Why Loan against Property is the Best Way to Sponsor Your Child’s Higher Education

Savings are essential in our lives to meet the family’s responsibilities or unexpected events. However, relying only on savings isn’t enough to cover the cost of your child’s higher education. If you are planning to send your child abroad, it requires careful planning. For overseas education, apart from tuition fees, you also need to plan for additional expenses such as boarding, food, and monthly expenses. The size of your savings won’t be adequate to fulfil the financial requirements of higher education. The need for extra funds in a foreign country can be arranged with an educational loan. But in some cases, the educational loan becomes difficult to procure. The reasons are –

 

  • The loan amount requirement is above ₹20 lakhs
  • Relatively higher interest on a larger loan amount
  • The loan for a particular course may not be approved by government agencies
  • When you desire the tenure of repayment to be above 10 years

 

Focusing on the reasons above, it seems an educational loan is not the ideal choice for an immediate or higher loan amount. To fulfil the above needs, a Loan Against Property (LAP) is a much preferable option. To obtain this loan, you need an owned asset that can be pledged as collateral to the bank.

 

There are different situations in the case of a LAP such as self-occupied, unoccupied, or rented. If the property is self-occupied or unoccupied, the banks would easily offer you LAP of around 50%-90% of the market value of the property. If the property is rented, the banks would offer you a loan to value ratio of about 40%-55%. Even if the property is mortgaged, you can take a top-up loan.

 

Eligibility and Documents required for a Loan Against Property (LAP)

 

The basics of a LAP include the principal amount, interest rate, mortgage tenure, and equated monthly instalments (EMI). To be eligible for a LAP, you must be an Indian resident and a salaried employee or self-employed.

You have to submit the following documents-

 

  1. Salary slip of the last 3 months
  2. Bank statements for the past 3 months
  3. PAN Card /Aadhar Card
  4. Address proof
  5. Copy of the property papers owned by you
  6. Recent photograph
  7. Form 16/ Income tax returns
  8. In the case of self-employed, you need to submit proof of business existence, company financials, and certified income tax returns

 

After submitting the documents, your eligibility for a loan is dependent upon your repayment capacity. Multiple factors such as income, total liabilities, age, credit score, etc., play an important role in assessing your credibility.

 

Benefits of taking a Loan against Property (LAP) for a Child’s Education

 

  • A Quick Solution

As you own the property, getting a mortgage loan becomes easier. You just need to submit the required documents with an application. As it is a secured loan, lenders feel a lower risk of losing their money as the amount can be recovered by selling the property. Unlike an education loan, there is no need to wait for the university to accept the application and then visit the bank for due process.

 

  • Getting Easy Approvals

An education loan application may get rejected due to several reasons such as low income, bad CIBIL score, or if the child’s course is not approved by AICTE/UGC. In such situations, LAP is the most preferred choice for parents.

 

  • Higher Loan Amount

With intense planning, the parents need to determine an appropriate amount of loan required for their child’s education. The expenses include tuition fees, living expenses, and other additional expenses. Hence, the total amount is much higher for a child’s education when compared to just the tuition fees.

 

Thus, an educational loan is not a preferable option as it is usually capped at ₹20 lakhs. With a LAP, you can easily go for a loan above ₹20 lakhs. With a higher market value of a property, you can get a loan ranging from ₹24 lakhs to ₹39 lakhs or more.

 

  • Lower Interest Rates

Educational loans can be costly for you in comparison to Loan against Property. With lower interest rates, LAP proves to be very cost-effective.

 

Personal Loan, Credit Card, or Personal Line of Credit: Which one is better?

Whenever you are in dire need of finance, you can always choose to go beyond personal loans and credit cards. A Personal Line of Credit gives you easy access to “money on demand” irrespective of whether you have large or small expenses. A line of credit is usually approved by financial institutions such as banks as well as credit unions to their existing customers upon meeting certain eligibility criteria.

What do you mean by a Personal Line of Credit?

A personal line of credit gives one easy access to money, but “on demand.” It is quite different when compared to a personal loan or a credit card. It has an upper edge over both of them.

It is basically an agreement between the financial lender and the applicant. The financial lender agrees to lend a certain amount of money subjected to an upper limit, which can be withdrawn by the applicant at any time. When compared to credit cards, a personal line of credit has a lower interest rate. Besides, unlike one-time access to funds in case of personal loans, a line of credit gives the applicant an option of variable access to funds.

How does a Personal Line of Credit work?

Financial lenders such as banks usually offer the option of a line of credit to high net worth (HNI) clients. In case an applicant is eligible for the same, banks usually allot a certain amount of funds which can be withdrawn within a given time period. Moreover, the applicant will be charged interest only on the amount that is borrowed. Upon successful repayment of the borrowed amount, the applicant once again becomes eligible to avail a line of credit. Good credit history can help the applicant get a better rate of interest, and if possible, to negotiate on any collateral.

Similarities and differences between a Personal Line of Credit and other forms of credit?

Similarities between a Personal Line of Credit and Credit Card

ü Both of them are unsecured revolving credit lines

ü Both have a certain pre-set limit which allows for spending only up to the credit limit

ü The applicant can choose between making minimum payments and paying off the total balance until the end of each month

Differences between a Personal Line of Credit and Credit Card

ü One can avail lower interest rates in case of a credit line when compared to that of a credit card

ü A personal line of credit is much more difficult to avail than a credit card

ü A personal line of credit has a much higher limit when compared to a credit card

Similarities between a Personal Line of Credit and Personal Loan

ü Both of them are an easy way to get access to instant cash whenever you need it

ü No collateral is required in both cases as they are unsecured credits.

ü Both of them have similar credit requirements and the application process. Financial lenders usually review the creditworthiness and income of the applicant to decide on the approval of the application.

Differences between a Personal Line of Credit and Personal Loan

Whenever one avails a personal loan, the approved loan amount is disbursed at once. A line of credit is a revolving credit. One can choose to withdraw or borrow the pre-set amount as and when it is required.

ü In case of a line of credit, the interest is charged only on the withdrawn amount. However, with respect to personal loans, interest is charged on the entire amount.

ü Whenever you repay the personal loan, the loan account gets closed. You will have to reapply for a loan in case you need emergency funds in the future. In case of a personal line of credit, the same remains active for a lifetime provided you repay the borrowed amount on a regular basis.

Best Uses of a Personal Line of Credit

Personal lines of credit can be utilised in a majority of the situations as follows:

ü Home improvement projects

Renovating one’s home can be an ongoing project. One can choose to take a single project at a time and get done with the same before starting another one. In such situations, a personal line of credit can help one with recurring expenses of such projects.

ü Business opportunity

A personal line of credit is an excellent source of additional funds to grow one’s business by allowing one to invest in sales and marketing, advertising and so on.

ü People with irregular flow of income

In case of a self-employed individual, the monthly income can vary. Withdrawing funds from a line of credit can help one to pay their monthly bills until their next paycheck comes in.

ü Emergency situations

A personal line of credit can be quite helpful in critical situations like a medical emergency.

How to use the Home Loan EMI Calculator

Accuracy with respect to the loan amount is one of the major concerns whenever you are looking forward to purchasing a home. This is mainly because one should be aware of the exact financial commitment they are entering into when taking a home loan. Once you have decided upon the loan amount, it is all the more important to find out the interest you are paying and the monthly EMI amount. Carrying out all these tasks manually with accuracy is quite difficult. This is where a home loan EMI calculator comes to your rescue.

What is a Home Loan EMI Calculator?

A house loan EMI Calculator is nothing but a tool that assists you in calculating how much the home loan will cost you along with the interest. The Calculator will even help you get a precise figure on the EMI amount you’re required to repay. Housing loans are usually availed for a longer tenure period. Therefore, using a home loan EMI calculator helps you to determine your financial outflow concerning the home loan. It will also assist you in building your budget while making you aware of your affordability.

By using the EMI Calculator, you can also compare different home loans offered by various financial lenders. Besides, you also get the freedom to adjust the loan repayment tenure as per your needs.

EMI Calculation Formula

EMI = P*r*(1 + r) n / { (1 + r) n – 1}

In the above equation,

  • E is the EMI amount
  • P is your principal amount
  • R is the rate of interest applicable every month
  • N is the home loan repayment tenure period

You must keep in mind that while the monthly EMI remains fixed, you will end up paying less towards the interest and much more towards principal repayment over a period of time.

Example of a Home Loan EMI Calculation

An EMI Calculator is quite easy to use. You just have to enter the principal loan amount, the interest rate and the loan repayment tenure period. Following this, the calculator will show the monthly EMI in addition to the borrowing cost and payable interest. This saves you from complex calculations and gives you a much more accurate result.

Let us consider a scenario wherein you wish to avail loan amount of ₹21 Lakhs. You are comfortable repaying the loan amount within the next 10 years at an interest rate of 14%.

Then, as per the EMI Calculator, you are required to make a monthly payment of ₹32,605 as your Loan EMI. In addition, you are also shown the total interest and the payable amount as ₹18,12,714 and ₹39,12,714 respectively.

Now that you have a clear idea of your EMI amount, you may choose to adjust the variable to arrive at a different EMI amount. If you prefer to lower the EMI amount, then you can increase the tenure or lower the loan amount to arrive at a more affordable EMI amount. This gives you the freedom to choose a lender who agrees to lend you the money on those terms.

What Should you Use a Home Loan EMI Calculator?

An EMI calculator helps you to:

  • Compare different loan offers instantly

The house loan EMI Calculator is a good means for you to compare the different home loan offers available from financial lenders. All you have to do is enter the loan details and you can easily determine which loan is best suited for your requirement based on affordability.

  • Getting a clear break-up

The Calculator not only provides the calculations for your home loan amount but also provides a detailed break-up of the costs involved. Therefore, in case you encounter any hidden charges, you can ask your respective financial lender about the same as you are already aware of the breakup of the entire cost involved.

  • Choosing the appropriate loan repayment tenure period

You are now aware that the EMI is directly dependent on the interest rate and the loan repayment tenure period. Therefore, it is better to use a home loan EMI Calculator to determine your estimated EMI so that you can repay the loan amount within a time frame that you are comfortable with.

  • Helps you manage your finances

By using an EMI Calculator, you can track your payments towards your housing loan every month. This in turn, will help you keep your budget intact. This will also help you in managing your other obligations involving investment and savings.

Factors Affecting Your Home Loan EMI

As the EMI depends mainly upon the principal amount, rate of interest and loan repayment tenure period, any slight change in any one of the variables can cause a change in the EMI amount.

Also, the exact home loan amount that lenders grant you also depends on your application and your financial standing such as: salaried/business, income, credit history, age, number of dependents, borrower’s asset, and more.

 

4 Ways to Increase Your Credit Score with a Personal Loan

A Personal loan is ideal in case of any financial emergency as it does not require any form of collateral. Also, it is quite easy to go through the formalities of availing a personal loan. However, what most people overlook is the fact that personal loans can also play a great role in improving your credit score if managed properly.

Why a Personal Loan is a better choice?

Few individuals opt to apply for credit cards to improve their credit scores. They make purchases on their credit card and pay off the bill immediately for building credit. There is a good chance that you can land in debt if you go overboard on your credit card spends.

In comparison, when you avail a personal loan and make timely payments consistently, it demonstrates your reliability and invariably improves your credit score to a much larger extent than credit cards. Besides, availing a personal loan requires lesser work when compared to getting a credit card for building credit.

You can even choose to set up automatic payment towards your personal loan from your bank account so that you do not miss any payments. You can also get the personal loan approved at a lower interest rate if you have a co-signer with a good credit history. A good credit score lies between 700 and 749. Having a good credit score opens up a good number of options for an individual in the future when going for home loans.

With a good credit score, you can easily apply for better credit cards which offer a greater number of benefits. You can even get the card at a lower interest rate.

How do you benefit from a Personal Loan?

  • To pay off your old debts: Availing a personal loan is one of the easiest ways to settle any old debts. In this way, you can clear your old debts and restart paying off the loan amount with lower interest. This also helps improve your credit payment history, which in turn, improves your credit score.

 

  • To repay on time: You have to repay the loan amount in terms of affordable instalments decided by the financial lender based on your repayment capability. Monthly instalments will reduce your financial burden. You can easily repay the loan amount on time without missing any payment, which improves your credit score and credit history.

4 Ways to Increase Your Credit Score with a Personal Loan

One can follow the below-mentioned steps to increase their credit score with the help of a personal loan:

  1. Avoid applying for multiple loans: You must never represent yourself as a credit hungry person before financial lenders. Besides, whenever you apply for a loan, a hard inquiry is carried out on your credit report and the same impacts your credit score. Several hard inquiries on a credit report are considered bad for a borrower.
  2. Choose the loan amount quite carefully:It is very essential that you apply for a personal loan amount that you actually need and afford. As you are opting for a personal loan to improve your credit score, the loan amount availed becomes a very big factor. Always avail a loan amount that you can repay without too much of a burden.
  3. Make regular payments:Availing a personal loan and not repaying the same on time does not make sense, especially if you are taking out the loan to improve your credit score. As personal loans are unsecured loans, they can easily affect your credit score the most. Therefore, it is better if you repay the Loan EMI amount on a timely basis without fail.
  4. Avoid pre-paying your loan: If your objective of availing a personal loan is to improve your credit history, then it is best advised that you do not repay the loan completely before it matures. Longer credit history is usually considered better. Your credit score will definitely improve if you make regular payments over a longer tenure period.

 

Here’s How You can get a Personal Loan even with a Low CIBIL Score

 

Credit Information Bureau (India) Limited, or CIBIL, is entrusted with the preparation of a credit score, which in turn serves as the first criteria to check the eligibility of an individual while applying for a personal loan. The credit score ranges from 300 to 900. A score lower than 750 is considered as a bad credit score. Usually, it becomes quite tough for a financial lender to process a Personal loan application if an individual has a low CIBIL score.

A personal loan is usually availed by an individual for dealing with personal emergencies. As no collateral is associated with the personal loan, it becomes quite important for the financial lender to check the credit history of the individual in terms of the CIBIL score. It’s not the end of the world if your score is low. There are ways you may still be eligible for personal loans. Let’s look at how you can improve your chances of availing a loan with a bad credit score.

Factors Affecting Your CIBIL Score

  • Availing multiple loans
  • Settling the credit cards with the financial lender by paying an amount lower than the due amount
  • Very high utilization of the credit limit
  • Rejected credit cards or loan requests
  • Untimely payment of credit card bills and loan EMIs
  • Non-availability of credit history
  • A high percentage of unsecured loans

7 Ways to avail a Personal Loan even with a Low CIBIL Score

A low CIBIL score can undoubtedly reduce your chances of getting a personal loan availed. In case you have a bad credit history, then the following are some of the options which could assist you in getting a personal loan:

  1. Collateral loan

You can always try to avail a secured loan if your loan application does not get approved. Any collateral in the form of gold, fixed deposits, mutual fund investments, property, and so on can be used for availing a secured loan even if you have a low CIBIL score.

  1. Look for tie-ups between the financial lender and your employer

If you are employed by a reputed firm, then there is a good chance that you might find a relationship between the financial lender and your employer as part of corporate relations. Due to such tie-ups, the financial lender can offer you special facilities on banking and loan products. This, in turn, can help you get a personal loan smoothly.

  1. Applying for a Joint Personal Loan with any family member or your spouse

You can check with any family member or your spouse to see if they have a good CIBIL score. In case they do have, then you can opt for a joint personal loan which could be easily approved based on the CIBIL score of both applicants.

  1. By having a Guarantor

You can manage to get a guarantor amongst your friends or family members who have an excellent credit history. In such cases, there is a high possibility that you can get your personal loan approved based on the CIBIL score of the guarantor.

  1. Asking for a lower personal loan amount

If you ask for a higher loan amount while having a low credit score, it only indicates more risk to the financial lender. From their point of view, this is an indicator that you can default on the repayment of the loan. Financial lenders are usually more comfortable to process your application when you ask for a lower loan amount as it is easy to pay the same back.

  1. Provide proof that your income can support the monthly instalments

If you have received an increment in your salary or have an additional source of income, then the financial lender might consider processing your application even if you have a poor credit history. However, in this case, you might have to end up paying a higher rate of interest.

  1. Correcting any mistakes present in your credit report

It is quite possible that some errors might be present in your credit report. This usually happens when the most recent information has not been updated in your report. Such mistakes can easily affect your credit score without any fault of yours. Therefore, it is important for you to periodically check your CIBIL report and correct all possible mistakes. This will improve your credit score and make it easier for you to avail a personal loan.

 

Handy Checklist for First-Time Homebuyers

Handy Checklist for First-Time Homebuyers

Buying your first dream house is definitely a significant milestone in the life of any individual. People invest their entire life savings into buying their home and it can be an emotional moment that brings a great amount of joy and fulfilment. At the very same time, buying your first home involves a lot of careful planning with the financials as well as other critical choices.

The choices are not only limited to picking the right home loan suited to your requirement. If you planning to purchase your very first home, then you can go through the below-mentioned checklist to help you arrive at a decision that you will never regret.

  • Thorough Assessment of Your Requirements

When you are house-hunting for the first time, it is quite natural to be attracted to everything that looks good. It’s quite obvious as one can explore a good number of real estate options as of today. A majority of builders offer compelling brochures and competitive prices which can excite anyone.

However, when going through the probable options carefully, it is best if you focus your energy on only those properties which are ideal for your current and future requirement. After all, it is a lifetime investment and must be well thought out. Your decision for buying a home can be influenced by any one of the following two causes – as an Investment option or for Self-use. Your requirement will slightly vary depending on these options.

  • Figuring Out The Total Cost And Determining Your Budget

Purchasing a home demands huge investment and financial considerations will largely determine the most affordable choice among the available options. Apart from the home loan burden, you’ll also need to factor in other payments such as property registration fee, stamp duty fee, legal checks, transfer of ownership (if it applies), and other such costs. Once you have the complete breakup of costs involved, you can plan your financials that comply with the same.

  • Compare Effective Home Loan Rate

Once you have decided upon your budget, you can go through the various home loan options offered by well-known financial lenders. Your credit history will play a vital role while availing a loan. A good idea is to compare different home loans online by using an EMI calculator depending on your loan amount, down payment, processing fee and so on.

 

Besides, the home loan interest rates will vary depending on your specific requirement. For instance, a salaried home loan applicant can avail loans at a lower rate when compared to a self-employed individual.

 

  • Avoid being in the dark about Eligibility

A majority of individuals are unaware of the terms “credit score” and “loan eligibility” until they are applying for a loan. One must always be aware of their credit score. A home loan applicant with a very good credit score is usually offered attractive interest rates by financial lenders. You can always check your credit score online at no additional costs. A credit score greater than 750 will allow you to avail the best possible loan offers.

 

ü Maximize your Down-Payment Amount

Irrespective of the choice of the financial lender, it is always better to make a good down-payment. The greater the down-payment amount, the lesser will be the interest that you pay over the loan tenure period. So, quite naturally, your EMI will also be lower.

 

ü Avoid opting for a Long Tenure period

A longer tenure period has a massive impact on the interest you pay over the repayment tenure. The total interest cost will not reduce despite a drop in your EMI amount. Therefore, it is better to opt for a shorter tenure period while opting for an affordable instalment.

 

How to Use Loan Against Property to Fund Your Business

Investing in or starting off a new business venture from scratch can prove to be a difficult task financially. In general, first-time entrepreneurs don’t ever find themselves eligible for business loans. However, one great source of funding can be a loan against property (LAP).

As a Loan against Property is a secured loan, it requires you to keep your residential or commercial property as collateral to get monetary assistance from financial lenders. The availed loan amount can be utilized for your business start-up or business expansion. The loan also has attractive repayment options.

The following are some reasons as to why you should opt for a loan against property to fund your business:

  • The ability to avail larger loan amounts
  • Quicker loan approvals than personal loans
  • Getting the loans processed at nominal interest rates
  • Ability to align the loan amount to the needs of the business

The Loan Amount

The maximum loan amount that can be availed through LAP depends on the following two factors:

  • Property Value: Financial lenders offer Loan against property in the range of 60% to 90% of the property value.
  • The Loan Repayment Capacity: Lenders usually evaluate the loan repayment capacity of the individual strictly. While applying for a LAP, if you have already earned a certain rental income from the property, then it can serve as a bonus. However, you must come up with a very good proposal to convince the lenders that you can repay the loan amount within the given tenure period.

The Loan Type

LAP is available in the following two types:

  • Term Loan: In this case, the financial lender disburses the complete loan amount to your bank account. You will have to start servicing the instalments right from the coming month.
  • Overdraft: In this case, the financial lenders will sanction a credit limit. You can only withdraw amounts up to the sanctioned limit. The benefit of this facility is that you end up paying interest only for the credited amount. Such overdraft accounts are subjected to review on an annual basis.

Which one is better?

If you prefer to reduce the liability over a period of time, then you must opt for the term loan as you will repay the loan amount in instalments.

However, if you wish to save on the interest paid, then you must go with the running account overdraft facility. You can easily deposit as well as withdraw as per the credit limit. Interest is applicable only for the utilised amount. Therefore, you end up saving on interests in an overdraft account.

Few financial lenders even offer a reduction of the overdraft limit in terms of equal proportions over the loan repayment tenure period.

The Loan Repayment Tenure

You can repay your LAP amount over a period of 20 years through EMIs. Such a long repayment tenure period makes it easier for the applicant to pay the instalments when compared to Personal Loans. The repayment tenure period in the case of personal loans is a maximum of 60 months.

You can utilise the availed loan amount for making sound business decisions. The lengthy repayment tenure period also works in your favour. By leveraging your property, you can plan the future of your business without any stress as you have a good amount of time to repay the loan. For instance, a Loan against Property from a majority of financial lenders comes with a repayment term period of up to 20 years. As you have ample time to repay the loan amount, you can easily borrow the loan amount depending on your business plans.

For example, let us consider that you decided to open up a new branch office in a new city to expand your business. This will involve construction, legal proceedings, as well as recruitment. This move will surely reap benefits, but only over a period of time. As you have a longer repayment tenure, your EMI will be small and hence you can finance both your business as well as those EMIs quite easily. After you break even, you can choose to prepay major portions of your loan amount so that you can come out of debt quite early.

 

6 Tips to Prepay Home Loans Faster

In pursuit of owning our dream home, many of us direct all of our life’s earnings towards this one cause. We strive hard to get the best home loan rates to fund our property purchase. A home loan is a long-term commitment that can range anywhere from 10 – 30 years or longer. That’s why another essential factor that most overlook is to clear this loan as soon as possible. If you’re able to smartly pay off your housing loan faster, you would be free of the financial commitment quicker.

Following are a few tips that you can use while planning a home loan:

1. Opt for a Home Loan Which Allows for Part Payments

The home loan which you avail is based on your creditworthiness as well as on your income. However, it is quite natural for you to expect that your income will increase in the future. This, in turn, increases your affordability. Therefore, you can choose to avail a loan for a maximum tenure and repay the same before the loan tenure period. Always try to opt for financial lenders who offer prepayment feature so that you can pay more than the required monthly payment whenever possible.

2. Always increase your EMI amount Whenever Your Salary Increases

Whenever you get a salary hike, always aim to increase the EMI of the availed home loan. This will help you to reduce your loan tenure period along with the interest rates. You can choose to contact your financial lender so that they can restructure your existing loan based on your current salary. This step will also boost & strengthen your creditworthiness.

3. Invest Specifically with the Aim to Prepay the Loan

Another major dilemma of any homebuyer is to choose between investing and prepaying the home loan with his/her savings. Let’s take an example to analyse the problem. Consider two clients named Ravi & Samir.

Let’s assume a scenario wherein Ravi is paying an EMI of ₹40,000 towards his Home Loan. The applicable interest rate is 10.75% and his salary is around ₹60,000. Also, let us assume that he is able to save around ₹10,000 on a monthly basis. If Ravi chooses to invest his savings in PPF, then he can expect a return of around 8.5-8.7%. However, if he directs this same amount towards his EMI on the home loan, then he can save the 10.75% interest on this amount. It only makes sense to invest in those financial products which generate returns greater than the interest rate applicable on the Home Loan.

Now let’s assume that Samir is paying an EMI of ₹55,000 towards his loan. Prior to availing the home loan, he had invested in a Mutual Funds Fixed Deposits of a bank. The returns earned through Mutual Funds are around 10% on an annual basis. The client also enjoys returns of around 9.75% on the FDs.

By applying the same logic of Ravi, it makes sense for the Samir to liquidate his existing investments and try to prepay the availed Home Loan. By doing so, he can generate indirect returns which are equivalent to that of the home loan interest rates through savings.

4. Try to reach the Principal Amount as Early as Possible

 

During the first few years, the loan borrower is just paying towards the interest without causing any substantial reduction in the principal amount. Therefore, try to make the partial pre-payments as early as possible so that it helps to reduce the interest amount much faster. After you hit the principal amount, you can observe the difference in the applicable interest rate and the remaining amount.

5. Always keep 3 Months of EMI Payment in your Account

This is essential for paying your EMIs regularly. This strategy can help you out in case of any unforeseen financial emergencies. This will also make sure that you do not default on your payments. By having an amount equivalent to three months of EMI, you can get some breathing space.

6. Use your Fixed Deposits

You can also make pre-payment towards your loan if you possess fixed deposits of around six times your salary. A fixed amount gets you interest of around 6-7% on an annual basis, while you might be paying around 9.65% interest towards your home loan. It makes no sense to block any money for earning lower interest rates. Rather, you can use that amount to reduce your financial debt.

 

How to Get Loan Against Property Even With a Bad Credit Score?

It’s not surprising that many people are in a financial crunch and looking for loans in the current COVID-19 pandemic. Whether its job losses for the salaried or impact on business for the self-employed, the situation is tough for so many out there. If you’re facing an emergency and in dire need of funds, then you can consider availing Loan Against Property (LAP).

An LAP is a much better choice than a personal loan as you don’t have to stress even if your credit score is not good. This is because unlike a personal loan which is an unsecured loan, a loan against property is a secured loan and it involves collateral. While availing this loan, you can mortgage your commercial or residential property to a lending institution as security towards the loan you have applied for.  This loan is assessed based on your property value as per the current market rate. Another major benefit of opting for LAP is that you can avail a higher loan amount in comparison to any other regular loan.

What’s the Least CIBIL score needed for a LAP?

A CIBIL score can be represented as a three-digit number ranging from 300 – 900. The Credit Information Bureau assigns it to every individual based on the CIR, or Credit Information Report. Credit utilization, repayment history, the total tenor of credits, credit mix, and the number of credit inquiries are the parameters used for calculating the credit score of an individual.

Generally, lending institutions prefer borrowers having 750 or higher credit score while approving a loan. However, as Loan Against Property is a secured loan, the lender has lower risks if the borrower fails to repay the loan amount. Hence, this loan is sanctioned even if the applicant is on the borderline. For example, many popular banks in India such as SBI, HDFC, ICICI grant LAP loans to individuals whose credit scores are in the range of 650, and some lenders can consider even lower scores.

Shed your worries aside if you are wondering whether your bad credit score would be taken into consideration or not. Since a Loan Against Property is a secured loan, the banks will not give much weight-age to your CIBIL score. As the interest rate over a LAP is less, there are chances that you may be charged a higher rate of interest over a LAP if you have a bad credit score. It’s always advisable to start improving your credit score by paying your EMIs on time.

Furthermore, you can improve your chances of securing a Loan Against Property by following these simple tips –

  1. Additional Co-applicant:Adding a co-applicant with a good credit history in your loan application can boost your chances of securing an LAP. This is because you are providing additional assurance to the bank. If your spouse has a good credit score, you can add him/her as your co-applicant.

 

  1. Guarantor for borderline cases: If your CIBIL score is on the borderline, then financial institutions may generally approve a loan against property for you without any hassles provided you have a guarantor having an excellent credit history.

 

  1. Seek Lower LTV: LTV or Loan to Value denotes the amount a borrower can get against the property from a financial institution. An LTV of 80 percent indicates that a buyer will have to shell 20 percent property value and the rest would be financed by the financial institution. If you have a bad credit score, then you can consider lowering the LTV from the lending institution.

 

  1. Approach Housing Finance Companies (HFCs): You can turn to HFCs if you have a low CIBIL score. Selected HFCs offer mortgage loans to individuals having a bad credit score. However, the drawback is that the application processing takes a lot of time and the interest rate may be quite high.

 

There are plenty of options available even if you have a bad credit score and want to avail a loan against a property. However, keep in mind that improving your credit score gradually will certainly prove to be beneficial to you in the long-run.

 

 

Home Loan Borrowers Aged 45 & Above: Things to be Aware Of

Over the last 20 years, the applications’ for home loans have witnessed a tremendous transformation from individuals. The loan eligibility of an applicant is dependent on various factors such as employment history, creditworthiness, payment capacity, life stage, type of property, and so on. However, the age of an applicant is the most important factor which binds all the factors. The age group of home loan applicants can be broadly classified into three groups such as those in their 20’s, 30 to 45 years, and those above 45 years.

Individuals of the current generation earn a significant amount of higher salary when compared to their predecessors.  As a result, they represent a major chunk of the population who seek home loans. Individuals above the age of 45 years, also referred to as late home loan seekers also have good options. This permits them to work out their loan repayment tenure period.

Following are some factors which a late home loan seekers aged above 45 years must consider while availing a home loan:

  1. Loan Options: When an applicant is greater than 45 years of age, a lot of financial institutions and lenders are quite sceptical in offering them a loan. Therefore it becomes quite important to do a greater depth of research before availing the loan. Even a minimal small differential of 50 basis points can contribute towards making a huge difference.
  2. Loan Tenure: In general, financial institutions such as banks always restrict the home loan repayment tenure to the retirement age of a person. The standard age limit for retirement is set to be 60 years. Because of this reason, younger individuals can get a home loan with a 25 to 30-year tenure period whereas individuals aged above 45 years can get a home loan only up to their retirement age.
  3. Income Band: The outcome of any home loan application is greatly dependent on the individuals’ quality of income, source of income, as well as stability of income. On a general note, an individual employed by highly reputed organizations can avail higher loan amounts based on the stability of his or her income. Financial institutions usually categorize certain sectors as stable or risky. Therefore, applicants working in stable sectors can easily avail home loans when compared to those working in risky sectors
  4. Down Payment: A higher down payment amount usually works out well for individuals above 45 years of age. It is usually assumed that the late home loan applicant would have a significant amount of savings so that they can reduce their borrowings. Therefore, before jumping to any conclusion, it is much better to compare the different interest rates the individual earns from their existing investments against the interest on home loans.
  5. Credit Worthiness: The credit score of an individual is amongst the first things the financial institutions go through before processing the home loan application. This is quite essential as it illustrates the expenditure, savings, as well as the creditworthiness of an individual.
  6. Co-Borrower: As it is assumed that the capacity of an individual to repay a financial debt is inversely proportional to their age, it is better that one applies for a joint home loan account with growing age. This also contributes towards lowering the liability of higher EMIs and also offers certain tax benefits.

The addition of a co-borrower for a home loan application usually increases the individual’s eligibility. This is more important if the applicant falls in a higher age category and when the home loan amount is considerably high. Banks usually extend the cut-off age limit in case a co-borrower is present for a home application. This also increases one’s chances of getting a home loan amount with a longer repayment tenure period. It is also much better to add a younger co-borrower in case of a joint home loan application.

Conclusion

There is no doubt that the age of the applicant is quite an important factor when determining the eligibility for applying for a home loan. Individuals who fall into higher age brackets must always focus on the above-mentioned factors in order to optimize their loan tenure and loan eligibility. The aging individual must always opt for choosing a financial lender that is quite liberal in considering the applications of late home loan seekers.