In the last few weeks, calls from telemarketers have already gone up asking you to sign up for personal loans. The difference this time is that most banks want to lend to their own customers and in many cases, customers are being offered pre-approved loans to cut down on processing time.
While a personal loan is a short-term finance option, it is often used by many for long-term needs. In the process, a borrower ends up paying up a higher interest amount if he fails to clear the loan on the due date. On the contrary, a personal loan can be a handy option if chosen with care.
How to make better use of a personal loan?
Some tips to help you make better use of a personal loan:
Compare total interest payable
A personal loan with an interest rate of 14-28 percent is a better option than a high cost credit card loan as the latter charges interest in excess of 35 percent.
The same holds good for those who are in the habit of taking hand loans which carry higher rates. For such borrowers, a personal loan would be a cost-effective option and more importantly, it enables the borrower to repay the loan in totality.
Repay the loan in short to medium terms
Often, salaried professionals use a personal loan as a component of property investment. The margin money of the property cost is funded by a personal loan.
The idea is good provided the borrower is in anticipation of some funds coming in a few months later, and is in a position to clear the loan. Or else, the loan amount should not be more than a few lakhs so that it does not pinch the borrower considerably.
For instance, if a property investor is short of funding to the extent of Rs 2-5 lakhs for a property which is valued in excess of Rs 50 lakhs, the implications would not be severe. On the contrary, if the borrower depends on the personal loan to take care of more than 25-30 percent of the property cost, the chances are that he would be unable to repay the loan in the short to medium terms.
EMI a determining factor in personal loan
Keep track of EMI
Unlike other loan products, the EMI is the determining factor in a personal loan.
Since the loan is for a shorter period of time, the EMI is much higher, which is also the reason why some struggle with their cash positions after signing up for a personal loan. Hence, a personal loan should be determined by the EMI component rather than just eligibility.
This will help the borrower to be realistic with the loan repaying capabilities and not get into a default.
Keeping good credit track record
Be a good borrower
Signing up for a personal loan may be the easiest thing to do but make sure to be a good borrower as non-repayment or lack of commitment towards repayment can tarnish the creditworthiness. With banks providing details of all borrowers to the common database under the Credit Information Bureau (India) Ltd (CIBIL), a negative entry relating to payment history can make it tough for all future loans.
Also, borrowers need to make sure to complete the documentation relating to disputed loans as a failure to do so may make it difficult for future borrowing.
Tuesday, February 23, 2010
Tuesday, February 16, 2010
Loan Against Property- An easy way to fulfill your Financial Needs
Loan against property is cheaper than personal loans.
Banks have aggressively beefed up their loan against property portfolio, in the last one year. but in October 2008 the credit crunch, bankers looked for products that were secured and Loan against property (Lap) was a clear choice.
Loan against property was basically a domain of multi-national and private banks. They offered the product to fund their self-employed customers’ business-related needs. Lately, all banks are offering this product including the public sector banks.
This has come as a boon for borrowers who need large sum of money to fund their urgent situation financial needs. Bankers said that mostly salaried customers take Lap when they need money for marriage or foreign education of kids, when they are buying a new property and are renovating their house. Self-employed seek this loan to fund their business needs and to pay off debt.
In Lap, customers can avail up to 50 % loan of the existing property value. The interest rate in Lap is around 200-300 basis point higher than bank home loan. This is a floating rate loan. “Lenders see more risk in this product and so price it higher,” said a banker. The current rate can range between 12-14 %.
The minimum loan that banks disburse in this product is around Rs 2 lac – example -HDFC Bank. Foreign banks, have higher limits, some look for minimum loan size of Rs 20 lac.
"The amount of loan disbursed depends on the end use. For instance, if the property is Rs 2 crore, obviously we will not sanction a loan of Rs 1 crore for renovation of the house," said head of retail assets with a foreign bank. Before taking the loan, the borrower needs to sign a declaration stating the end-use of fund.
If the property is currently not under any mortgage, the process to avail a Lap is simpler as compared to a mortgaged one. In the former, the process is similar to taking a housing loan. The customer needs to give evidence for being able to pay the instalments. For this, the borrower needs to submit a salary proof and income tax certificates. The bank, then, comes down to evaluate the property. A no-objection certificate, is also required, from the society.
In case of a mortgaged property, the person can go for a top-up loan with the bank he has an ongoing loan with. In this case, the bank will fund the difference between the outstanding and the original loan taken. For example: A person has taken a Rs 30 lac loan for the property that was worth Rs 40 lac at the time of purchase. He has an outstanding is Rs 20 lac. The same bank will give him a top-up loan equal to the difference between the outstanding and the original loan, even if the property cost has risen. Here, it would be Rs 10 lac.
On the other hand, if fund requirement is higher the borrower can approach another bank and opt for a product called 'balance transfer plus top-up'. This is part of Loan against property. The other bank will take fresh look at the property value, take over the loan and lend up to 50 % of the existing value. In the above example, if the house price is now Rs 70 lac, the bank will take over the Rs 20 lac outstanding. The customer can avail funds up to Rs 15 lac (50 per cent of the property value, which is Rs 35 lac, minus the existing loan of Rs 20 lac).
Banks have aggressively beefed up their loan against property portfolio, in the last one year. but in October 2008 the credit crunch, bankers looked for products that were secured and Loan against property (Lap) was a clear choice.
Loan against property was basically a domain of multi-national and private banks. They offered the product to fund their self-employed customers’ business-related needs. Lately, all banks are offering this product including the public sector banks.
This has come as a boon for borrowers who need large sum of money to fund their urgent situation financial needs. Bankers said that mostly salaried customers take Lap when they need money for marriage or foreign education of kids, when they are buying a new property and are renovating their house. Self-employed seek this loan to fund their business needs and to pay off debt.
In Lap, customers can avail up to 50 % loan of the existing property value. The interest rate in Lap is around 200-300 basis point higher than bank home loan. This is a floating rate loan. “Lenders see more risk in this product and so price it higher,” said a banker. The current rate can range between 12-14 %.
The minimum loan that banks disburse in this product is around Rs 2 lac – example -HDFC Bank. Foreign banks, have higher limits, some look for minimum loan size of Rs 20 lac.
"The amount of loan disbursed depends on the end use. For instance, if the property is Rs 2 crore, obviously we will not sanction a loan of Rs 1 crore for renovation of the house," said head of retail assets with a foreign bank. Before taking the loan, the borrower needs to sign a declaration stating the end-use of fund.
If the property is currently not under any mortgage, the process to avail a Lap is simpler as compared to a mortgaged one. In the former, the process is similar to taking a housing loan. The customer needs to give evidence for being able to pay the instalments. For this, the borrower needs to submit a salary proof and income tax certificates. The bank, then, comes down to evaluate the property. A no-objection certificate, is also required, from the society.
In case of a mortgaged property, the person can go for a top-up loan with the bank he has an ongoing loan with. In this case, the bank will fund the difference between the outstanding and the original loan taken. For example: A person has taken a Rs 30 lac loan for the property that was worth Rs 40 lac at the time of purchase. He has an outstanding is Rs 20 lac. The same bank will give him a top-up loan equal to the difference between the outstanding and the original loan, even if the property cost has risen. Here, it would be Rs 10 lac.
On the other hand, if fund requirement is higher the borrower can approach another bank and opt for a product called 'balance transfer plus top-up'. This is part of Loan against property. The other bank will take fresh look at the property value, take over the loan and lend up to 50 % of the existing value. In the above example, if the house price is now Rs 70 lac, the bank will take over the Rs 20 lac outstanding. The customer can avail funds up to Rs 15 lac (50 per cent of the property value, which is Rs 35 lac, minus the existing loan of Rs 20 lac).
Friday, February 5, 2010
ICICI Bank cuts down unsecured loan offtake
The country’s largest private sector bank ICICI Bank said that it is pruning its portfolio of unsecured retail loans, including personal loans, small-ticket loans and credit cards.
“As far as credit growth is concerned, for the past three quarters, ICICI bank constantly letting unsecured retail portfolio to go down. ICICI are growing corporate finance book both on project finance and trade finance. ICICI bank are growing 20 per cent in the auto and housing sectors. It’s the other products such as personal loans, small-ticket loans and credit cards, which are coming down,” Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said
Kochhar said there has been a pickup in credit during recent times. “A lot of investment activities have started to take place. Lots of projects have seen financial closure. They have started initial investment. Demand for credit will pick up in a big way in the next financial year. Deposits are picking up substantially, if you see quarter-on-quarter our CASA (current account savings account) deposits have show reasonable growth, both in terms of absolute volumes and in value,” she added.
In the recent past, the Indian banking system has witnessed a very low credit growth. As the economy recovers and investment activities coming back to normalcy, credit offtake is also like to witness gradual growth.
K V Kamath, chairman, ICICI Bank, concurred with Kochhar and said that RBI’s move will not impact interest rates during the coming nine months. “For the first nine months, I don’t think there is a real pressure on interest rates. There is still enough liquidity in the system. I think liquidity needs to come down to push up interest rates,” Kamath said.
Kochhar said there would not be any immediate impact on interest rates if the cash reserve ratio (CRR) is hiked by the Reserve Bank of India (RBI). "Interest rates are driven not just by policy announcements, but more by demand and supply of credit and liquidity,” she said.
“As far as credit growth is concerned, for the past three quarters, ICICI bank constantly letting unsecured retail portfolio to go down. ICICI are growing corporate finance book both on project finance and trade finance. ICICI bank are growing 20 per cent in the auto and housing sectors. It’s the other products such as personal loans, small-ticket loans and credit cards, which are coming down,” Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said
Kochhar said there has been a pickup in credit during recent times. “A lot of investment activities have started to take place. Lots of projects have seen financial closure. They have started initial investment. Demand for credit will pick up in a big way in the next financial year. Deposits are picking up substantially, if you see quarter-on-quarter our CASA (current account savings account) deposits have show reasonable growth, both in terms of absolute volumes and in value,” she added.
In the recent past, the Indian banking system has witnessed a very low credit growth. As the economy recovers and investment activities coming back to normalcy, credit offtake is also like to witness gradual growth.
K V Kamath, chairman, ICICI Bank, concurred with Kochhar and said that RBI’s move will not impact interest rates during the coming nine months. “For the first nine months, I don’t think there is a real pressure on interest rates. There is still enough liquidity in the system. I think liquidity needs to come down to push up interest rates,” Kamath said.
Kochhar said there would not be any immediate impact on interest rates if the cash reserve ratio (CRR) is hiked by the Reserve Bank of India (RBI). "Interest rates are driven not just by policy announcements, but more by demand and supply of credit and liquidity,” she said.
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