A Detailed Guide on Tax Benefits on Business Loans

A Detailed Guide on Tax Benefits on Business Loans

Business owners often look for business loans to fulfil their requirement of short-term as well as long-term needs. The disbursed loan amount can be used for business expansion, procurement of materials, purchase, installation of machinery, renovation of the premises, shifting to a new office, etc. A business loan can be secured or unsecured.

The business loans are beneficial for owners as they are tax-deductible. The interest amount payable on a business loan is deductible from the gross income. This means that the principal loan amount does not offer any tax benefits. If you have taken a personal loan for business purposes, the interest amount is still eligible for tax-deduction. Tax deduction on interest payment for a business loan helps business owners reduce the liability of taxation.

The tax liability is calculated by subtracting the total business expenses from the total business revenue. To avail of tax deductions, borrowers need to fulfil the criteria set by the lender. There are innumerable benefits of taking a business loan.

Benefits of availing a Business Loan

1. Business expansion- To run a business smoothly, you need funds. The requirement of funds can arise at any time. Business expenses are incurred to generate income for the business.

2. No Collateral required- If your business is in operation for 3 or more years and your annual revenue is up to the mark, then several lenders offer you business loans without requiring any kind of collateral.

3. Tax benefits- A businessman pays the interest accrued on the loan amount. When the loan is used for business purposes, the interest paid is eligible for a tax deduction. You can use the loan amount to buy equipment, pay salaries, pay for advertising and marketing expenses, etc.

Who requires a Business Loan?

Small and medium enterprises, traders, retailers, private limited companies, public limited companies, start-ups, sole proprietorships, etc., are eligible for a business loan. Business owners generally apply for a business loan to manage their working capital and liquidity so that their daily operations aren’t stressed.

The loan provides a dual advantage as the amount can be utilized for business purposes and the interest amount lowers the taxable amount. Hence, businessmen prefer to avail of a business loan to enjoy tax benefits. Before applying for a business loan, businessmen should ensure that the eligibility criteria such as good credit score, healthy financial records, tax returns, the existence of a business of more than 2 years, etc., are met.

Interest Paid on Business Loans as a Tax Deduction

The amount paid as interest on a business loan to the lender is treated as a tax-deductible item. The payment of interest is written off as business expenditure allowed for a tax deduction. A business generates income by incurring business expenses that are deducting from the total revenue generated through sales.

Interest payment on a loan is a useful tool for small and medium enterprises & entrepreneurs. The tax deduction lowers the liability of tax payment that can be used for expanding business. The sanctioned amount of a business loan is the principal amount that is not tax-deductible. The principal amount is not treated as a part of business expenditure. Hence, tax is not paid on the principal amount. The principal amount is a part of gross income and the tax is payable on the net income earned by the owner of the business.

Types of Business Expenses being Tax-

To generate income, business expenses are incurred to run a business smoothly. Such business expenses are used for running business operations, repairs, and maintenance. The business expenses are subtracted from the total revenue earned to achieve the total taxable income.

The business expenses include wages and salaries paid to the staff and employees, rent of the premises, payment of insurance premiums, cost of leasing, advertising and marketing expenses, gift, meals and entertainment expenses, lighting expenses, power and fuel,

telephone charges, bonus paid to the employees, office supplies, stationery, and other office expenses.

Is a Personal Loan for Business Purposes eligible for Tax Benefits?

If you have taken a personal loan to meet your business needs, the question is whether interest payment on a personal loan is eligible for a tax deduction. The loan amount sanctioned can be used for boosting working capital, payment of salaries, account payables, etc. Yes, a personal loan for business purposes is eligible for a tax deduction. The taxation rules stand the same.

The tax deduction is allowed only for the interest amount of a personal loan. The principal amount is not a tax-deductible expense. The overall interest payment is deducted from the gross profit that lowers the taxable income of the business. There is no ceiling set on the interest amount to be claimed as a deduction. The condition is that the loan amount should be used only for business purposes.

Therefore, businessmen need to submit proof of the amount incurred for business operations. As there is no upper limit, businessmen should store all the bills and receipts to show how the loan amount has been incurred for business expansion and growth. It is advisable to maintain bills and receipts to avoid any discrepancies with the IT department.

What is Reverse Mortgage Loan for Senior Citizens ?

What is Reverse Mortgage Loan for Senior Citizens ?

To provide support to elderly citizens, the Government of India introduced a “Reverse Mortgage Scheme” in 2008. It is meant for those elderly citizens who own a home but do not desire to sell it. The reverse mortgage scheme is very beneficial for senior citizens who require funds for health care treatment, children’s education, or renovation of their residential property. The scheme allows tapping the value of the residential property during their life. It is not a popular scheme due to its notions but it is expected to be in the news post the COVID-19 outbreak due to its advantages.

Features of the Reverse Mortgage Scheme

A reverse mortgage scheme can be understood as the opposite of a home loan. The senior citizen who is the borrower receives the money in instalments from a banking institution that has to be paid back later. The payments can be received in the form of a lump sum, credit line, or periodical. The value of the property is determined by the loan amount, age of the borrower, and interest rate. The maximum amount capped for the monthly payments is ₹50,000 and the maximum lump sum payment can be 50% of the total eligibility amount or ₹15 lakhs, whichever is lower.

The amount disbursed for the loan can be used for multiple purposes like medical treatment of a spouse, borrower, or any dependent person, day to day needs, renovation of residential property, etc. It must be noted that the money should not be used for business, trading, or speculative purposes.

Tenure and Rate of Interest of a Reverse Mortgage Loan

A reverse mortgage loan is available generally for 20 years when you continue to stay at your property and receive periodical payments. Unfortunately, if the borrower dies, the spouse can stay in the house till her/his death.

Talking about the rate of interest, it varies from lender to lender. It would roughly be around 7.5% to 9.5% based on the lender and other parameters. If you consider terminating the loan,

the borrower can pay the outstanding amount whenever they want to, without paying any prepayment charges.

As we understand that the senior citizens do not have any source of income after retirement, the borrower is not supposed to repay during his lifetime. The legal heirs, after the borrower’s death, have the authority to redeem the property by repaying the outstanding amount. It may also happen that the legal heirs do not come forward to redeem it, in which case, the banks would sell the mortgaged property and realize the amount.

Benefits of Reverse Mortgage for Senior Citizens

· A permanent shelter- Even if you have availed reverse mortgage loan, as a senior citizen, you can continue to live in the mortgaged house after the loan tenure expires. The bank does allow some kind of settlement after the borrower’s death.

· Being a co-applicant- If the loan has been applied by the borrower and spouse as co-applicants, disbursals would continue to the spouse after the death of one of the borrowers.

· No immediate liability- The senior citizens can leverage the benefits of the reverse mortgage loan as there is no immediate liability. The outstanding amount can either be paid later or settled by selling the house after the death of the borrower.

· Benefit from equity- You can enjoy the benefits from the equity created by you and continue to live in the home without making any payments on the loan.

· Receive regular loan payments- The loan payments can be received from the bank in a flexible mode. Depending upon your requirements, you can receive the loan payments as monthly, lump sum, quarterly, or periodical payments.

Eligibility for a Reverse Mortgage Loan

Senior citizens who are above 60 years of age having a residential property can apply for a reverse mortgage loan.

The borrowing limit is-

· Minimum of ₹3,00,000

· Maximum of ₹1,00,00,000

The limit is based on the value of the property and the age of the borrower/s. A borrower can receive up to 60% of the value of the residential property as a reverse mortgage loan. Apart from the above eligibilities, certain important terms and conditions are associated with the loan.

ü The residential property of the borrower is the permanent primary residence

ü The borrower must a responsible citizen paying the taxes and insurance related to the residential property

ü House is maintained properly

ü The residential property does not have any issues, pending cases, or any other liabilities

Documents Required for a Reverse Mortgage Loan

The reverse mortgage loan is a simple process as the eligibilities include papers of the residential property, KYC documents, and bank statements. The mandatory documents include the PAN Card and Application form. You can submit any one identity proof such as an Aadhaar Card, Passport, Driving License, Voter ID, Government Employee ID, and ID issued by the Government of India.

Apart from that, you have to submit proof of date of birth, income, signature, and address. As soon as you submit the documents, the banks start the process and sanction the loan within 5-7 Days.

Buying a Home vs Renting – What’s Best in the Current Market?

There’s no question that the outbreak of COVID-19 has adversely impacted the country’s economy. The repercussions of the pandemic translated to the closure of businesses, loss of jobs, stagnant manufacturing, and a high rise in unemployment. As a result, individuals have experienced rising insecurity in relation to income and long-term employment.

While at the same time, many individuals are still confused as to the best way to invest their savings. Gold prices have shot up and the stock market remains quite unpredictable. With the rise in need of security, real estate has always been the most preferred option for investment that yields good returns.

Is Buying a House Profitable Now?

Despite the fallen real estate prices in various segments, experts believe that the industry will bounce back in the next couple of years. This means prospective buyers can capitalize on the low real estate prices right now. Another factor is that after the outbreak, individuals are realizing the importance of having an owned asset as both an investment and shelter.

The idea of buying a house is safe and profitable. Investing in a property generates both income and price appreciation. The new normal of working from home has increased the demand for owning a home. Many companies are still operational via work from home and avoiding public transport. Therefore, employees are looking for affordable homes closer to their workplace.

Apart from the reasons for owning an asset and having a feeling of security, lower home loan interest rates are also persuading individuals to purchase a home. The home loan rates are at an all-time low thanks to RBI’s decision of cutting down repo rates, and even the rates of property are stable and affordable. The current time is ideal to invest in residential property and leverage the investing benefits.

Earlier in urban areas, individuals preferred to go for a rented house rather than investing in a property and locking their capital. The reasons included: lack of savings, avoiding a permanent property in a particular location, or reduction in savings. However, if you are looking for a good return on investment, then buying a property is a great idea.

4 Benefits of Buying a House in the Current Market

Buying a home or living in a rented home is a challenging decision. However, you’re assured of the following benefits when you choose to invest in a property –

1) Invest in a physical asset and build equity- By investing in a hard asset; you obtain peace of mind while also building your equity. It provides ultimate security to you by assuring a monthly cash flow if you choose to rent it out. During uncertainties, being in your home reduces cash outflow and unnecessary stress of looking for shelter.

2) Availability of ready-to-move-in property- You can buy a residential property like ready-to-move-in apartments. In modern times, you can buy a full-furnished apartment eliminating all types of market risk. The pricing of such properties is different from those that are under construction.

3) Leverage low interest rates- The increasing rental costs such as security deposits and increase in rent up to 15-20% have made the burden of home loan interest rates much cheaper. Paying a monthly rent would never increase your equity; hence the cash outflow does not contribute to wealth creation. Even if the asset appreciates, a licensee or tenant does not benefit from it. Relatively, buying a home is a preferable option.

4) Government incentives- The government always encourages individuals to buy a home by offering various incentives and tax benefits. With the enactment of RERA, the government has enhanced the security of homebuyers. The objective of the Government has been to induce first-time homebuyers with interest subsidy, reducing tax burdens, and affordable housing. Budget is the most important aspect when you think of buying a home.

So Should You Buy or Rent?

If you earn a good salary and have job security, then this the best time to invest in a residential property. Everyone wishes to have a dream home. If you were looking to buy for a long time, then you should capitalize on the lowest interest rates, subsidy, and affordable housing options.

The current macroeconomic factors and economic scenario are tempting for both first-time and second-home buyers. There has been a price correction in the real estate properties coupled with lower interest rates. Now, buyers can bargain for the best deal and buy their dream home as there are ample opportunities like ready-to-move inventory.

Ultimately, whether to buy or stay on rent depends upon your budget and financial status. If you can arrange money for a down payment and can pay your instalments comfortably, buying a home would be a wise decision. However, if you are facing a financial crunch, staying on rent would be rational.

If we consider this example where you wish to buy a property of ₹70 lakhs with a loan of ₹50 lakh at an interest rate of 6.75%-7.10% for 15 years, your EMI would be around ₹45,000. The annual outflow would be around ₹5,40,000.

But if you are staying on rent at a similar location and property, your rental yield of 4% means a rental amount of around ₹4 lakh. If the rental yield is 3%, it means a rental outflow of ₹3 lakh. This means that a rental yield of 4% means a good capital appreciation. But a rental yield of 3% or 2.5% sees no capital appreciation in the future stating that the property is overvalued.

Before buying a home, you must ensure that you buy a home that has a rental yield of more than 2.5 -3%. If not, then it is better to stay on rent.

Why Personal Loans are Best for Medical Emergencies

If the COVID-19 crisis has taught us anything, it’s that – Life is unpredictable. Uncertainties such as a medical emergency can knock on your door anytime. Medical emergencies hurt you both emotionally and financially. If you do not have surplus funds, a medical emergency can increase the financial stress in your life.

The cost of healthcare services is increasing exponentially in India. At times, even your existing health insurance may not cover the full cost of treatment. Hence, to manage medical emergencies, you can opt for a personal loan. Personal loans are unsecured loans applied for an immediate need for funds. In the case of a financial crunch, you can easily manage the payment of medical bills with a quick personal loan.

How Personal Loans can help you Face Medical Emergencies

1. Get funds quickly

Medical emergencies can never be anticipated. When you apply for a personal loan, you can get access to immediate funds, usually in 5-6 hours in case of pre-approved loans. All other types of loans require a long processing time making them undesirable.

2. Access to Premium Medical Care

The quality of medical care plays a significant role in the treatment. Due to a lack of funds, you may not afford quality medical care at reputed hospitals. With immediate financial assistance in the form of a personal loan, you can avail the best treatment.

3. No collateral

Secured loans have a lengthy process and several formalities. However, unsecured loans need no collateral, and hence can be disbursed within 1-3 days. In the case of pre-approved personal loans, you can get funds within a few hours. Personal loans are the best for individuals who do not have any security to attach.

4. Fixed Interest Rates and Repayments

Personal loans carry fixed interest charges and fixed repayments. Every month a fixed amount gets debited from your account as a monthly instalment. With fixed EMIs, you can easily repay the loan in a specified period.

5. Minimum Documentation

As a personal loan is an unsecured loan, it requires minimum formalities. With identity, address, and income proof, personal loans get approved quickly. If you have a pre-approved loan, you do not even need to submit the KYC documents. In contrast, other loans often require multiple visits to the bank for detailed documentation.

6. Hassle-free Loan Process

A medical emergency creates a lot of stress. Arranging funds is very challenging and stressful too. The entire procedure of applying for a personal loan and getting the funds in your account can all be done online, thus making it a truly hassle-free process.

7. Flexibility in the use of funds

As soon as a personal loan is disbursed, you have the discretion to use funds as you like. You can utilize the money for payment of medical bills, for an expensive treatment, doctor consultation fee, or also use it for both pre and post-hospitalization expenses, etc. You are not required to submit any medical proof before using the funds. The condition attached to a personal loan is repayment of monthly instalments.

8. Affordable EMIs

Individuals prefer personal loans as the monthly instalments are quite affordable. You can apply for a personal loan with tenure from 12 to 60 months for a fixed rate of interest. The EMIs are affordable in comparison to credit card EMIs. As the individual is mentally prepared for making monthly repayments, there is less pressure.

Personal loans are applied for a minimum of ₹1 lakh to a maximum of ₹40 lakhs. The higher your salary/income, the higher can be your loan amount. Maintaining a good credit score is your responsibility as the credit score plays an important role in being eligible for a personal loan.

Despite having a higher salary, if you have a poor credit score due to non-payment of credit card bills, or bouncing of cheques, your loan application can be rejected.

Eligibility Criteria

To be eligible for a personal loan, check the below-given criteria –

1. Age criteria- Individuals aged between 18-65 years can apply for a personal loan.

2. Residential status- Only resident Indians can apply for a personal loan in the banking institutions in India.

3. Income- You can only apply for a personal loan if your salary is above ₹15,000.

4. Occupation- A salaried professional or a self-employed individual can apply for a personal loan.

5. Credit score- A good credit score of 750/900 is eligible, although some lenders may offer loans to individuals having a score of 600+, albeit at higher interest rates.

Documents required for an Emergency Personal Loan

You need to submit these documents –

1. PAN Card/ Aadhaar Card as identity proof.

2. Electricity bill or any other utility bill as address proof.

3. Bank statements of the past 6 months reflecting credit of salary.

4. For self-employed, existence of business through shop registration/property documents/GST registration.

FAQs

1. Can I use a personal loan amount for IVF treatments?

Yes, you can use the loan amount for any medical treatment and payment of medical bills.

2. Do I need to submit any medical proof to get a personal loan?

No, you are not required to submit any medical proof for taking a personal loan for a medical emergency. A personal loan is applied to manage any sort of immediate needs and personal expenses.

3. Are there any hidden charges?

No, there are no hidden charges. Financial institutions charge a low processing fee for granting a personal loan. Prepayment charges may also be applied.

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.