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8 reasons why your loan might be rejected!

admin — Thu, 09 Sep 2010 05:39:00 +0000

Remember it is not a wise thing to keep applying for a loan without any rhyme or reason. If your loan application gets rejected, this is also recorded in your CIBIL record. So weigh the pros and cons before you apply for a loan simultaneously to different banks. Wait till you receive an offer before you apply to another bank. This will give you a chance to rectify errors or update your credit record in case there is an issue with it before you approach another lender.

When you apply for a loan, banks judge your ability to repay the loan on various counts including your age, income, job stability and primarily based on your credit report – which is a reflection of your true credit worth. Here are some reasons you need to watch out for and guard yourself against to obtain a loan without any hassles.

#1 : Your residential address is on the defaulter list

If you live under the same roof as someone who has slipped up on a loan payment or credit card dues and hence been reported to CIBIL, then the probability of your loan application to be rejected is likely to be high. The reason being your residential address will find a match with the one on the defaulters list.

#2 : Poor track record of credit card or loan repayments

You have been accumulating credit card dues over the years resulting in a huge pending payment, which is well past the due date. Or it could be that you have slipped up on a few EMIs. In these instances, your name would have been reported to CIBIL. When a bank looks up your credit card or loan repayment track record – it would have a strong reason to reject your loan. Also, telephone bills and insurance premiums are likely to join this list, so do keep a strict vigil on all your bill and credit repayments.

#3 : Too many previous loans and too little income

If you are juggling too many loans already, then your income minus the ongoing credit repayments is what will be considered as your real income. If another loan is likely to cause a severe strain on this income or make it unlikely for you to be able to repay effectively, then your loan will be rejected.

#4: Loan guarantor to someone who didn’t pay up

When you sign the dotted line to be someone’s loan guarantor do exercise a lot of caution. You must make sure the applicant you are vouching for has the ability to repay the loan without hassles. Unless and until you have strong reasons to believe so, do not rush to sign for them as if they fail to repay for any reason you will be accountable to repay the loan on their behalf. In such circumstances, where you have been unable to repay their loan, you will be reported to CIBIL and this will reflect in a bad credit report.

# 5 : Co-applicant has a poor CIBIL record

It is important for all the loan applicants to have a good credit repayment record. If you have a clean record but your co-applicant has a credit card issue reported for instance, then your loan application may not be considered.

#6 : You are a compulsive impulsive job hopper

Banks place a lot of importance on job stability and certain banks even insist that an applicant needs to be employed with a particular concern for three years or more to be eligible for a home loan. Also, in instances where a reputed company’s future appears unstable, the bank can reserve its right to provide a loan to the applicant from that company.

#7 : You want a joint loan with your sister or friends

Though some banks might consider providing a joint loan to brothers who are co-applicants, banks as a rule do not provide loans to sisters or a brother and sister or friends, who wish to be co-applicants. However, you can choose to opt for your parents as co-applicants for the loan.

#8 : Your loan application has been rejected before

Here are some pointers to be prepared for your loan before you apply for it:

Gauge your repayment ability. Calculate your net worth and evaluate if you are ready for a loan commitment.
Get a copy of your credit report from CIBIL and other bureaus, where your records can be found. Analyse them and figure out if there are any concerns in the report, which needs to be addressed. For instance if you have paid all your credit card dues but this is not reflected in your CIBIL record, then you need to approach the bank in question and get proof for the repayment. You will then need to submit the proof to CIBIL and get the information updated.
Ensure you have back up funds to pay your EMI for a bunch of months, for emergencies like a job loss etc.
Make as much downpayment as possible and prepare well ahead to close the loan as quickly as you can, to continue a good repayment track record. Moreover closing off a debt when possible, will free up your resources for other uses or even for a new loan if the need arises.

8 reasons why your loan might be rejected! is a post from: Indian Stock Market Tips

The top 7 things to do with your credit report

admin — Wed, 08 Sep 2010 05:41:00 +0000

Maintain and use your credit card. It serves as an excellent tool to boost a good credit score if utilised properly. However, the trick is to use it well and avoid making late payments. Things like not stretching it too close to your credit limit, regular use of the card but timely payments upfront is proof of how you manage credit lent in the short term. This will lay the foundation or provide a sample of how capable you are in managing loans long term, hence this can prove to be an asset to your credit score and help in improving your credit score.

Yes, its official now! You will be able to access your credit scores in December 2009. The score will range between 300-900, indicating the levels of default and will be available to consumers for a sum not exceeding Rs.100 as prescribed by the RBI. CIBIL, which already has a huge database of credit reports, which are currently consulted by banks before sanctioning a loan is putting up the infrastructure to be ready to service consumers who wish to access their credit reports. Isn’t that great news? Now, many of you maybe wondering how your credit report will look like, how to go about setting any mistakes in the report right, how to maximise the benefits of being able to access your credit score and other such issues. Well, look no further. Listed below are the top seven things you ought to do with your credit report.

Know : What is CIBIL ?

#1 GET A COPY OF YOUR CREDIT SCORE EVERY YEAR FOR AN ANNUAL REVIEW

You should study the credit report carefully for any hidden flaws or misinterpretations. If you find anything that you feel requires a second check, do it and if still you are convinced it is indeed a flaw, then you need to address the concern immediately and escalate the issue.

# 2 TAKE UP ISSUES THROUGH THE FASTER ROUTE

You need to take up issues in your credit report with the bank in question first, if for instance its a debt situation, which has already been paid and is still being recorded as a debt. The bank will then update the credit agency regarding the status and all is well. This approach is less time consuming and far better than directly contacting the credit agency. If in case the bank does not oblige you can take up the matter with the credit agency and the banking ombudsman after waiting for a period of a month, which is the standard waiting period you must provide to the bank to take necessary action.

# 3 PAY YOUR BILLS ON TIME

Whether they are loans, credit card payments, insurance premiums every payment counts. If you have hassles remembering payments consider setting up an automated system with your bank to get it cleared within the due date. It is sure shot way to improve your credit score.

# 4 KEEP THAT CREDIT CARD AND USE IT JUDICIOUSLY

#5 CREDIT TO DEBIT RATIO IS THE KEY FACTOR

As with all logic based reports, your credit report is based on the flow of credit and debt. Here the ratio between these two factors is directly related to your credit score average. For instance, if u have several outstanding debts, even if you pay them on time it would still affect your credit score as your total net worth goes down. Hence try and pay off as much debt as possible and keep them to a minimum before taking a fresh debt or loan.

#6 DO NOT CLOSE YOUR CREDIT CARDS

In line with the same credit to debit ratio aspect, closing down your credit card may not help the score. Even if you do not use the credit card, it would still make sense not to to close it. If you have concerns and must absolutely close it, you may choose to do so but be aware that this also has a say in your credit score.

#7 QUICKLY ACT UPON ISSUES IN THE CREDIT REPORT

Dispute a bad credit botch always, don’t sit back and let it remain. Try solving the issue by contacting the bank and the credit bureau. If your concerns are taking time to be addressed, credit report systems that are still evolving in India might soon discover at least temporary solutions to the issue like bookmarking the issue as something under the scanner. This will protect you from being evaluated on the basis of a faulty issue in the credit report. This may help you have enough time to resolve the issue with supporting evidence regarding any false debt situations.

Also Read : How to: Correct errors in your CIBIL report

The top 7 things to do with your credit report is a post from: Indian Stock Market Tips

How to Save TAX for Salaried Individuals : Tax Management Tips

admin — Wed, 08 Sep 2010 03:18:00 +0000

Earning a salary? Looking to save tax the smart way? Then you have two options. First is salary restructuring and second is tax saving instruments. Here we take a look at both these options and how to use them effectively.

Salary restructuring: As the term implies, salary restructuring allows you to redesign your salary, so as to reduce your total tax liability. Here are some steps you can take in order to reduce your tax liability.

Do you need a house? Does your employer offer Rent Free Accommodation or House Rent Allowance? Then go for it, as the amount gets deducted from your total taxable income.
Does your company expect you to wear uniform at work? If so, the expenses incurred on buying and maintenance the uniform will not be taxed.
Does your employer provide you with allowance for your children’s education and hostel accommodation? Then use it to claim exemption under section 10 (14).
Does your company provide you with a telephone facility in your home? Then it not taxed. However be warned against taking telephone allowance, since it is totally taxable and will increase your taxable income.
Opt for the car facility, since the value of the perk is much lower than the actual expenditure incurred on the car.
We all have to visit the doctor at some point of time. So save tax by claiming medical reimbursements up to Rs.15, 000.00 p.a. But don’t take any medical allowance, since it is completely taxable.
If your employer pays Fringe Benefit tax (FBT), then sum of fringe benefits, is tax-free for you. Also if salary is paid in arrears or in advance, claim relief under section 89 (1).
Always ask your employer to include dearness allowance and dearness pay along with commissions earned in your salary. It will lower your tax liability on house rent allowance, gratuity and pension.
If you are eligible for a pension, always get it commuted, as commuted pension is tax-free for government employees and partially exempted for others. You can get tax relief under section 89(1).
If your current employer is participating in an authorized provident fund, and you change your employer within 5 years of joining the firm, ensure your new employer is also a member of the authorized provident firm. It will let you transfer the corpus in your provident fund to the new company without paying any tax. Also insist your employer fix his contribution to your provident fund to 12% of your salary, as it is the highest limit for tax exemption.
Plan your retirement or resignation at the start of the financial year in order to lower the tax on retirement benefits.
As leave travel concession is not taxed if certain criteria are fulfilled, try to claim this incentive to the highest possible level, without having to pay any tax.

Let us assume your annual salary is Rs. 2,00,000. You get HRA of Rs. 10,000 and your medical reimbursement is Rs. 5,000. Your employer gives you an allowance of Rs. 15,000 for your son’s educational expenses. So instead of Rs. 2,00,000 your total taxable salary now becomes Rs. 1,70,000 (2,00,000 – 10,000 – 5,000 – 15,000). This will effectively reduce your tax liability.

Now that we have seen how to design your salary let us take a look at the most effective tax saving instruments available.

Tax saving instruments

While these instruments do help you save tax, they have a maximum limit of Rs. 1,00,000. Any income above this limit attracts tax.

Insurance:

All payments made towards both life and health insurance are eligible for tax benefits. Even contributions made towards pension payments can be eligible for tax benefits. Health insurance can let you save Rs. 15,000 over and above the ceiling of Rs. 1 lakh.

PPF (Public Provident Fund)

It is one of the safest tax saving investments available. Both interest and capital withdrawal from the fund are tax free. However its drawback is the lock-in period of 15 years.

NSC (National Savings Certificate), Post office (CTD) accounts

These are government savings schemes available at post office, with a lock-in period of 5 years.

Bank deposits

These are special tax saving FDs offered by banks with a lock-in period of 5 years.

ELSS (Equity Linked Savings Scheme)

These are tax savings instruments offered by mutual funds, with a lock-in period of 3 years. They invest in various quality stocks.

All these instruments carry different degrees of risks. While PPF, NSC, Post office accounts, insurance (except ULIPs) and FDs are safer, they offer lower returns and are not very liquid, due to their long lock-in period. On the other hand, ELSS ( (Equity Linked Savings Scheme) has a short lock-in period but is more risky, while ULIPs carry the risk of ELSS but without the liquidity benefit. So while investing for tax saving purpose, take into account factors like your risk appetite, returns generated by the instrument, liquidity, capital appreciation and safety of capital. Remember, younger you are, riskier options are better for you, since over a long time, these instruments can generate higher returns for you, and minimize the risk of capital erosion. Also diversify your investment portfolio.

If these options are not enough for you, then here are some more:

Housing loan and education loan:
Donation to charities/religious trusts

To summarize, first thing to do is to structure your salary so as to minimize your tax liability. This will minimize the need to invest for tax saving. This is because as with any investment, you must have the necessary capital to invest. Also the instruments that tend to be safer, have a longer lock-in period with low returns. This means you must keep on investing with fresh capital every year and in turn get meagre returns. Those investments with higher returns mean you may not be able to withdraw your money even after the lock-in period, if the value of your investment is lesser than the capital invested. Take all these points into consideration before opting for tax saving plans.

How to Save TAX for Salaried Individuals : Tax Management Tips is a post from: Indian Stock Market Tips

Credit Card Charges : Know more and be Safe from Debt

admin — Thu, 02 Sep 2010 22:35:00 +0000

Credit card gives you the ease to shop anywhere and everywhere with minimal hassle. It helps you buy big and lets you pay later, with a one-month grace period.

But not understanding the terms and conditions in a credit card – like the interest and other charges levied by card companies – could leave you gasping under a mountain of debt.

Often, a cardholder is struck by the realisation only when the monthly credit card statement reflects the hefty charges. For every card holder, it is imperative to study the ‘Most Important Terms and Conditions’ (MITC) listed on the card issuers’ websites carefully.

Here are some key clauses you need to be aware of, in order to avoid rude shocks later.

Cash withdrawal

While your credit card can be used to withdraw cash from the automated teller machines, or ATMs, if required, it is best to save this option for emergencies. This is because cash withdrawal typically attracts an upfront charge – of close to 2.5% of the amount withdrawn.

Moreover, unlike cards swiped at point-of-sale (POS) terminals where the amount becomes due after the expiry of the credit or grace period allowed to the card holder, in this case, the payment is due from the date of withdrawal.

The rate of interest (termed finance charges in credit card parlance) to be paid on the amount could be in the range of 39-45% per annum. “Some banks also levy further charges if the withdrawal is made via teller counters at their branches,” adds VN Kulkarni, chief counsellor with the Bank of India-backed Abhay Credit Counselling Centre.

Over limit charges

If you fail to keep track of your credit limit and end up overdrawing, you would be liable to pay the relevant charges.

Typically, it is 2.5% of the overdrawn amount, subject to a minimum of Rs 500.

Also, you would do well to remember that your credit limit is inclusive of any charges or late payment penalties payable by you.

Outstation Cheque charges

All banks have a cheque collection policy that also covers terms related to outstation cheques. If you choose this mode to make your payment, you may be charged close to 1% of the cheque value or Rs 50 for every instrument. Some banks, however, do waive these charges.

You need go through your issuer’s MITC to understand the applicable charge structure.

EMI processing charges

Several times, at the discretion of the credit card companies, cardholders with outstanding dues are allowed to convert the lump-sum repayment due into instalment-based payments.

“The card issuer may promise to charge the existing rate of interest, but you need to watch out for the processing charges that could be built in, pushing up the entire amount payable,” advises Madan Mohan, chief counsellor with the ICICI Bank-backed Disha Financial Counselling centre.

Right of lien

If you have availed of a credit card from the bank where you maintain an account, the funds lying in the latter could be used towards repayment of your card dues.

This could be applicable to the add-on credit card holder as well.

Several card issuers’ terms and conditions stipulate that in the event of non-payment of dues by the card holder, they reserve the right to set-off the amount against any account with credit balance maintained by the individual.

Credit Card Charges : Know more and be Safe from Debt is a post from: Indian Stock Market Tips

What to do in Case of Banking Harassment – Recovery

free stock tips — Fri, 06 Aug 2010 17:15:48 +0000

These guidelines are important since I know many people who have lost many nights of sleep thanks to threats from recovery agents.

1. 1. The RBI holds that all banks/ NBFCs are responsible not only for their own actions but also those of their agents, that is, Distributed Multi-Agent System/ franchisees/ agents.
  2. These agents must carry a letter/ identity card in their name or that of an agency authorising them to undertake debt collection. This helps you verify the authority of the person.
  3. All written communication sent by the agency should contain the name and contact details of the concerned officer.
  4. Agents must contact customers only between 7 am and 7 pm and interact civilly.
  5. Agents must avoid all calls and visits to collect debt if the customer meets with any tragedy.
  6. The bank or its agent must not resort to any kind of threat or harassment to anyone for debt collection. The word anyone includes the customer, his/ her family members, friends, colleagues or referee.
  7. The bank or its agent will not pass any false/ misleading information with the intention to humiliate anyone publicly.

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

The author is a Chartered Accountant and MBA specialising in banking, finance & insurance. Write to him at khs(a)askketul.com

Disclaimer: The contents of the article or are for information purpose only and are in no way meant to be advisory in nature. The author does not claim responsibility for actions taken by readers on the basis of the Article. Please consult your financial advisor for your personal money management.

What to do in Case of Banking Harassment – Recovery is a post from: Indian Stock Market Tips

Top 5 options to save for a rainy day

free stock tips — Wed, 28 Jul 2010 03:13:00 +0000

THE interest rates are rising. It is good news for some – those who look at making deposits; bad news for some – those who are looking at taking loans. Savings however have to be channelled carefully so that the maximum can be gained from the deposits. Here are the top 5 savings instruments in a rising interest rate regime.

In today’s scenario the top 5 savings instruments are:

Debt Mutual Funds
Mutual Fund Monthly Income Plan – Growth Option
Company Deposits
Post Office Recurring Deposit
Post Office Monthly Income Scheme

Debt Mutual Funds

These are managed funds that invest the funds from the investors predominantly in debt and debt oriented schemes.

There are a number of advantages that these mutual funds give compared to a direct deposit. The most apparent is the fact that this is a managed fund and the returns can be better as the manager has access to more information and will leverage that compared to individual investors. There is no TDS or tax on the interest. The returns will be processed as capital gains.

Returns from this fund are expected to be good. The top five debt mutual funds have given compounded returns in the range of 10.50-14.50% in the last 3 years. This is much better than the normal bank deposit or company deposit. The advantage is that debt mutual funds can create capital gains when the interest rates go down.

Mutual Fund Monthly Income Plan – Growth Option

For people who have a higher risk quotient during the short term, monthly income plan (MIP) of mutual funds is good. Here a small portion (generally not more than 20%) of the funds is invested in equity. So the returns can be better than the normal debt mutual fund when the market is rising. The typical returns in the last 3 years are 12% to 14% for the top 5 funds.

However caution needs to be taken when choosing the growth option. This is due to the fact that if we start to receive the monthly payouts there may be months when the principal is used for the payout. This will drain the fund particularly when the market goes down.

Being largely a debt oriented mutual fund, the tax treatment is the same as the debt mutual fund.

Company Deposits

Companies that offer deposit schemes to consumers tend to offer rates that are in-between bank deposit rates and bank lending rates. This is a win-win situation for the company and the person saving.

The bank has to make a profit when borrowing from the public and lending to companies. So they have an interest rate difference (spread) of about 4.5%. In effect, the deposit holders are paid less and the borrowers are charged more. When a company has direct access to the depositor, both benefit. The depositor gets a better rate than what the bank can offer and the company is able to borrow at a lesser rate when compared to a bank interest rate.

However, it is in the best interest of the borrower to do his research thoroughly and double check how good the credit rating of the company is before investing. On an average estimates show that one can easily get 11% – 12% on reputed companies’ deposits for a 3 year term.

The returns will be taxed as interest and will have TDS.

Post Office Recurring Deposit

This is a 5 year scheme where one invests on a monthly basis. However, there does exist an option for the fund to be closed after 3 years, which comes with a penalty of 1%.

The advantage with the postal recurring deposit over the bank recurring deposit is that the minimum monthly investment is only Rs.10/- with no upper limit. In case the payment is made once is 6 months or on a yearly basis, there are discounts for that too.

The limitation is that the interest rate is fixed at 7.5% only and auto-debit to bank account is not available.

There are no tax benefits from the scheme. However Post Offices have not been deducting TDS.

Post Office Monthly Income Scheme

For the retired people, the Post Office Monthly Income Scheme is a good savings instrument. The interest is 8% divided on a monthly payout basis. The payout if not required can be channelled to a recurring deposit. The effective returns increases by almost 10% by doing this.

The interest can be credited to a savings account of any bank too. The account can be closed after 1 year with a 5% penalty and after 3 years without any penalty. The limitation however is that the maximum investment for any individual is only Rs 6 lakh.

The ranking of the above 5 savings schemes have been done based on their returns, the convenience factor to close and change to another savings scheme (important when the interest rate is rising) and the safety for investments. Of all the options the debt mutual funds appear to score the highest due to their flexibility and returns. This is closely followed by the mutual fund MIPs.

Top 5 options to save for a rainy day is a post from: Indian Stock Market Tips

Smart investor: Choosing funds for SIPs

free stock tips — Wed, 21 Jul 2010 22:45:00 +0000

A decade ago, choosing an investment option for monthly savings was a lot easier. Most investors went with time tested products like recurring deposits, public provident fund. The interest rates were good enough at 9% and there was no need to look at other options. In the last decade, a lot has changed for the Indian investor.

The stock market is no more an unknown devil for many and in fact, even insurance is being linked with equity option. The focus on SIPs has been such that young professionals are looking at the concept to begin their investment journey. Now, the challenge for many is not the acceptance of the concept but the choice of right scheme. It is not an easy task as markets have turned highly volatile in the last couple of years and the prospects of sectors have been changing at a rapid pace. If infrastructure was the theme in 2007, it has proved to be a dud in the last couple of years. Similarly, mid and small cap funds which are generally tipped to be top performers in a booming market environment can make the investor sit on the wrong side during bearish phase.

So the question is: how does one choose funds for SIPs? In fact, a friend called up a couple of weeks ago as to whether he should go for five funds of Rs 20,000 each for a monthly SIP of Rs 1 lakh or stick to a single fund for easy management. His argument was when SIP in itself is a product which reduces risk, why bother about investing across too many funds?

While SIP no doubt provides better management of risk, the returns can vary depending on the market environment and the period of entry. For instance, if an investor had signed for an SIP in January 2009 for a period of one year, his returns were better than one-time investment because of market volatility. Can the same be expected over the coming years? The answer is no because the volatility within stock prices tends to settle down over a period of time and hence the returns too get evened out over long term. If you take a look at the performance of diversified funds over a period of five years, the annualised returns are in the range of 20% for most funds.

So for an SIP should an investor choose a volatile fund like sector funds which offer plenty of dips and highs or stick to diversified funds which are more stable in the long term? The answer is both but one needs better management of entry and exit points in the case of sector funds. As you can see in the table, sector funds have outperformed diversified funds during 2007-09 when markets were volatile.

One of the best options would be to opt for a combination of both. While sector funds can be passively managed and used for long term needs like retirement or child’s future, sectoral allocation can be for medium term with 3-5 year view. As pointed out earlier, one should get into the habit of booking profits from such allocation during market peaks and use debt products for parking profits. The same can be reinvested during steep correction. More importantly, keep an eye on the cyclical fortunes of sector funds. Even here, one need not churn aggressively, if the sector is like banking which is more aligned with the fortunes of the overall economy.

Smart investor: Choosing funds for SIPs is a post from: Indian Stock Market Tips

How Credit Cards Work

admin — Fri, 09 Jul 2010 18:08:22 +0000

Today credit cards have found widespread usage due to the convenience they offer. Unlike the old days, you do not have to carry large sums of money when you go shopping. All you need to do is take your credit card with you when you go out shopping, select whatever you want to buy, hand over your card to the cashier to make the payment and walk out with your purchase. Simple, isn’t it? Card issuing banks offer many types of benefits like cash back, reward points, interest free credit and discount offers on purchases made at select stores. All this makes it attractive to use a credit card in lieu of cash for your purchases. If you are wondering, “What happens after I hand over my card to the cashier?”, then read on to know more.

When you hand over your credit card to the cashier to pay for your purchases he takes it and swipes it in the merchant’s point of sale (POS) system. This system is connected to the merchant’s bank via a communication link. This POS system helps in verifying your data by using an electronic verification system. The details verified include the validity of your card and the availability of sufficient balance on your credit card to pay for the purchases.

Once your details are transmitted to the merchant’s bank, they are sent to your bank which then authorizes the payment if all the details are in order. This authorization is then sent to the merchant’s bank, which then blocks the amount from your credit limit so as to reimburse it to the merchant later on. The authorization generates an approval code and is transmitted to the merchant. This code has to be keyed in by the cashier, after which two copies of charge slip are generated. This charge slip is your agreement to pay your issuing bank the amount of purchase. You then sign one copy of the charge slip and take the other one with you, along with your purchase.

Just like you, there are many others who use credit cards for their purchases. They also generate their own charge slips. All these charge slips are stored in batches and submitted by the merchant to his bank, once a day at the end of the working day. But remember, the nature of the relationship of the merchant with his bank is far different from your relation with your bank. It is called a merchant account and is actually a line of credit rather than a regular account. As per this contract, the bank agrees to undertake collection of payments on behalf of the merchant from his customers’ banks. These payments are credited to the merchant’s bank accounts after deducting the fees for all the services involved.

When the merchant deposits these batches in his bank, they are sent by the merchant’s bank for clearing and settlement through the credit card association. This association charges your purchase amount to your bank and pays the amount to the merchant’s bank. The merchant’s bank then reimburses this amount to the merchant.

Your bank now charges your purchase amount to your credit card account. On the specific date, your bank will generate an account statement, listing all the credit and debit transactions in your account. If the debits are higher than credits, you have to pay the difference to your bank. You will also be given a due date, which is the last date by which you have to repay your bank in full. Failure to pay off this amount in full by due date will mean you will have to pay late fees as well as interest charges to the bank. These fees and charges can be very high, so be very careful.

Credit cards are a powerful credit tool to help you tide over short term financial requirements. However they must be used judiciously, as any misuse of the credit card can attract stiff charges and make you fall into debt trap, besides destroying your credit rating. So the watch word is – BE CAREFUL when using the credit card.

Apply for Kotak Bank Credit Card

How Credit Cards Work is a post from: Indian Stock Market Tips

What documentation you need before apply Home Loan : Pre-requisites of Home Loan

free stock tips — Thu, 08 Jul 2010 02:48:00 +0000

The realty prices have gone up so much over the years, that everyone cannot afford to buy his or her `dream home`, without a home loan. With home loans available on EMI basis, more and more people from all income groups are applying for it, for purchasing their house. So would you also like to go for it?

One can save much of one`s time and expedite the entire process of obtaining the home loan, if one knows the pre-requisites of being eligible and applying for the loan. Let`s take the case of one Mr. Sunil Kumar, who also applies for a home loan. Mr Kumar, is a software engineer, employed with a leading software company and dreams of buying a house for himself. He is 30 years old and recently married. He books a house for himself and decides to apply for a home loan of Rs 40 lakhs.

What should Mr. Kumar know before applying for the home loan?

Financial Institution:

Mr. Kumar will first need to choose a financial institution, which best caters to his needs, and offers loan on terms and conditions affordable to him. He chooses XYZ Bank offering 10.75% fixed interest rate for a loan amount ranging between Rs 30 to 50 lakhs.

Property Details:

After Mr. Kumar chooses the bank or financial institution, he will be required to furnish details of the house he has booked – cost of the property, area, location, etc.

Evidence of Income:

The lending institution would require documents or proof of income, for sanctioning the loan. Hence Mr. Kumar will need to furnish all documents testifying his income from various sources. The bank of the lending institution will sanction the loan based on monthly income from various sources. It will also verify Income Tax returns for the last 3 years.

Margin Money:

Though majority of the amount for buying the property will be from the bank loan, the remaining amount (usually 15-20%) will have to be arranged by the borrower (in this case Mr. Kumar) known as margin money.

Floating or fixed rate of interest:

The rate of interest is of two types- Fixed and Floating. The former permits payment of fixed monthly instalments over the entire loan period, while in case of the latter, the interest rate keeps varying based on market conditions, associated to a base rate, with a floating element attached to it. So there is always a risk of EMI rising during the loan tenure. However, floating interest rate is mostly less than fixed interest rate to begin with. Based on the market scenario, one should use ones foresight and judgment, and consider one`s risk appetite, for taking a decision.

Mr. Kumar goes for fixed rate of interest of 10.75%, offered by XYZ Bank, for loan amount ranging between Rs 30 to 50 lakhs.

Tenure:

The tenure of the loan will be based on your age. The younger your age, the greater will be your loan period and vice versa. Mr. Kumar decides to go for a 20 year loan period for his loan.

Fees & charges:

There are numerous fees and charges, that are incurred while taking a home loan, namely Processing Fee (for processing loan application); Administrative Fee; Legal charges; Technical charges; Stamp Duty and registration charges, etc.

EMI Computation:

It is advisable to get an idea, as to how much you need to pay as EMI, during the tenure of the loan, before going for it, which may be calculated with the formula discussed below. The monthly instalment that Mr. Kumar will be required to pay for 20 years, with principal amount being Rs 40 lakh, and fixed interest rate of 10.75%, may be computed with the formula below :-

EMI = (p*r) (1+r)^n

___________

(1+r)^n – 1

Where p= principal amount of loan, r= interest per instalment period (Interest rate/12), n=number of instalments, ^ stands for whole to the power. Based on the formula, EMI works out to be Rs 40,609. So Mr. Kumar is now aware that if he applies for the above loan, with tenure of 20 years, at fixed rate of interest of 10.75%, he will have to pay an EMI of Rs. 40,609.

So once you have booked your house, and are ready to apply for a home loan, keep the above guidelines in mind, which will certainly save your time and help you get the loan with much ease.

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What documentation you need before apply Home Loan : Pre-requisites of Home Loan is a post from: Indian Stock Market Tips

Home loan swap window to help out interest rate hikes

admin — Wed, 07 Jul 2010 02:27:00 +0000

The government may seek changes in the prepayment rules to enable a home loan borrower to shift to cheaper lenders if his bank raises interest rates soon after disbursing the loan.

The government wants banks to provide a two-month window to their new borrowers to shift to some other bank without prepayment penalty if they have raised home loan interest rates too quickly after disbursement. The finance ministry is likely to take up the matter with the central bank to seek these changes.

“If a bank hike interest rates within a month of the loan taken by a customer, the borrower should also be allowed to look for cheaper options without paying any charges,” said a senior finance ministry official adding that levying a prepayment charge in such cases was like a double penalty.

The government is not convinced with banks’ argument that allowing easy foreclosure without any penal charges may lead to asset-liability mismatch.

“The average maturity of deposits a bank holds is for a period of one and half years. If a loan is prepaid within two months, it will not put any strain,” the official said.

It is expected that the banking regulator will discuss the issue with the Indian Banking Association (IBA), a body of all commercial banks, and may come up with new prepayment norms including fixing the maximum and the minimum amount that a bank may charge. “We’re open to discussion. One should understand that less than 5 Percent borrowers switch loans,” an IBA official said.

Prepayment charges differ across the industry. While private sector banks charge the customer a steep 2 Percent on the principal outstanding, some public sector banks charge as low as 1 Percent when transferring loan from one bank to another.

If any prepayment is made within three years of the first disbursement, HDFC Bank charges an early redemption fee of 2 Percent on amount prepaid in excess of 25 Percent of the opening balance.

“No charges if the prepayment is made after three years of the loan if it is from your own savings,” stated the bank in an e-mail reply to ET query. The bank charges 6 Percent foreclosure fee on car loans if the prepayment is made within a year of disbursement. Private lender, ICICI did not respond to an e-mail send by ET. Its website says that prepayment charge levied is 2 Percent of the principal outstanding at the time of foreclosure and amount paid excess of the monthly instalment in the last one year. The bank allows part prepayment.

The Competition Commission of India (CCI) had earlier sought replies from all banks after receiving complaints from loan borrowers, asking why prepayment penalty should not be held as anti-competitive practice.

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Home loan swap window to help out interest rate hikes is a post from: Indian Stock Market Tips