Taking a home loan in India is not a new thing, but in the last few years the trend of taking personal loans for auto loans or traveling abroad or for any other purpose has also increased.
It used to take days to approve a loan application in conventional banks, but now, thanks to non-banking financial companies and some neo-banks, loans are available in a matter of hours.
Your CIBIL score plays an important role in getting your loan approved or not. Defaulting on loan installments can damage your CIBIL score. Which will make it difficult to get a loan in future.
This is why experts recommend to be careful while taking a loan and read its terms carefully. Ignoring some simple things can be costly.
What to consider while taking loan?
At the time of taking a loan, customers are lobbied by banks and landing apps to take a loan through a number of mediums, including advertisements, SMS and email, as soon as they visit the website.
Nishant Parekh, a chartered accountant by profession, says, “If a salaried or self-employed person is taking a home loan, the coverage should be taken into account.”
“As government banks generally consider the cost of the document, while private banks consider the market price. The loan percentage becomes important in choosing a particular option from among the many options. As home loans fall under the priority sector, processing charges are often waived. However, it should be clarified.”
“Apart from this, the repayment schedule should also be considered. It is imperative to choose an option that does not incur pre-payment charges. It may be long-term but beneficial in the long run.”
Parekh says to consider the interest rate and pre-payment charges for personal loans.
Sometimes an ‘advance installment’ is charged by the financial institution, the burden of which ultimately falls on the customer.
While taking a personal loan, advisors recommend choosing an arrangement where interest is paid only on the required amount and the remaining amount can be withdrawn as and when required.
According to Chartered Accountant and Financial Advisor Anand Shintak, “According to the provisions of the Reserve Bank of India, a person has to give a sanction letter when taking a loan. This includes loan pre-payment (payment before the specified time), loan for-closure (before the specified period) Details of what charges will be incurred in case of repayment of loan or shifting of loan) etc.
“Apart from this, it also contains information about the type of charges levied by the financial institution.”
“This prospectus is mostly in English and full of complex financial and legal terms and terminology. One should therefore read it carefully and take the help of a financial advisor if necessary.”
If there is any discrepancy or ambiguity in the scheme or rules, clarification should be sought from the lending institution immediately.
What things to watch out for?
CIBIL score remains an important aspect while taking any type of loan. According to Ahmedabad-based Chartered Accountant Mukesh Devpura:
“A person should read the sanction letter very carefully, besides paying special attention to his CIBIL score.”
“It becomes difficult for him to get a loan if he has not paid any loan in the past or defaulted on his installments.”
“Normally banks do not charge for prepayment or foreclosure of home loans, but this may not be the case with personal loans. However, it largely depends on the profile of the borrower. This clarity in advance eliminates confusion later on. .”
Do this while taking a loan
Apart from this Devpura asks to pay attention to a few things. like :
- Take a loan of the amount you can afford
- Make regular and timely payments
- Try to pay off the loan early
- Don’t take loans for conspicuous and unnecessary goods or services or for vacations
- Don’t take a loan hoping to get higher returns from elsewhere
- If the loan amount is big, then take the loan with certainty
- Pay off expensive loans early and try to get cheaper loans, while also taking into account factors like foreclosure charges or processing fees etc.
- Take your spouse and family members into confidence, keep them informed and aware about the loan.
A CIBIL score is usually between 300 and 900.
If your score is close to 900, chances of loan approval and lower rate increase.
Similarly, if the CIBIL score is 700 or less, it becomes difficult to get a loan and in some cases the rate is very high.
Individuals take different types of loans for different needs. Depending on the priority set by the government and banks, its loan rate may be higher or lower.
Apart from this, if there is a finding, the loan rate may also be affected.
When a person takes a loan to meet his urgent need, it is called a personal loan.
Which is given considering the loan amount and the ability of the person to pay the installment. CIBIL score is also taken into account for this. A person can spend on ‘legally permissible’ things subject to the terms of the loan.
If a person wants to take a loan against an asset (land, flat, house, etc.), he can get a lower rate compared to a personal loan, since the lender has solid assets. It is called Loan Against Property.
Similarly, gold loan is also a type of personal loan. However, in case of a sudden drop in gold prices, the lending institution may demand some amount to mitigate the risk.
A person gets a loan to buy a car or two-wheeler.
If the vehicle is older, the rate may be higher. Similarly, if it is a commercial vehicle or a tractor, the rates may vary depending on the priority.
In no case should the total amount of all your installments exceed 50 percent of your income.
The reputation of the lender should also be considered while taking a loan. This becomes especially important as new means and units of credit become available.
As the name suggests it can be used to take home. Apart from this, ‘top-up’ loans can also be availed for its furniture, repairs or construction.
Being a priority sector and having the house documents with the lending institution, these loans are cheaper compared to others.
Loans are given for studying in higher educational institutions of the country or for studying abroad.
Loans for industries take into account factors like the capacity of the trader, his income tax returns and stock etc. While the cost of going abroad to an educational institution, hostel cost, fees etc. are taken into consideration.
Apart from this, loans can also be availed against shares, insurance, mutual funds and fixed deposits. Which may vary depending on the amount deposited, and the risk involved.