Difference between Good Debt & Bad Debt in home loans ?

An individual or a corporate that avails home loans from the bank is known as debt. The amount which is pending to be paid to the bank is known as debt. If the borrower can repay easily, the debt is known as good debt, while the debt which the borrower is unable to repay easily is known as bad debt. Having a good debt is a healthy sign for an individual as the borrower avails loans for the betterment of livelihood and also can enjoy the benefits it, for example, if the home loan is availed then it shows that without having sufficient amount in bank balance, the borrower can buy their own house and are repaying the installments from time to time as and when the salary gets credited. At the same time, bad debt means that an individual can avail of the loan, but the borrower cannot repay the loan amount. The consequences of the bad debt are that the borrower may have to vacate the property & also, the CIBIL score of an individual may get spoilt due to the bad debt.

The individual with a good CIBIL score who can repay the installments on time can enjoy the benefits of the good CIBIL score. The benefits of a good CIBIL score are that the individual can easily avail of even future loans and any other kind of credit like credit cards or other financial products like personal loans, business loans, or car loans. Banks are keen to provide loans to borrowers who are financially stable and are in a position to repay the debts on time. The banks charge a penalty to the people who are into bad debt as the delay in payment of installments can lead to a penalty being charged by the lender. Bad debt also affects the balance sheet of the lenders as the non-performing assets of the bank increase. Good debt can also lead to an income tax rebate which the borrower can avail. During tax filing, the borrower has to show the receipts of the loans installments being paid, and thus that tax benefits can be availed. While as in the case of bad debts, tax benefits cannot be availed as the borrower defaults the installments. Bad debt usually occurs when the individual has poor financial planning or else due to job loss, or a loss suffered by an entrepreneur or else in the rare case can be willful defaulters as well.

Features about good debt in home loans

If the home loan is availed for the purchase of the property while having a sufficient amount of money in a bank account and also if the borrower is having a sufficient amount of salary to repay the debt, then it is known as good debt.

· Improved credit score:

If an individual can repay the loans installment on time, then an individual’s CIBIL score improves. Thus, this can make it easy for an individual to easily avail loans or any other form of credit by the lender. Thus, having good debt can also make more additional improvements in an individual’s credit score as it helps an individual prove that the loan has been taken and is repaid on time.

· Benefits in availing income tax rebate:

The borrower can avail of income tax exemption under income tax act 80C. Thus an individual has to provide proof of the income tax being filed. Thus in the case of availing exemption also a good debt is beneficial.

Features of the bad debt in home loans

When the value of the building gets depreciated due to becoming dilapidated is also known as bad debt. And also, if the loans have defaulted, then, in that case, it is known as bad debt. The value of the loans which is not recoverable is called bad debt in home loans.

· Spoilt credit score:

The credit score may get spoilt if the loan taken by the individual turns into default or bad debt. An individual, in that case, may have to surrender the property to the bank for non-repayment of the dues, and an individual cannot avail of future credits.

· No benefits in income tax:

Income tax benefits cannot be availed in case of bad debts or the defaulted loans. The income tax department does not provide tax benefits on loans default.

· Spoilt reputation:

The reputation of an individual may get spoilt as in case of default of home loans; no other lender would provide the future credits to the borrower. Even if some lender rarely approves the loan, then, in that case, the interest rates charged could be far higher. Thus the image of an individual gets spoilt. Also, the property for which the loan is being taken may get sealed by the lender, which creates a bad reputation in society.

There is a major difference between the good debt in home loans and bad debt. Good debt is a healthy financial status sign for an individual, while bad debt is a negative sign for an individual. It is always better to have good debt rather than bad debt.

Is it better to invest in properties beyond metros?

Property investment in any part of the country usually does not go to waste, as, in any part of the country, there is a steady rise in the prices of real estate. However, the returns gained more or less at various places may vary according to the region’s development. In other cases, the prices of the property may even decline or else may decline. Thus the investment must be made properly. In metros, there is a consistent demand for housing. While like the other places, the demand may be more or less depending upon the business activity, which may be increase or decline. The investment else than in metros can be beneficial in the tier-II cities, which have future growth potential. The cities like Jaipur, Nagpur, Lucknow, Mangalore, Coimbatore, Indore, Bhopal, Raipur are the ones that have high growth potential. While the tier III cities are the ones that do not have much growth potential as the population, there is declining due to the migration of the people from the smaller towns towards the cities. Also, tier IV and rural places are not worth much benefit.

The other potential area lies in the tourist spots where an investor can gain healthy returns. The places like Goa, Lonavla, Matheran, Pondicherry, Darjeeling, or the coastline of Maharashtra & Karnataka. etc., are the ones which can yield high returns. Many tourists visit these places, and thus the demand for tourism is high. Thus, the property purchased can be used as a holiday home or given for the tourists’ homestay. As these properties are costly, they even yield higher returns on investments. Thus it is also beneficial to invest in tourist spots. Also, home loans can be availed for bungalows, villas, row houses. Etc. The same interest rates applicable for the flat are applicable for the purchase of the flat and the construction of the homes. Thus in case of availability of funds and approval of home loans, it is better to invest in tourist spots or tier-II cities to get good returns on investments. Banks only do not provide loans for the remote or outskirts locations wherein the bank has no network of branches at that place. Looking at investment beyond metros is a better option as the crowded metros surely yield better returns, but looking beyond metros may also yield good returns.

Features of the property investment beyond metros:

  • Lower investment better returns:

The investment in the Tier II cities is lower, and thus better and steady returns can be obtained in the developing cities. The prices of the properties in smaller towns are far lesser as compared to the ones in metros. Thus, investing in the flat as a retirement home or else for pure investment is also beneficial. Properties in smaller towns can be obtained at a lower budget, and also home loans can easily be availed for the same, thus making it easy to buy the house. However, it is not recommended to invest in the places where the population is already on a decline as the prices may not rise in such places like the Tier III & rural towns.

  • Avail larger area:

The houses in the smaller towns are more broad and spacious as compared to the ones in metros. Thus increase in property prices can yield higher returns on the larger area flat, and thus the investment can be beneficial.

  • Easy financing at lower rates:

Home loans can easily be availed at places like tier-II cities and comparatively lower interest rates than metros. Some lenders may charge lower interest rates in places beyond metros and thus can be beneficial. Almost all the leading banks are available in Tier II places, thus making it easy to avail loans easily.

  • Better prospects in developing regions:

Though the prices in metros keep on increasing continuously, they reach a saturation point somewhere. However, the developing towns require lower investment, and the prices may grow more rapidly, thus getting higher percentage returns on investments.

We can conclude that for a property investor, it is always recommended that investing in properties beyond metros is always a better option as the prices of the property are lower thus, an investor can buy the flat even in case of low budget and get higher returns in percentage in the Tier II cities or else tourist spots. However, it is not recommended to invest in smaller towns.

How to get Loan Against Property without Income Proof or ITR

If you are buying a house, you apply for a home loan. But if you already own a house and need funds, you may apply for loan against property without income proof. Crisis situations can arise out of nowhere for all of us. At such times, we may have to run around looking for the best and quickest way to arrange for funds. While some max out their credit card usage, others may try getting a personal loan. However, most people often overlook getting a loan against property, as it is the one of the fastest ways to arrange money for your immediate need.

What is Loan Against Property Without Income Proof?

A loan against property is a secured loan provided against a commercial/residential property by banks, housing finance companies, and NBFCs. The loan funds are available at a lower rate of interest in comparison to personal and business loans. Any individual, whether self-employed or salaried, may apply for a loan against a house if they own a residential/commercial property. Borrowers prefer this type of loan because there is more probability of getting a higher quantum of the amount in LAP.

The demand for loans against property without income proof is increasing day by day because it is cheaper than an unsecured loan. A mortgage loan is very different from a home loan. While a home loan is taken only to purchase or construct a home, a loan on a house can be taken for any reason such as a child’s education, marriage, medical emergency, business expansion, etc. Here, you don’t need to provide income proof for availing of a LAP, unlike in the case of a home loan. Most borrowers with an asset opt for a loan against property without income proof in case of urgent need of funds.

Features Of Loan Against Property Without Income Proof-

  1. Lower rates of interest– Firstly, a loan on the property is a cheaper option to procure funds. If we compare it with other funding options, a loan against property without income proof is available at a lower mortgage loan interest rate. The best aspect of LAP is that the owner continues to occupy the property even after getting the loan.

  1. Multipurpose Loan objectives– When you get a loan against a house without income proof, you can use the loan amount for various purposes such as your child’s marriage, education, medical expenses, starting a business, home remodeling, etc.

  1. Easy loan against property eligibility criteria– Lenders are willing to offer mortgage loans without income proof to borrowers as it is a secured loan. Even if the borrower makes a default, the amount of the loan can be recovered from the property. As the loan amount is adjusted against the value of the property, the borrower will find it easy to get the loan approved. You may calculate the loan amount by using the EMI calculator for loan against property for longer tenures.

  1. Pre-payment of the loan– The borrower can prepay the loan amount whenever funds are available for quick closure. Some banks charge lower or no fees for pre-payment of the loan amount. You may opt for banks that offer no pre-payment charges on loans.

  1. Longer tenure – If you compare personal loans with loans against property online, LAP is available for longer tenures of up to 15 years. Whereas personal loans are available at a higher rate of interest for up to 7 years.

  1. Lower EMI– As a loan against property without income proof is available for a lower rate of interest and longer tenure, the EMIs are lower. A loan against property without income proof is highly suitable for borrowers who cannot pay higher EMIs.

  1. Type of property– Borrowers can mortgage their self-occupied house, a rented residential property, or even a piece of land that they own for a loan. The major aspect of a mortgage loan on a home is that it should be free of any kind of litigation and mortgage. The title of the property should be clear and there should be no doubt related to it.

  1. Repayment capacity– The lenders evaluate the repayment capacity of the borrowers on their income statements, current debt, credit score, etc. The borrowers need to submit their income statements, property papers, and bank statements to avail of loan against property without income proof or ITR.

  1. Property valuation– A Loan against property without income proof is given against collateral that is an immovable property, i.e., a constructed house or commercial property. Before checking the eligibility and amount of the loan, the lenders will evaluate the property. The quantum of loans will depend upon the current fair market value. The market value does not depend upon future value or the book value. The lenders generally provide 50-60% of the market value of the property. You may calculate the loan to value (LTV) using the EMI calculator for loan against property.

Loan Against Property Eligibility

When a customer applies for LAP, the lender considers the applicant’s credentials and eligibility for sanctioning. Some of the important factors that lenders consider for eligibility are age, nature of employment, income, and value of the property.

The above factors indicate that a loan against property is a feasible option to raise funds for various purposes. LAP is a much cheaper and risk-free option for borrowers as well as lenders. Hence, if you have a property and need immediate funds, you can get apply and get a loan against property without income proof easily within a week.

7 Myths about Loan Against Property Debunked

Loan Against Property (LAP), or Mortgage loan, is a collateral loan against a residential or commercial property. Among all other forms of loans such as personal loan, business loan, or gold loan, a loan against property offers the best solution for your immediate financial needs. Your property is pledged with a bank or NBFC in return for large funds that you need to repay with interest in the given time.

Unlike other loans, a mortgage loan can be taken for any purpose like wedding, education, medical, business expansion, start-up, renovation, consolidation of debt, etc. If you are not so financially literate regarding loan terminologies, you may fall prey to several myths. There are many misconceptions and myths related to loan against property among people. Due to such myths, people may end up making the wrong financial decision.

Here are some common myths outlined below that you need to watch out for when considering mortgage loan –

Myths 1- It is better to go for a higher interest Personal loan than LAP

A personal loan at a higher interest rate is an unsecured and expensive loan. If you own a property and maintain a good credit score, you should avoid taking a loan with a higher rate of interest. An individual who can make timely repayments without missing any EMIs must not fear taking a collateral loan at a lower rate of interest. You can take advantage of low mortgage loan rates that can save you lakhs of money. LAP is a great financial tool that also improves your credibility.

Myth 2- With a Mortgage Loan, you can borrow equal to the property value

It is a myth among individuals that you can borrow a loan amount equal to the property’s value. A borrower can never borrow equal to the property’s current value in the case of a secured loan. There is always a margin that ranges from 60% to 70%. Depending upon the borrower’s income and credibility, LTV (Loan-to-value) differs. The valuation of the property is calculated by the bank officials. They calculate the accurate value of the property and ensure that it is free of litigation. You can use a free mortgage loan calculator online to get a quick overview of the loan amount disbursed.

Myth 3- With Mortgage Loan, you cannot use the property

Misconception knows no boundaries. People generally believe that when you mortgage your property, you cannot reside in that place anymore. That’s not true. If you fail to pay your EMIs, only then you may lose your property. If you are paying EMIs regularly, you can comfortably reside in your property. A borrower only pledges the property to a bank or financial institution. It does not make the bank the owner of your property. In case of any default in repayments, the bank may ask you to forego the property or go for consolidation of debt.

Myth 4- Mortgage Loan is available only against a residential property

It is absolutely false that you cannot get a loan against your commercial property. LAP is available on both residential and commercial properties. There are no restrictions on the usage of the property as well as funds. You can use the loan amount for any purpose like your children’s wedding, your child’s education, business expansion, medical treatments, etc. Banks and NBFCs offer flexible options for borrowers to avail of maximum funds at low mortgage loan rates. You can also get funds in the form of a flexible loan where you can withdraw, repay, and re-withdraw funds at your preferred time.

Myth 5- Only high-income bracket individuals are eligible for LAP

Income is a very important factor to be eligible for a loan. Even if your income is not so high, you can still be eligible for LAP. The Loan-to-value is based on your income, repayment ability, and credit score. If you are not under debt and earn a sufficient regular income, you are eligible for a loan against property. A mortgage calculator is a tool that helps you get a rough estimate on your monthly EMI amount based on the loan value and rate of interest.

Myth 6- The sanction value is based on the acquisition price of the property

It is a myth among people that the loan amount is based on the acquisition price of the property. The loan amount always depends upon the market value of the property pledged. Some other factors also affect the amount of loan such as the current condition and age of the property. If your property is poorly maintained, the disbursed amount would be lower irrespective of the purchase price.

Myth 7- Mortgage loan is not safe and you should never take a collateral loan

Pledging your home as collateral for a loan carries no risk. If you are eligible for LAP in terms of credit score, income, and repayment ability, taking a collateral loan has no harm. A collateral loan offers a lot of benefits over a conventional. Firstly, mortgage loan rates are the lowest when compared to other loans. Secondly, you can take a top-up loan with an increase in home equity; and thirdly, it becomes easier to pay fixed installments for a longer time.

The above explanations against the 7 myths can change the perception of people regarding a mortgage loan. A lot of misinformation and misconceptions exist in the market related to LAP. Even having an eligible property, many individuals go for the higher rate of interest loans and end up paying more money.

A Loan against Property is one of the most intelligent financing solutions for borrowers having collateral. Due to unawareness regarding sources of financing, individuals overlook this aspect and repent later. Before taking any decision, borrowers should educate themselves by understanding the differences between secured and unsecured loans.

How can a co-borrower increase your home loan eligibility?

Common loans can be taken to increase the chances of getting a loan on a dual basis. A co-owner is an additional person in the joint loan which the borrower takes. Adding a co-owner helps an individual borrower reduce their burden and thus increase the eligibility of the loans. Also, the credit score of both individuals is taken into consideration for the approval of the loans. If one of the borrowers is falling short of the credit score, then the credit score of another borrower can be considered, and based on that, the loans can be approved. The loans can be jointly taken to share the burden of the loans. Thus the answer is yes, co-owner can increase the eligibility of the home loans. In the case of joint loans, the combined salary of both the applicants is considered, and accordingly, the loan amount is approved as per the eligibility. The loans can be taken by a co-owner on a joint basis for a tenure, depending on the age of the second borrower. The loans can be availed for a maximum tenure of 30 years. The loans are approved up to the age of 60 or else retirement ages of the salaries person, whichever is early.

The EMI calculator helps to find the eligibility of the loans for the borrower by entering the details related to the age of the borrower, the salary of the borrower, interest rates being charged by the lender & the tenure for the loans. The loans eligibility increases on the basis of the joint basis of the application being given to two working persons. The applicants have to provide income proof like a salary slip or bank statement for the approval of loans. The loans can be approved with higher eligibility in the case of co-owner as both the person’s earnings are considered. The payment of the installments can be made by any of the borrowers either or after being approved. Also, the tax benefits can be taken by both the borrowers under income tax act 80C. The combined joint loans help in ownership of both the persons like say the husband & wife together can enjoy the ownership of the property. The loans help the borrowers buy a house in an early stage without having sufficient savings. The interest rates on joint home loans are the same as that of the loan taken on a person.

Following are the benefits in which the eligibility of the borrower can be increased due to co-owner

· Increase in the eligibility of loan amount

Bank prefers to provide loans up to 40-50% of the monthly salary as loans. Thus when two persons are applying for the loans, then in that case, the salary of both the persons is taken into consideration, and accordingly, the loans can be approved. For example, if one person of the family is earning an income of Rs.60,000 per month and the other is earning Rs.40,000, then, in that case, the bank may consider both person’s joint income and accordingly may approve loans of around 40-50 thousand as monthly installment.

· Lower age is taken into consideration

If the age of the person is 45 years and the other person’s age is 42 years, then, in that case, the lower age is taken into consideration. Accordingly, the loans can be approved for tenure, and accordingly, the loan is being approved for the age up to 60 years or the retirement age, whichever is early.

· Tax benefits

In the case of the joint loans, both the applicants can take benefits of the income tax exemptions under income tax act 80C as both the persons have the liability of the repayment of loans.

· Higher chances of loan approval

The bank is taken into more confidence of repayment of loans in case of joint owners as in case of job loss, death of the applicant or else default due to other financial problems cannot happen as in case of loss suffered by one applicant another may compensate.

Hence, if the co-borrower is present, the eligibility of loans can be increased as the income of both individuals is taken into consideration. The loans jointly taken can thus help in availing a higher amount of loans from the lender. Also, the bank has security for the loans as in case of one person is unable to pay the loans, another may compensate.

Top 4 reasons why affordable housing is important?

Affordable housing is housing that is provided to the people at affordable prices. Every individual needs a house to stay. But due to the migration of the people in urban cities and higher prices, many people cannot afford to buy their own houses. Thus affordable housing means houses that cost less than Rs.65 lakh are considered affordable housing in Metros, and flats costing less than Rs.45 lakh are considered affordable housing in tier II and tier III cities. In case of purchase of the flats, the buyer should have at least 20% of the property value in savings to pay as a down-payment. The bank approves 80% of the property value as a loan for which the applicant should have the appropriate salary to repay the home loans. There are governments housing schemes also available for the purchase of the house. Every state government sets up the housing development board for providing affordable housing to the people belonging to the economically weaker sections of the society, lower-income groups & middle-income groups. In most metro cities, the property prices are so high that people aren’t able to buy flats from private real estate developers. Thus buying houses in government schemes is beneficial.

The loans can be taken from any particular bank or NBFC of the individual’s choice. The loans are available under the PMAY housing scheme for the people to avail the benefit of up to Rs.2.67 lakh for availing loans on interest payments. The PMAY scheme aims to provide housing for all by 2022 for the people who do not own any of the houses across India. This scheme aims at providing subsidies to home buyers on loans for the people who are staying in the urban regions. The government has focused on the top 500 cities across India to extend the subsidy to purchase the flats. Many people from the lower strata of the society cannot afford to buy houses; thus, the budget homes project helps people avail themselves of flats of smaller sizes as affordable housing. There is also a concept of Nano homes being developed by the private real estate developers, which aims at providing smaller houses like studio apartments to the public. Such houses are smaller in size, admeasuring 210 sq. ft carpet area with hall, kitchen & bathroom space.

Benefits of Affordable Housing

· Housing needs for people with low-income groups

People from the strata of the society or the ones who have lower income are the ones who are able to buy only smaller homes in the cities, especially in metros. Thus the low-cost housing scheme is beneficial for those people. Some private real estate developers also provide the houses at a lower cost which are constructed as studio apartments. At the same time, there are also government schemes for the purchase of houses at low-cost housing schemes.

· To combat the challenges of urbanization

In urban regions, migration is high amongst the public, and thus, many people face the problem of buying their shelter. Also, some people of lower-income are forced to stay in slum areas or else chawls. Thus affordable housing flats are necessary for the people to stay in proper apartments with proper hygiene.

· To improve the overall health of the citizens

The houses built under the real estate developer as an apartment scheme have proper amenities like bathrooms, toilets, clean potable drinking water & an underground sever system. Thus these basic facilities always matter in case of any of the housing schemes. Due to unaffordability, people who cannot buy apartments are forced to stay in slum localities that lack basic hygiene. Thus the construction of apartments is necessary.

· To create job opportunities

The affordable housing segment is highly in demand, and the flats get booked very easily. Thus the opportunities are created for the workers, supervisors & structural consultants & architects. Thus there are plenty more opportunities being created due to the increase in demand for housing. Also, the home finance sector creates plenty of opportunities for the finance sector employees as these sections of people are completely dependent on the disbursement of home loans.

Affordable housing is a top priority in urban regions, and real estate developers should also look positively to develop affordable housing to capture the vast potential markets. Affordable housing gives a boost to the real estate sector and also the home finance sector. Affordable housing helps eradicate the slums and thus helps maintain hygiene in the cities with proper cleanliness and hygiene.

Home loan tax benefits for an under-construction property?

Home loans can be availed for the ready possession homes, new construction homes, and resale properties. Most of the people in India prefer new construction homes to purchase new homes as the new homes provide better architecture plans, are designed with best-in-class amenities, and have a proper ventilation process. The loans can be availed at interest rates of 6-9% per annum from the banks or the NBFC’s. The interest rates for the home loans are on a continuous decline as the Repo rate of the RBI is on a continuous decline. Another reason people prefer new construction houses is the payment needs to be done in installments wise, and thus people get more time to pay the home loans. In the case of pre-approved loans, the banks also provide the facility wherein only the processing fees are being charged to the borrowers while the installments of the loans start after the possession of the flat. The banks can wait for up to 2 years, after which the installments begin to be charged to the borrower irrespective of the possession received. The under-construction properties take 2-4 years on average for the construction of the building, depending on the total floors constructed in the building.

As per the RERA rules, the real estate developers must give possession of flats on time to the flat buyers against failing. The Rera can charge a heavy penalty to the real estate developers. The under-construction houses have a long shelf life, proper design and are more spacious and airy than the old, dilapidated buildings. Thus the new construction properties are amongst the most preferred ones for home buyers. Due to the slow demand due to the Covid-19 situation, the flat sales are really slack. To increase the demand, Real estate developers are interested in offering heavy discounts & freebies to sell the unsold inventory. The new construction houses cost higher than the resale ones but are provided in better condition to the buyers. The Rera rules mandate the new construction properties to be sold on the carpet area only. Thus charges are taken only on the carpet area while previously it used to be sold on the super built-up area. The loans can be approved easily for the under-construction properties as the land records are once verified by the banks for clearance.

Following are the benefits for the under-construction properties for tax benefits:

· As the under-construction flats are cheaper than ready-possession flats, the loan liability on the properties would be less.

· The monthly installments can be paid higher to save on interest repayment. Thus the lower interest amount needs to be paid to the lender.

· The individual can pay the loans later on the pre-approved loans after two years or after possession, whichever is early.

· After the borrower starts repaying installments, the borrower can avail of tax benefits with immediate effect; thus, the borrower can save up to Rs.2 lakh beyond the tax slab exemption of Rs.2.5 lakh until the tenure of repayment of the loans.

· There are sometimes reductions on the government’s registration & stamp duty charges, which can benefit the new construction home buyers.

· Also, under the PMAY scheme for the new construction houses, an interest subsidy can be availed on the new construction homes up to Rs.2.67 lakhs.

The purchase of the new construction homes is beneficial as the flat buyer gets time to pay the installments on the pending amount on the flats. Also, the tenure for the new construction loans can be higher, so the installments charged can be lower, and also, the tax benefit can be obtained for a longer duration by the flat buyer.

Home Loan from an NBFC or bank which is better ?

The home loans can be availed from either the banks or the NBFC’s. An individual takes the loans for the fulfillment of the needs of an individual. Due to the sky-rocketing prices, an individual can’t buy a house without loans. The competition for the home loans disbursement is fiercely competitive; thus, the customer is left with wide options for obtaining loans. Different banks charge loans interest rates differently and also the processing fees. The private banks & public sector banks charge lower interest rates, while the co-operative credit society has higher interest rates & the NBFC’s; it varies; some charge very low rates and some very high. The chances of approval of the loans vary according to the type of institution. Some institutions are very rigid in providing loans, while others are liberal in providing the loans. The bank in which the customer may have an account is the most preferred source of obtaining loans by an individual.

The borrower, before obtaining loans, should do a thorough survey of the interest rates being charged and the processing fees being charged by the bank. The data of the interest rates being charged by the bank is visible on the internet. Thus the applicant should avail the loans from the lending institution which charges the lowest interest rates. Also, the terms & conditions should be read before the approval of loans from the bank or an NBFC. The tenure of the loan and the penalty charged by the bank in case of delay or default are also important factors in taking the loans. The private banks & the NBFC’s are amongst the most aggressive lenders for the disbursement of loans, as these institutions are in constant touch with the prospective buyers for the disbursement of loans. Many private banks or NBFC’s are having tie-ups with the private real estate developers for the disbursement of loans at lower interest rates to the borrower. Most of the time, the pre-approved category loans for the houses are available from the private banks or NBFC’s. The customers’ service experience is also very good in the private banks or NBFC’s as these institutions do not want to lose business from the prospective customers, and these private institutions set aggressive targets.

NBFC different from banks:

The NBFC’s are the non-banking finance companies that are into the business of core lending of the financial institutions. The NBFC’s do not provide other core banking services as the banks do.

Benefits of the NBFC’s:

· The sanctioning loan process is quick and fast.

· Flexible terms & conditions.

· Attractive features for the old as well as new customers.

· Better customer services are provided for the customers.

· NBFC’s provide loans at a cheaper rate than banks most of the time.

· NBFC’s are liberal in the approval of the loans of the customer.

· A door-step facility is provided by the NBFC’s for the picking up of documents. Also, after-sales service of door-step cheque collection service is provided for the customers which most of the banks do not provide the facility.

Processing of the Loans

Both the private banks and NBFC’s are quick in the disbursement of the loans to the customers. The approval of the home loans of an individual requires rigorous and thorough checks for lending financial institutions so that the loans should not turn into bad debts. Thus the approval process is fast & quick by the private lending institutions. The NBFC is quick and efficient in providing services to the customers as these lending institutions have no other source of income other than the disbursement of loans. In other cases for the banks, they have multiple sources of income. Thus the NBFC’s are more concerned about the business and thus provide more quick and efficient services to the customers.

The NBFC’s are solely dependent on the disbursement of the loans NBFC should be the customer’s preferred choice. The NBFC provides more efficient service, a liberal approval policy, and better customer satisfaction. While the banks also do charge lower interest rates and have attractive offers on home loans so isn’t

How to choose your tenure between Short-term loans vs Long-term loans

Loans can be availed by an individual for a maximum tenure of 30 years, depending on an individual’s age. The maximum age up to which loans can be approved is until the age of 60 years or else up to retirement age, whichever is early in the case of salaried employees. In the case of self-employed individuals, the loans can be extended up to 65 years if the business is running smoothly. The loans can be given on a joint basis to the husband and wife if both persons are earning family members. The banks charge interest rates of 6-9% per annum on the loans being disbursed. The banks charge a penalty on the delay or default of the loans installments. The appropriate age for availing of the loans is in the age group of 35-45 years as these category people are mostly amongst the well-settled ones and still have many years for retirement. The people in the age group of 55 years and above should be most unlikely to purchase loans as for these people, the retirement age comes far closer, and thus the repayment term available is very less.

The minimum tenure for the repayment of loans is one year to a maximum of 30 years. The term loans with a higher duration can have lower monthly EMI, while the loans with a shorter duration can have shorter-term EMI. The installments of the banks should be paid on time before the due date to avoid the penalty being charged by the lender. The credit score of an individual should be above 700 points to get the loans approved easily. However, the loans extended to people with a lower credit score of 700 points may be charged with higher interest rates. The term loans are exempted under the income tax act 80C for the duration for which an individual pays the loan installments. The income tax exemption is provided beyond the tax slab of Rs2.0 lakh beyond the tax slab of Rs.2.5 lakh. The loans can be obtained through any of the banks or NBFC’s for home loans. The banks charge the processing fees as well to an individual who is 1% of the loan amount or else Rs.10,000, whichever is lower. The processing fee is being charged as part of the charges required for the verification of the background check of an individual.

Factors affecting the tenure of loans:

· Income of an individual:

The income of an individual is an important factor for determining the tenure of the loans. If an individual’s salary is high, then, in that case, availing higher amount of monthly installments is advisable as for the bank whenever as early the loans are repaid lower is the interest being charged by the bank. Thus, the borrower, by repaying loans early, can become debt-free early and reduce the loan installments’ liability. If the salary of an individual is less than in that case, the loans can be taken of the lower monthly installments. The loans liability should for upto 40-45% maximum of the monthly salary.

· Age of the applicant:

Age is another important factor for the tenure of loans. The higher the age lower is the loan being approved, while the lower the age lower is the loan approved by an individual. The tenure of the loans is usually 30 years, while the actual approval depends upon the age of the borrower. The retirement age or upto 60 years, whichever is early accordingly, the tenure is approved by the bank. Banks cannot extend the loans to an individual after the retirement age, except to the pensioners.

· Amount of loan approved:

The higher the loan amount higher is the duration for which the borrower may have to pay the installments, while as shorter the loan amount shorter is the repayment value and the interest charged upon the loan, which can be repaid early. Thus the tenure also depends upon the amount of loan being taken.

Thus the shorter the tenure of the loans lower is the liability of the borrower. At the same time, the higher the amount, the higher is the liability. Also, the loans should be opted in at the earliest age possible as the tenure can be availed longer for the loans.

Rules to follow for Loan against Property

A loan against property is the lucrative option to fund your business or for immediate personal requirements for a large amount of money. Financial institutions prefer LAP loans for large loan amounts and provide low-interest rates because the property is the most reliable collateral that can be possessed in situations of non-repayment.

It has been established that you should apply for a loan against property to fulfill financial goals and needs. However, before signing the papers, you must consider five fundamental rules thoroughly.

Five Rules to follow for Loan Against Property in India

Assess your financial situation

Are you ready to pay LAP-equated monthly installments for years to come?

You must consider this before applying for a loan against property. As per experts on financial products, your EMI should be between 60 to 65 percent of the net income.

Banks provide loans up to 90 percent of the market value of the property. However, you should consider your income, liabilities, financial commitments before deciding on the amount. 

Shorter EMI tenure

Financial institutions provide long-term loans against property up to 20 years. EMIs for longer tenure for repayment may seem tempting because of less money you are paying in a month. But if you calculate the total money to be paid during tenure, it will be much higher than the principal loan amount.

If it’s possible, keep the loan tenure shorter and increase the amount of EMIs. It will save on interest.

Borrowers who do not have sufficient income for higher EMIs on a property loan can ask for a flexibility clause. This clause can change the EMI amount during later years of the loan period when income increases.

Loan Repayments

Loan repayments should be timely. Delays affect your credit score, and you might not be able to avail of any loan in the future. Therefore, consider your expenses and plan loan repayment before availing loan on the property.

Your loan cost is also inflated with delays because banks and financial institutions charge a penalty on delays in Loan EMIs. This is also embarrassing to get calls from lenders after the due date of installments.

Make timely payment of Loan EMI and save yourself for paying more. You can save the date and automate the process if your lender provides such an option.

Insurance to cover unforeseen circumstances

Take insurance to cover expenses in case of any mishappening during the tenure of the loan against property. Several banks and financial institutions offer terms insurance with the LAP loan.

Check with your loan distributor and apply for the insurance with the mortgage loan. 

Do not skip the insurance. We often take life for granted though we all know how unpredictable life could be. So, to save your property and dependents, take the insurance with the loan and fulfill the financial goals without worries.

Read and understand Terms & Conditions.

Loan agreements are lengthy, and most of us skip points to end them in haste. So please do not treat the loan agreement like some software agreement; read it completely to save unwanted surprises at the time of payments and closure.

Read carefully important sections, including late payment charges, penalty, foreclosure, processing fees, administrative charges, and all other sections that affect payments and property.

Please read the terms & conditions to know document options for KYC, income proof, and property. The application form should be properly and correctly filled.

Availing a loan against property is desirable for low-interest rates, easier to avail large loans, etc. However, borrowers must follow the above-mentioned rules before applying for the LAP loan and avoid surprises during the loan tenure.