exceeds the inflation rate. This compensates them for the decreased purchasing power of money that is repaid to them in future. Therefore when inflation rises so do the interest rates.
The interest rates also vary depending upon the amount of credit risk on different types of loan. In case the loan is secured the risk level of the lender is less so the interest rate levels are low. In case the risk of default is high then interest rates tend to increase to cover for that risk. If the lender is lending money to a person with a low credit score who has a history of late payments then he is at a greater risk of losing out on his investment. He will therefore charge a high interest rate to compensate for the higher risk that he is taking.

While most of the factors that affect interest rates are beyond our control, one thing that we can do to ensure that we get the lowest interest rates on borrowed amount is to maintain a clean credit history. A person with a good credit score can always bargain for the lowest interest rate possible when he shops around to borrow funds.

Friday, 14 October 2016

Guidelines To improve Your Business Credit Score

Just like an individual should focus on his/her credit score and should look for ways to better it, if possible; similarly a business also needs to try and focus on their credit health. If required they should also look for ways to improve credit score, as a high rating can help in securing credit for your business and what’s more you may be able to negotiate favorable terms too! So what can a business do to better their credit rating; let us look at a few ways that can help you to do so.

v  Pay on Time:
All lenders like borrowers who pay their dues on time and pay them without default. All delays and missed payments are reported to the rating agencies. These delays can cost you dearly when it comes to credit rating; so if you run a business and want to have a good credit history it is of utmost importance that you pay on time regularly. With growing number of NPAs and default by big businesses the regulatory agencies and lenders are inclined to take stricter view about defaults in paying dues. So make sure you are not late in payments or you miss them; this is the biggest contributor CIBIL score calculation.

v  Borrow from the Organized Sector:
One has various options from where one can borrow. In case you are looking at options that are beyond your immediate circle of family or friends and you are not planning to borrow against your assets then it is better to borrow from the organized sector. Borrowing from the organized sector ensures that you get competitive rates, the processing is transparent and above all the loan and its payments are reported to credit rating agencies. When one borrows from lenders who are not part of the organized sector then it is likely that you will be paying a higher interest rate and they do not report loans or the credit trail to the rating agencies. This way even if you have an open loan which you have been paying regularly it will not reflect in the credit report and will not give any boost to your score.

v  Get a Bigger Limit:
If you have a credit card and you regularly use it more than 40% of the sanctioned limit then it’s time to consider getting a bigger credit limit as this is considered to be a high credit utilization ratio. High credit utilization reflects credit hungry behavior which does not instill confidence in a prospective lender. Another aspect that needs to be considered here is that someone who has high credit utilization ratio is more likely to default in case of cessation of income flow. Owing to this reason also lenders would like to stay away from such borrowers. Getting a bigger credit limit (if eligibility allows) will help in reducing the credit utilization ratio and will thus improve the credit score.

v  Ensure that the paid up Loans are Closed in the Lenders Books Too!
When you have paid all your dues pertaining to a loan then it is important to get a NOC from the lender to consider the loan as closed. Even if the loan is paid off fully but the loan is not closed in books of the lender and no NOC is issued to the borrower then it will reflect as an open loan in your credit report. An open loan reduces your borrowing capacity and also lowers your creditworthiness. Moreover getting a NOC saves you from any future litigation or notices that you may receive from the lender for unpaid dues.  

v  Keep an Eye on Your Personal Credit Rating
Even if your aim is to improve your business credit rating it is still important to focus on the personal credit score. In case of proprietorship and partnership the owner and the partners need to have a healthy credit trail and in case of company form of business, the board members must try and maintain an impeccable credit history.  Maintaining a healthy personal credit history ensures that the same habits are carried towards maintaining a sound business credit history too. Moreover the lenders will not be comfortable lending to a business which is run by an irresponsible individual as reflected by the personal credit score.
So if you are looking at ways to better your business credit score explore the above options to get favorable results.




Thursday, 6 October 2016

10 Reasons Why Education Loans Are Rejected

The cost of education today is higher than ever. Especially if you are planning to study abroad then managing tuition fees, rental costs for accommodation, and other expenses can become a challenge unless you have an education loan. However, lending institutions are extra careful with education loans in comparison to other loans. This is because there is a greater risk involved in the former- the student can be difficult to track after they have finished their education, or they could default which would lead to an increase in the non-performing assets of the institution. Thus, every single education loan application is closely scrutinized before approval.
Banks, and other lending institutions have a variety of reasons to reject education loan applications. However, the most common 10 reasons are as follows-
1) CIBIL Score- The importance of CIBIL score exists not just with education loans but all kinds of loans. It is the most important factor that alone stands between the approval or rejection of a loan. Students often have a short credit history, which makes it difficult for a lender to trust them. However, if you have a good score, which is generally higher than 700, then you can have a good chance of getting the loan.
2) CIBIL Score of Parents- When you apply for a student loan then your bank could also check your parents' CIBIL score, especially if they are guarantors. If their score is low then your loan could easily be denied.
3) Income Of Parents- It may come as a surprise, but banks often take the income of parents into account when mulling over an education loan application. As a lender they don't want any risk, and if the parents' income is small then they can have a hard time getting the money back if the student ends up defaulting on the loan.
4) Academic Performance- If you have been consistently good at studies then you are likely to get the education loan easily, and it is not difficult to understand why. Good academic performance is a sign of discipline and hard work, which is why it becomes easier for a bank to trust you with their money. Similarly, if your academic track record is poor then your odds of getting a loan also become slim.
5) Nature of Course- If the course that you are applying for is a part-time/correspondence course then it can be difficult to get an education loan.
6) Type of Course- Students who apply for courses such as engineering, management, medical are able to secure a loan easily. This is because these courses enable them to get high paying jobs easily, which in turn makes it easier for a lender to get their money back. Less popular courses such as humanities, commerce, are not looked upon with confidence by banks, and thus become a reason for rejection.
7) Forget Documents- Cases where a student applies for a loan with forged or fake documents are not uncommon. This is not only illegal, but also a good reason for instant loan rejection.
8) Loan Amount- If you want an education loan for an amount higher than Rs. 7,50,000 then you have to offer collateral as well. Failing to do so can result in loan rejection.
9) Reputation of College- If the college where you will be studying is not widely recognized, or has association with poor track record then it can make your bank reject your loan application.
10) Age- Many banks make it a point to approve an education loan only if the applicant's age is less than 30 years. If you are older then you will have to convince your bank with your own efforts.
The list of reasons why education loans are often reject may appear daunting, but if you are a hard working and smart student then there is no reason to worry. Apply for an education loan with confidence, and keep an eye on loan status. Once your loan has been approved you can use tools like loan EMI calculator to structure it as per your needs.