Identify your need and select right loans product that is Home Loans, Car Loans, Personal Loans, Consumer Durable Loans etc.
Home Loans, Car Loans, Personal Loans, Consumer Durable Loans, Loans Against Property etc.
Want to take loans to build or buy a house? Don’t be in a hurry because taking a loan not meant for your specific purpose may make a dent in your financials. Here are five ground rules that you must follow while seeking or repaying a loan.
1. Identify your need and select right loans product i.e. Home Loans, Car Loans, Personal Loans, Consumer Durable Loans, Loans Against Property etc.
Don’t get overburdened. Don’t take a personal loan for home renovation/construction or use credit card cash for general personal use, unless it is an emergency.
2. Look for market players and the prevailing rate of interest, processing fees, advance EMIs, deferral interest, foreclosure charges, valuation and inspection charges, legal and documentation charges and any other hidden cost. Then compare.
3. Financier looks for three basic things…
(a) The ability of the customer basis present financials, to repay the loan.
(b) The intention of the customer and actual end use of the loan amount.
(c) Collectability (Ability of collection) of the financier in the case of default considering co-lateral, customer’s profile, potential, geography and ground condition.
If you pass through the above acid test you are somehow through to avail a loan.
4. Selecting Bank or NBFC:
NonBanking Finance Companies (NBFCs) are more flexible in underwriting loan applications than banks, even though all are governed by RBI since they have bigger risk appetite protected by a higher rate of interest.
NBFCs can consider loan applications declined by banks in certain cases. However NBFCs charge a little more than banks.
My understanding is, if you can present your need, financials/income and intention well, irrespective of small deviations, your application can be approved.
5. Payback perfectly to be a privileged customer.
Don’t be casual when paying back loans… be it small or large.
You may afford penalties charged by the financier, considering the reason of non-payment on the due date is more valuable than the penalty amount but it affects your #CIBIL (your financial character certificate in India) badly resulting in non-consideration for further loan applications by any financier.
In such cases either the financial institutions decline further loan applications or charge higher rates for the loan amount.
Do remember if you default, generally, two charges are claimed by any financier i.e. Cheque Bounce Charges (fixed amount) + Delayed Payment Charges (interest on amount overdue for number of days past due as per rates mentioned in loan agreement)
Usually, people ignore the Delayed Payment Charges and pay the Cheque Bounce Charge along with overdue #EMIs. This results in huge accrued interest at the end of the loan tenure.
(Bibhu Prasad Dash is a risk management professional worked with many reputed financial institutions. He has over a decade experience in Indian banking industry)