Wednesday, 22 February 2017

Reasons why should you opt for a balance transfer of home loan

Balance transfer of home loan is the process of transferring the unpaid principal loan amount from one bank to another. There are several reasons why availing this facility is beneficial to the borrower.
Falling interest rates- A home loan involves a substantial amount of money that is repaid over a long tenure. Even a slight reduction in the interest rate translates into significant savings in the long term. That is why an RBI rate cut always brings cheers to the borrowers. If the bank passes on the advantage of decline in interest rates to existing borrowers then they stand to gain a lot as there is a direct impact on their EMIs. But in case your bank is not too eager to reduce the lending rate you can explore different options and switch your borrowings to a different lender. Home Loan balance transfer will help you take advantage of the falling interest rate regime in the market.

Improved credit scoreIf you are stuck with a high home loan interest rate (because you had an average credit score at the time of taking the loan) your EMI burden maybe huge. But after regular on-time payments over a period of 2-3 years you can renegotiate the interest rate charges with the lender. In case they turn down the request you may consider the option of transferring the home loan. Sometimes your existing lender may lower the interest rate but may charge a high conversion rate for the same. You need to calculate the savings on the total interest liability in order to decide whether to continue with the existing lender or switch to a different one.
Switching from fixed to floating- Since a sizeable amount of income goes into servicing the loan the rate of interest is a matter of great concern for the borrowers. If you had taken a home loan at a very high fixed interest rate and subsequently the market improved and interest rates dropped it makes sense to close the old loan and shift to another bank that offers a lesser rate.
Renegotiation of terms and conditions-
If the EMI burden is becoming difficult to handle you may transfer your home loan and negotiate for a longer tenure with the new lender. Though a longer tenure will increase your interest payout, the EMI will be less taxing on your monthly income. You can also ask the new bank to change some other terms and conditions which your existing bank refused to entertain.
Top-up- Many banks provide you a top up loan that is over and above the existing home loan. Like personal loans the top up loan amount can be used for any purpose like home renovation, paying off an auto loan, debt consolidation etc. The rate of interest charged on this loan is usually lesser than the home loan interest rate. So if you need funds and your current lender is not agreeing on giving a top up, you can benefit from a balance transfer by shifting to a new lender who offers you this facility.

Quality of service- Another reason why you may want to switch your home loan to a different lender is the poor quality of services offered by the existing one. If you are unhappy with the substandard services and lethargic approach of your bank you can look for other better options. For example if the bank does not offer you special offers or privileges even though you’ve been consistent with the EMI payments you can think of a change.

Balance transfer usually makes sense in the early stages of the home loan tenure.  If the outstanding loan amount is low and the tenure is expected to end in a few years then it may not be ideal to go for a transfer. A balance transfer involves a lot of time, paperwork and expenses. The reduction in the interest payout should be significant enough to justify the efforts and the costs involved in transferring the loan. Inform your lender about your intentions before taking the final plunge.  Since banks do not want to lose their customer, sometimes they may give into your request and agree for a renegotiation. You may want to stick to the current lender if his offers are as appealing as the other competitors.


Wednesday, 15 February 2017

How to Use Online EMI Calculator Effectively

Most personal loans and home loans offered by lenders today are based on the EMI structure. You can compare these loans easily online, by using the loan EMI calculator. However, before you do that it helps to know a few things about EMI loans.
What is an EMI?
EMI is an abbreviation for Equated Monthly Instalment. When you get a loan, you repay it in smaller amounts on a monthly basis, which are called EMIs. Generally, an EMI includes both the principal, and the interest, and stays the same through the period of the loan. However, in some cases the EMI may change during the tenure. There are three possible scenarios that can make it happen. These are:
Case #1: Floating Interest
If the interest applied on your loan is fixed interest then the EMI stays the same throughout the tenure. However, if it is floating interest, then the EMIs might change, if the lender changes its policy regarding the interest rate in future.
Case#2: Progressive EMIs
If you have opted for a loan that comes with progressive EMIs then your initial payments will be smaller, which will gradually increase until the completion tenure. These kinds of loans are best suited to those who have just started their career, and can afford to pay higher EMIs as their income increased over time.  
Case#3: Prepayment
Say, you got a promotion at work, or receive a large heritage recently. You can use the money for prepayment of your loan, in which case the EMIs will become smaller. This is because the new EMIs will be based on the remaining debt(reduced after the payment). However, you might have to pay a certain fee for this option.
How to Calculate Your EMI
EMI calculation is based on one simple formula which is:
[P x R x (1+R)^N]/[(1+R)^N-1]
Here P is the loan amount or the Principal, R is the rate of interest per month, and N the number of instalments.
To understand the formula better, consider the following example:
Let the loan amount be Rs. 6,00,000, rate of interest be 10%, and tenure duration be 10 years (or 120 months). Comparing with the formula we have:
P= 6,00,000, R= 10/(12X100)= 0.0083, and N= 120
So, EMI = [6,00,000 X 0.0083 X(1+0.0083)120]/[(1+0.0083)120-1]
 EMI= [6,00,000 X 0.0083 X 2.696] / [2.674]
EMI=  Rs. 5020.97
Advantages of EMI Loans
All kinds of loans can be broadly divided into two categories- EMI loans and term loans. The latter comes with a fixed maturity date, and interest rate unlike the former, in which these values can change.
There are many advantages of EMI loans, some of which are as follows:
1. Flexibility- Most EMI loans grant a lot of flexibility. You can choose to prepay, or enjoy a lower interest rate if your loan comes with floating interest rate.
2. Affordability- For many people an EMI loan is the only way to afford a house or a car. If you have a good credit score, and your credit report shows timely payments and responsible credit usage, then you can easily get an EMI loan.
3. Manageable Pressure- You can settle for a convenient EMI loan repayment structure that you can manage. You have to pay affordable EMI payments every month, which won't affect your budget, and add minimum financial pressure.
Using EMI Calculators
Thanks to Internet you can easily compare EMI loans online easily. EMI calculators make it really simple to calculate EMIs of a certain loan. To calculate the EMIs all you need to know is the principal amount, rate of interest, and the duration of the loan. You can enter these values in whichever calculator you are using and you will get the results almost immediately.
You can make the most of EMI calculators by doing the following:
·         Make sure you have a list of all good loan options that you want to compare before you start calculating the EMIs.
·         Record not just the EMIs but also other factors such as interest and tenure duration.
·         Use a spreadsheet for recording all the values for easy comparison.

EMI calculators save a lot of time that you would otherwise have to spend by calculating EMIs using a standard calculator. Thus, use an EMI calculator to choose the best loan easily.

Thursday, 9 February 2017

Hacks to Choose the Right Lender

If there is a need there is a loan! Well almost! So regardless of what you want there are loans that can help you meet your financial needs, most of the time as long as you fulfill certain conditions and of course as long as your desire is within the purview of reality and practicality. There is a home loan that can help you buy a house, an auto loan for a new vehicle, education loan to continue your higher studies and a personal loan for things that do not fit in one of the above categories. There are different types of loans and numerous lenders. Well you know which loan to opt for depending on your needs but which lender should you choose? Here are a few ways that can help you choose the right lender:
v  Look at Your Credit Score
Before looking at lenders, a good place to start your quest for the right lender is assessing your credit report. A look at your Credit Information Report (CIR) ahead of applying for a loan or looking at lenders can help you tremendously. By looking the report you will be able to assess if you are eligible to get a loan or not; most main stream lenders look at the credit score as a starting point to determine if the loan application can be accepted. If your score is good (above 750) then you have nothing to worry about and can approach any lender without a worry. Score lesser than that lower your negotiating power but a score till 650 is generally not a cause of worry. For scores less than that you may have to look at co-operative banks, private lenders etc or agree to pay higher interests. Of course the best thing would be to try and increase CIBIL score if you have the time to do so and can delay you loan for a while.
v  Research, Research and Research:
There is neither a substitute nor a shortcut to this one and in today’s world researching for the required information is not difficult. There is a lot of information available online and offline too. With the available information you can find out about lenders, their terms and condition and whether you match them, the interest rates at which loans are available and also the turnaround time taken by the lender to approve and sanction a loan. It makes sense to go to a lender who will be willing to accept you loan application based on the eligibility criteria and credit score and the lender matches your needs too. So if you need an instant personal loan and the lender has a turnaround time of 4-5 days then it makes no sense to approach such a lender.
v  Understand the Fine Print:
As they say God is in the details, so just don’t look at the interest rates and loan tenure when choosing a lender focus on the fine print too. This includes finding out about all costs that are to be paid upfront or later for a loan. This may include expenses like processing fee, legal fee, fore-closure charges etc. Some times in the case of a home loan an insurance policy may be bundled with your product without you being aware of it. Later you may realize that buying a home insurance policy might not be the only way to provide security to you loved ones, there are other options available too.  Check about approval time and other not so clear terms. Choose after you have clarity about all the policies and their implications. Talk to friends, co-workers and family members to find out about their experiences.
v  Compare Rates/Terms:
This goes without saying; the first thing anybody would do is to check the interest loan rates when choosing the lender. However looking at rates is not sufficient, it also important to find out if the rat is fixed or floating or semi fixed and what method of rate calculation is used? Is the interest calculated of flat or reducing balance basis? Generally loans that are available at fixed rate at lower interest rates but in the long run they could be more expensive then reducing loan rates. A loan calculator can be used to calculate the difference between two options.
v  Talk to a Few Lenders Before Choosing One:
Even if you have researched online and you think you have found the right lender, do get in touch with a few lenders before making the final choice. Do not apply at different places as this will lower the credit score due to hard enquiries but you should talk to the bank representatives to get a better picture of what is available and if your understanding is in the right direction. This will give you a better perspective and help you in making the right choice.
So whatever you need, choose the right lender with the help of above hacks. Choosing the right lender can help you save a lot of money and a little trouble too!

Friday, 3 February 2017

Your Obligations as a Loan Guarantor

Being a loan guarantor is a big responsibility. The moment you sign the documents you get a liability on your shoulder. Thus, if someone has requested you to become a loan guarantor for them, even if they are family, make sure take your time before impulsively saying "yes".
What does it mean to become a loan guarantor?
When you become a loan guarantor you give a pledge of legal binding for the repayment of the borrower's loan amount.  Generally, the same terms and conditions that are applicable to the borrower, are applicable to the guarantor as well. Thus, if for some reason the borrower fails to repay the loan, the entire responsibility will be left on your side. If need be, the lender can also sell off your assets for getting the loan amount back.
There are mainly two types of loan guarantors, who have different obligations:
1. Financial Loan Guarantor
As a financial loan guarantor you take the financial responsibility of the borrower. This means you are liable for repaying the loan should the borrower fails or decides not to repay, causing a CIBIL dispute.  Finance institutions generally ask for financial loan guarantors when the loan amount is high, and so is the risk. Examples include land mortgage loans and education loan for MBA.
In the process of becoming a financial loan guarantor you also usually have to provide your asset papers and proof of income.
2. Non-Financial Loan Guarantor
Non-financial loan guarantors are not liable for loan repayment, but merely serve as a contact person in regard to the borrower. Finance institutions generally ask for non-financial loan guarantors for short term loans, or small- loans. Unlike financial loan guarantor, in case of non-financial loan guarantor you just have to submit KYC(Know Your Customer) documents.
Risks of Becoming a Loan Guarantor:
There are many risks of becoming a loan guarantor, such as:
Lowered Creditworthiness
If the borrower defaults on their loan, then not only their CIBIL score is damaged, but yours too. This is because you are equally responsible for the loan repayment, and have to bear the same consequences as them.
It can take a long time to improve CIBIL score. Thus, every action that can affect it negatively should be taken seriously. 
Affect on Your Loan Applications
Most home loans and other big loans have a long tenure. So, if you have to get a loan for yourself when the borrower's loan is not repaid yet your lender may not approve your application. This is because you are already liable for another loan, that of the borrower's, and sanctioning a new loan could be risky on their end. You may have to wait until the borrower repays their loan in full before getting a loan for yourself.
Risk of Losing Property
Becoming a loan guarantor, especially a financial loan guarantor can have serious repercussions. If both the guarantor and borrow fail to repay the concerned loan in time, then as per ‘Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002′ the lender is authorized to seize the guarantor's property and sell it for recovering the loan amount.
Conclusion
It goes without saying that becoming a  loan guarantor for anyone is a truly risky business. Thus, it is best if could avoid it. Here are a few good reasons you can give to someone who has requested you to become a guarantor for them:
·        I might need to take a higher education loan myself in a couple of years. However, I won't be able to apply until I am free from the obligations of a guarantor.
·        My cibil score will be affected negatively, and it is already not in a good shape.
If it is difficult for you to refuse still, then you can also offer them the option of taking a home loan insurance policy. With this policy they have to pay a premium, and in return the bank who has offered the policy will bear the responsibly of a loan guarantor.

Unless the requesting person is really close to you, and you are confident they will be able to repay a loan, never say "yes" to becoming a loan guarantor. If you not able comment anything at the moment, request them to give you time. Make your choice carefully, as it is a big decision that can change your life.