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Getting the most out of a
personal loan
Here are a few useful points to consider when applying for a personal loan. • Upfront fees = more expensive loan: These are normally fees charged for processing and administration. • A longer tenure=more interest: So your EMI paying capacity should be the basis for deciding loan tenure. And if you decide to repay some part of your loan, ask for a reduction in loan tenure. Also, when you pre-pay some part of your loan, the lender gives you the option of reduction of EMI or reduction in tenure. Go for the latter, longer tenures mean more interest. • Fixed interest rates are not always fixed: Especially in the case of banks. Their interest rate is a percentage point (called the spread) over the Prime Lending Rate (PLR). Since the PLR can't be fixed, neither can your interest. However, Fixed Interest Rate schemes are available in the market. • Monthly Reducing Balance or Annual Reducing Balance? In MRB, principal repayments are credited at the end of every month and interest is calculated on the outstanding principal at the end of every month. In ARB, interest is calculated on an annual basis on the outstanding at the beginning of the year. MRB is better as it accounts for your principal repayments sooner. So you pay interest on the amount for a shorter period of time. • Keep your documents ready: It takes 3-7 days for loan disbursement. Your bank will normally take a day or two to prepare your post-dated cheques. • Don't over-borrow: You will wind up paying a higher interest rate. • Try the bank you deal with first: If you hold an account/credit card with a bank that offers personal loans, approach them first. Banks usually offer lower rates to existing or old customers. Also, interest rate discounts are often offered during festival seasons. • Pay installments on schedule: This improves your credit relationship and will help you benefit from a lower cost loan in the future. Ask for and check the interest computation sheet or loan statement at the end of the year. • Get it in writing: Lenders are not legally bound to use a standard format and disclose their interest charges and fees. Ask for all charges hidden and obvious to be given in writing, with a statement that there are no other charges. — etinvest.com, published in
Financial Times, Bangalore, 7 May Home Loan Dictionary Installment to Income Ratio (IIR): The ratio of the monthly installment of the loan to income. It decides the loan amount. Fixed Obligation to Income Ratio (FOIR): The ratio of the total monthly repayment liabilities (monthly installment liabilities of other loans plus monthly installment liability towards the home loan finance company) to the income of the borrower. Flexible Loan Installment Payment (FLIP): FLIP is a calculation used when two or more different sources of income have different time limits. Loan to Cost Ratio (LCR): The ratio of the loan amount to the official cost of the property. This ratio should not exceed 85%. Loan to Value (LTV): The ratio of the total loan amount to the total value of the property. The value of the property is market-determined and not related to the cost on the sale agreement. — Financial Times, Bangalore, 28 May
Who's responsible for your home loan? If something happens to you, your family is responsible for paying back the loan, even if they are not in a position to do so—unless you have made arrangements for a life insurance policy as collateral against your housing loan. Many housing finance companies insist on this. Some even charge 50 basis points less interest if a policy is provided. Even if your lender doesn't require you to assign a life insurance policy, it makes future sense for you to do so. The LIC has even introduced a policy—Jeevan Griha —especially designed for this purpose. — Financial Times, Bangalore, 7 May
Standard deductions update Standard deductions raised for salaried employees: Employees with a salary up to Rs 1.5 lakh will be entitled to a standard deduction of a third of their gross salary or Rs 30,000, whichever is less. At Rs 1.5 to 3 lakhs the deduction is Rs 25,000, and at Rs 3.5 lakh it is Rs 20,000. The effective increase in standard deduction for employees drawing Rs 1 to 3 lakhs works out to Rs 5,000 per annum, and for those in the salary range of Rs 1 to 1.5 lakhs, it is Rs 10,000. Income from transfer of units becomes taxable: Exemption under Section 10(33) will not apply to any income (capital gains) arising from the transfer of units of UTI or of a mutual fund, as the case may be. Threshold limit for TDS on interest raised to Rs 5000: The Finance Minister has increased the threshold limit for TDS on interest, including interest on bank deposits, to Rs 5,000 with effect from 1 June. — Financial Times, Bangalore, 21 May
HOUSING LOAN SCHEMES Approx EMI range (Rs) for a loan of Rs 1,00,000
•EMI’s are calculated on a reducing balance. • The loans can be availed up to a maximum of 85% of the cost of the property, depending upon the housing finance institution • Processing and administrative charges extra • Loan amount limit depends on the income of the applicant • Security of the loan is the first mortgage of the property to be financed • Some institutions may require a local guarantor • Repayment period ranges from 15 to 30 years or on superannuation or on completing 65 years of age • Loans can be availed from leading financial institutions like LICHFL, HDFC, Canfin Homes, Citibank, ANZ Grindlays, Vysya Bank, SBI, Corpbank and ICICI • Interest rates and EMIs are subject to change without notice, so check with the financial institutions for prevailing interest rates. |
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