All posts tagged: financial planning

Rise of Online Lending Platforms

Online money lending

With the evolution in the field of information technology, the lifestyle of people started changing gradually. It started showing its effect on various sectors and one of them is banking and finance sector. Before the evolution, the process of completing a financial transaction was tough and physical presence of both person (borrower and lender) was must. But nowadays everything has changed even the way of money is being borrowed has changed by online lending platforms. One can easily borrow a sum of loan/money from the lender without knowing each other or meeting each other. The transactions are carried out in short time period with the help of information technology.

How it all started?

Lending has existed for thousands of years and has taken on many different forms throughout. At the very end of the 20th Century, First Internet Bank emerged. Consumers could apply for an online loan from their home or office computer, and they didn’t actually have to visit a bank or speak with a loan official. The number of start-ups in the online consumer lending space has grown significantly from a mere 2 in 2013 to 30 in 2015. These firms either operate as NBFCs, intermediaries for banks/NBFCs or serve as a P2P lending marketplace. People conduct all kinds of business transactions online that they used to perform in person. This includes shopping, paying bills, researching business decisions, and of course, applying for loans. As both consumers and business owners grow more comfortable with conducting business over the internet, online lending is also expected to continue to grow.

Today, online money lending is in full swing and only getting bigger day by day with lakhs for transactions and crores of the loan being distributed per month.

How one may lend money online?

The process of lending short term loan online is quite easy. It is divided into the 4 simple steps as shown

Lending Process

For instant loan the borrower needs to apply online, once the lender receives an application they will check for eligibility and approves/dis-approves the application. Once the application is approved the disbursement of the loan takes place.

These online platforms work more like a bank. When a person applies for a personal loan online there is evaluation of creditworthiness and repayment capacity of an individual. The only difference between banks and the online lending platforms is that there will be no executive visiting to collect the documents and provide other services A borrower needs to scan and upload documents for KYC, such as photo, PAN card, Aadhar card and passport. Then, they need to provide income-related documents such as six months’ bank statement, three months salary slip and income tax returns.

We are one of them

We all have gone through the situations where we are left with empty pockets and being broke at the end of the month is a common problem.

We at EarlySalary.com offer quick short term loans to salaried individuals. We plan to help provide a small bridge loan to tide over that short difficult period till your salary reaches your account. The process of applying for a loan on EarlySalary is very simple. It is consisting of three easy steps. The first step is that one needs to log in and apply for the loan after which loan request will be approved or rejected (depends upon credit worthiness) and at last as soon as the request is approved the cash will be transferred into your account immediately.

Sounds good? Let’s try it out here and get your salary in advance with EarlySalary.  
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Fixed Deposits Versus Mutual Funds

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In our financial space, we come to a state, where we have sufficient funds, and we wish to invest a chunk of it for future plans and goals.
Two very popularly used media for investment are Fixed deposits and Mutual Funds. We will distinguish between the two after we define them properly.

Fixed Deposits
Here we deposit money in a bank for a specific period of time that ranges from 7 days to 10 years. The amount invested earns an interest based on the tenure of deposition. It can be as high as 9% per annum(varies according to the banks and it’s schemes). After the tenure ends, the money is returned to us topped with the interest earned.

Mutual Funds
Mutual funds can be best described as a place where funds are consolidated by numerous investors. The fund accumulated is invested in one or many asset classes like equity, debt, liquid assets etc.
It carries the tag mutual because all the perils, awards, gains and losses in the invested sum are shared by all the investors in accordance to their contributions.

Difference between Fixed Deposits and Mutual Funds

Rates of Interests:
In case of Fixed deposits, the rate of interests are pre-determined and remain intact during the entire tenure of investment. The rates of interest vary for mutual funds as per the market conditions. In case of an uphill in the market scenario, the benefits of mutual funds surpass those of fixed deposits, as the returns are higher. While a downhill situation in the market renders fixed deposits as the winners in terms of the returns that are offered.

Liquidity:
In case of Fixed deposits, the tenure is fixed, and they offer medium and low liquidity options until you complete the entire tenure of deposit. Mutual Funds offer liquidity to the investors but with certain sets of terms and conditions.
There would be some penalty associated with pre-mature withdrawal of our fixed deposits, hence we would lose a chunk of our expected return. For mutual funds, after the minimum holding period is over the liquidity rate is high. However if we immediately withdraw after we invest that is within a year, then we are liable to pay an exit load cost of 1 percent.

Risk Factor
Fixed deposits are for investors with low risk appetite. However mutual funds are for people with high-risk appetite.

Investment Cost
There are certain costs associated with the mutual funds that we invest in, however fixed deposits do not levy any expense on the investor. The expense incurred depends on the kind of mutual fund that we choose. Liquid funds may have a low expense of up to 1% p.a., debt mutual funds may have anywhere between 0.5% p.a. to 2.25% p.a., and the expense of equity mutual funds may be up to 3% p.a. This expense is adjusted in your returns

Tax Scenario
We would all love to receive more amount of money post the tax returns from our investment
In case of mutual funds, you need not pay any long term capital gain tax on your investment in equity mutual funds However for a short term gain, we need to pay taxes at 15 percent. The gains in long term investment in debt mutual funds are taxed at 20 percent with indexation and 10 percent without indexation. For liquid mutual funds, the tax is as per the tax slab.
Regardless of the tenure in fixed deposits, the interest that is earned in totality is taxable according to the tax slabs.

We have drawn a line of differentiation between Fixed deposits and Mutual funds. Hope this helps you out better with investment plans. Happy investing.

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Ways to repay loan early!

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We encounter many situations wherein we have to rely on loans. And where there is a loan there is a debt that follows.
We often become perplexed and overwhelmed after seeing the debt pile. This is often due to mismanagement. All that is required is a sense of systematic financial arrangement that will allow you to be on time with repayments or even be an early payer.

We will list down some ways through which you can pay off your debts in a much faster way.
1. Go for Bi-weekly Payments. You can choose to pay the lender every two weeks instead of the regular monthly repayment
Paying your loan early will save your money that amounts due to the interest. This will also decrease the overall term of the loan.
With the surplus money, you can do so much with your life. You can invest it, or you can save it for retirement or you can pay off other debts.
However you need to consider this with your lender first. There should be no penalties associated with an early payment.

2. You can speed up the repayment procedure with each salary hike you get.
You can do that by incrementing the EMI account with every hike in your income. Even a moderate increase in the income saves a great deal of interest. For example If you get an increase of 7 to 8 percent then you can easily increase the EMI amount by a 4-5 percent. This little increase in the EMI can lead to the completion of loan repayment at a much faster rate thus saving a lot of interest and time.

3. Choose the path of Refinance when you have many loans in your basket. Taking a loan against your existing asset again helps in waving off other debts in place, and also helps in reducing the overall interest rates that are spread over multiple debts. We will explain how.
Refinancing basically is paying off your existing loan, and going forward with a new one, while using the same property as collateral or security. You can utilise refinancing for reducing the term of a longer mortgage, or for a switch from a fixed-rate to an adjustable-rate mortgage.

4. You can convert the credit card dues to EMI’s. Credit cards are otherwise convenient, but they also give you a hard time, if you spend without thinking.
If the credit card bills become insanely high, then it is time for you to ask your credit card issuing company to convert your due payments into EMI’s. Many of the credit card companies allow the customers to pay off in 6-12 EMI’s. However if the amount is large, then it might even get extended to 24 months.

5. You can resort to rounding up of the payments. Here you will have to spend a little extra money. But this leads to saving your money in the long term on the interest rate, and also shortening your loan period.

6. Most importantly, bring in a wave of change in your lifestyle too. It is important for you to strike a balance between what you spend and what you save. Do not run into recurring debts. Also keep in mind that paying off debts after the due date affects your creditworthiness. So it is advisable to pay on time, and not fall prey to debt traps.

So do not run away from repayments. Investing in the healthy habit of paying on time will help you out to steer clear of debts and will also help you to live in financial stability.

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Planning for retirement

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“Retirement” .Do we need to think about it at all? If no, then perhaps now is the time to stop giving a cold shoulder to it.

Being ignorant does not help carve a secure future.

Though we are young and quite able at this stage in our lives. But do we think of times when “un” gets added to our ability.

Reality covering us from all four sides has changed now. We cannot wait till the RIGHT age.

Money control and Money management is imperative and so is wise investment.

We would want to jot down some essential tips that would assist you better with financial planning.

Compounding it is!
One of the strongest instruments in the financial world is compounding.
So how do we go about the process?

Start investing early, even if it is Rs10,000 a month, go for it. Putting in a small amount is okay, what is critical here is the interest that compounds with the passing time.

Also,Save your bucks! Saving is always a great idea to keep. Saving not only for retirement but for other purposes aids at various stages of our lives. The sooner you start saving , the more time your money has to bloom. Pooling in some money for retirement should be your utmost priority. Financial Goal setting is important, however sticking to those goals, and not wavering is even more critical.

It is time to go digital!

Start using an e-wallet!
This has advantages of cash back and it is safer
The flexibility, security and the usability of the wallets have cemented faith in the people using them. You can put an amount as tiny as Rs 10 to Rs10,000.
Convenience blended with rewards incites people to use it again and again.

Sail the boat of Direct mutual funds!
Investing in direct plans of mutual funds renders higher returns. The difference in returns is more pronounced in case of equity funds. In debt funds the the returns are moderate in amount. And the returns are the lowest in liquid funds out of the three.

Swap Fixed Deposits with Debt Funds!!
Safety and Fixed deposits go hand in hand. However when it comes to tax benefits, they are not very efficient. A better path to tread on is Short-term debts, that has the combined credit risk almost equal to FD’s. Though there is not a vast difference on the interest rates generated on short-term debt funds, however the actual return on these is much if they are held for a span of more than three years

Brick a building of buferable cash!
The economic conditions waver like the wind. For example, a hike in prices in the US can subsequently leads to a market fall in India!
Having some cash as buffer, will be handy in such situations. This money can be used to buy at cheap rates and sell at higher rates.

Be wary of Debts/Mortgages!
Being freed of mortgages or any lingering mortgages is a fantastic step towards retirement planning. You do not want to get nightmares of debts when you are greying.

Also lets chart out a plan for someone who is close to us and has just entered his/her retirement phase We will go step by step.
1. Firstly we need to calculate their monthly expenses and needs
2. We then come to her various sources of income
3. Changing their status in the bank is a wise option. Transfer their corpus to a senior citizen savings account. That gets better interest.
4. Get their 15H form signed and deposited at the Bank so TDS in not deduced at source on her FDs. This also reduces agony of chasing for Tax refund.
5. Go for opening a Mutual Fund Folio. Do you know once you have done a KYC with one Mutual fund, it is valid for all investment across all Mutual funds.
6. Divide their portfolio into Four segments
6. 1 Monthly income (if pension is not there or less) – In Fixed Income Mutual funds go for a standing instruction to transfer a fixed sum to their saving account monthly.
6.2 Diversify Equity Mutual funds for long-term steady income
6.3 Invest 10% of the corpus in Blue chip companies
6.4 Build an Emergency fund
7. Activate confirmation emails and SMS on your and their phones
8. Make sure their health insurance plan is secured.
9. Ensure all assets have nominees as per their wish.
10. Make their will

Retirement is the a faraway destination, but we need to cement a path from now to reach there in a financially healthier state.
We hope that our recommendations will help you in deciding clearly and taking informed steps.

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Setting personal budgets

budget

In our lives today, it seems that we are constantly in our running shoes, because all we do is race to fulfilling our duties, necessities and obligations.
Expenses are never-ending. How we wished that we could count the expenses on our fingers, but unfortunately we cannot.

It has become extremely necessary to have a budget made. Having a budget in place allows more breathing space when it comes to financial decisioning. We can actually take a pause, and direct our expenses better, without being hasty about money matters

We will talk about how we can focus on administering our expenses and savings.

  • 1. Track your spends and earns for every month. Figure out what you spend and where you spend. It goes for your earnings too.
  • 2. Also prioritize your bills. The necessities have to be thought about first. Rent, Groceries, Electricity tops the list.
  • 3. Now is the time to plan for your future goals and dreams. Start saving and investing to make the dreams turn into reality. Sit and discuss your goals with your family, and ask them to give in inputs too about what they want to achieve, lets say in the next five years. Such brainstorming is always productive.
  • 4. Create categories for your goals. Tag them as short-term, mid-term and long-term. Your short-term goals could be buying a refrigerator next month, or purchasing a car next year.

    Mid-term goals could be about you wanting to go on a vacation with your family to Malaysia

    Long-term goals would be you thinking about retirement plans and policies.
  • 5. While we have created goals, we need to also assess the value associated with them. Inflation is a factor that can cause an upheaval in our financial dreams. Short-term goals would not be affected by inflation. However mid-term and long-term goals can be affected by inflation. So you need to be wise enough to invest also side by side.
    This will help your money boom too over the course of time.
    Also having a correct estimate on the value of assets is imperative.
  • 6. After estimations, and goal settings comes the most difficult part. Now you have to save for your goals. That means you need to keep aside some money for your different goals. Shelling out money at appropriate intervals will help you in achieving all the goals that you want.
  • 7. A great way to track, monitor and create a more systematic budget is through the innumerable money management apps available in the technical horizon. These apps act as your financial advisors and guides and they accurately advise and calculate spends and earns.
    Some of the most popularly used money management apps are Wally, Mint, Homebudget etc.
    You can get a detailed description of the same at money-management-apps

    Managing money seems like a task impossible. But we assure you that with budgeting and prioritizing your monetary needs, it is a task really easy.

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Education Loans

Graduate Piggy Bank

Quality and Quantity seem to come hand in hand. In present scenario, quality education burns a hole in the pockets of parents because of the huge quantity of fees charged for it.
Education loans offered by numerous financial institutions are a boon to the vast sea of students. Students can breathe a sigh of relief with the numerous loan options served across to them, choosing their careers is easier now.
Parents also can be complacent about the fact that they have a monetary pillar to recline on. However there are some factors that we need to be vigilant about.

  • 1. Your educational institution is looked at with a microscope before a loan can be granted. The colleges that offer good placement opportunities are given a green signal. The educational institutions that are not well recognized are given low priority for giving out loans.
  • 2. The CIBIL score for both parents and students is one of the key factors that leads to an approval or disapproval of the education loan. The credit history needs to be up to the mark, and there should be no traces of regular defaults. This holds integral for students, who have just entered college and also have started working. These youngsters might apply for various credit cards with a low repayment capacity resulting into a disrupted CIBIL score. For the parents who are the guarantors, it is imperative to have a good credit score.They are the ones who guarantee the repayment of the loan.
  • 3. Your academic performance also one of the deciding factors for the lenders to grant you a loan. So if you do not fit in the eligibility criteria that the financial institution possesses, then your loan request might be rejected. The banks/financial institution thinks that you would fall in the category of a non-performer and not earn enough to repay.
  • 4. The type of course that you have applied for ascertains the loan approval. If the loan is for a part-time course, then chances are that the bank might reject your loan application. Financial institutions/banks approve loans that are meant for a full-time course abroad or in the same country.
  • 5. The income of your parents is a crucial factor that can turn the tables. Since your parents essay the role of guarantors, and if you fail to repay the loan, then it is on them to repay the amount. If it is fairly low, then the lending institution will not hesitate to disapprove your loan request.
  • 6. Financial institutions do not rely on “Age No bar”. There is a certain age limit upto which loans can be approved and that is 30 years.
  • 7. Whenever you take a loan of more than 7.5 lakhs, then it is necessary to have a collateral and joint borrower in place. If you are unable to provide these, then you might get the loan disapproved. Having a collateral in place, gives a sense of guarantee to the lending elements. They feel that they can recover the amount loaned in case of failed repayment. For an amount lesser than 4 lakhs, you are not required to have a collateral in place. However even such an amount necessitates the involvement of a guardian/parent.
Taking loans for education that is a step taken in many people’s lives. Hence we wanted you to be aware of the obstacles that might come in future planning and career decisioning. Being cautious will help you in better financial planning and control of money.
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Applying for a home Loan

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Financial planning while taking a home causes us to hyperventilate without fail. This is an integral decision in our lives, where we are financially able to get a house of our own, but we dread the debt that follows to get one.
We need to involve ourselves in comprehensive financial planning, tackle debts and control our money efficiently.

We will discuss about few things that can help us in applying for a home loan without any hassle.

1. Firstly to get a home loan, we need to have a decent salary and a secured job. We should be regular with income tax payments and filing of the returns as well. We should also get our form 16 from our employer.

2. It is extremely crucial for us to have a good credit score. In the absence of a good credit score, the financial institution might reject our loan request.We should be prompt in paying our debt on the due date.

3. We need to also keep a check on any other loans that we have applied for and taken. Financial institutions monitor our capability to repay. For example, If we have taken many loans that occupy 50% or more of our salary, then we probably might not be in the state to repay the loans. Hence a balance is advisable.

4. We need to get a mortgage banker involved in the process of selection of loans. There are innumerable loan options provided by the lender, and we at our part have innumerable questions. Having a mortgage banker leads to us making decisions faster with efficacy.

5. As mentioned, financial institutions evaluate our repayment capabilities. the lending instruments will ask us for all the investment data that we have. We would be required to share the details of bank account/s, post office savings schemes, insurance plans, employment details etc. In case we are freelancers or self-employed, then we need to give the bank the details of our income, income tax return, balance sheets , so that they grant a loan.

6. It is very important for us to assess the kind of property that we choose to get a loan for. It may become a little difficult to get the loan sanctioned if the property is a resale property of age 10-15 years. The financial institutions also evaluate the construction stages of the property. The property needs to be dispute free as well. So it is wise to be safer by going for a property that falls under a good record and is on pre-approved list of the banks.

7. While applying for the home loan, we need to be ready with the down payment. Most of the banks give allowance for eighty five percent of your loan. We need to pay the remaining amount as down payment.

8. The repayment time also is an essential factor to contemplate upon. We can choose the time to repay our loan. But while deciding the time limit, we need to consider the fact that a longer period of repayment time will lead to lower EMI’s but higher rates of interest. We also need to consider our age too at the time of repayment. Will that be the right time and will we have the ability to repay at that age? So we need to make the choice accordingly.

9.The financial institutions do not press on the need to have a guarantor. However having a sense of guarantee ,leads to an increment in our credibility.
Also there are cases where in it becomes mandatory for us to have a guarantor. For example, if we are self-employed, or if we are on a transferable job, if our city of purchasing the property varies from the city where we reside etc.
The guarantor could be our friend or family. And he/she takes guarantee in the legal space. But there is criteria for the guarantor. There are age and income standards that are set by the financial institutions, and if they are not fulfilled then the person can not be a guarantor.
In case we become delinquent, and we are unable to pay back. Then it is our guarantor’s responsibility to repay the loan.

10. If we apply for a certain loan amount, and it is not getting sanctioned, then we can choose to apply for the loan with our spouse. The chances of getting approval increases.

11. Having an appraiser in place helps all the parties aware that you are paying a reasonable price. The financial institutions arrange for an appraiser who essays the role of a third party. The appraiser evaluates and gives an estimate of the value of the house that we intend on buying.

At the stage of closing the process, there is certain paperwork that we need to get done with. It takes a few days for the lender to fund your loan after the completion of paperwork.

Our intention was to draw your attention towards certain basic but crucial points that are required in the home loan process. Hope this article helped! Happy Buying! .

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How to Repair your credit score?

Credit score

Before conversing about fixing damages to the credit score. Let us talk about a good credit score. We often ignore credit score while applying for loans, and many of us unaware of the low score, until the lender rejects our application and informs us.

We should not turn a deaf ear towards our credit score; instead we should monitor it regularly.

What is the Credit score and why is it so important?

So essentially a credit score represents a person’s creditworthiness when he/she asks for a loan. A person’s credit score is determined by the person’s repayment behavior and credit history, and the creditworthiness is constructed around that. The credit agencies maintain a database of credit standings of individuals and commercial entities. The score ranges between 300- 900. Score of 750 and above is considered to be a good score. There are four agencies that are permitted to maintain this database. They are CIBIL, Equifax, Experien, and CRIF highmark.

Why is the score so important?

With a huge array of financial institutions you might feel that money is easily accessible, but this is not the case. The risks associated with lending have always been considered high and it is necessary for the institution to ensure that it’s lending to right person. Hence, the financial instruments rely on criteria that decide whether you deserve the loan or not. Here is where Credit score shines brightly. It is usually the decision making point for lenders to give or to not give the loan to the borrower. Hence it is important for you to maintain a good credit score, and work towards improving if it is low.

What makes a good credit score.?

The credit score, amongst many things, looks at these critical parameters:-

  • 1. Repayment history
  • 2. Loan enquiries and status
  • 3. Loan to income ratio
  • 4. Length of the credit history
There are no short cuts to improving credit scores. The best way is to administer and manage it over time. And gradually things will fall in the right place.

Let’s focus on some things that we can do to better our low credit scores

  • 1. Stop asking for a new credit – If you are aware that your credit score is poor, you should not apply for a loan at multiple banks. The more inquiries the lender puts into your credit score, the lower it goes. You need to be patient till the time you obtain the suitable score.
  • 2. Lessen the debt quotient in your kitty – You should meticulously chart out the credit accounts that you have out of your credit report. You need to stop using credit cards for this situation. Make a budgetary plan, and direct your expenses towards the higher rate interest credit cards first.
  • 3. Keep your repayment balanced: Well it sounds quirky, however repayment does affect your CIBIL score badly. So in this scenario if you drastically pay off all your repayments at once, then this portrays instability in your financial records. Repayments as a process should take place gradually thus reflecting monetary stability and rendering positivity to your CIBIL score.
  • 4. Set up reminders for Payment: We are so caught up in our routines, that we hardly have a breathing space. But we need to be alert, and sensible when it comes to financial planning and decisioning. Some financial institutions offer payment reminders through their online banking portals that can send you an email or text message telling you about the due date. Also there are automatic payments through your credit cards, wherein if you enroll, then payments are automatically deducted from your account and gets received by the lenders.
  • 5. Be vigilant of any sort of mismatches in your credit reports: It is advisable to leave no stone unturned. Sometimes bank authorities can across erroneous entries to CIBIL. So in such case scenarios, you need to approach banks to rectify the mistakes. Also you need to make sure that all the data on positive and timely payments is recorded and submitted by your lender to CIBIL
  • 6. Use your credit judiciously: Whenever you make use of your credit, then you should analyze the credit utilization ratio. This ratio is of amount of credit you have used to the amount if credit available as balance. If you have numerous credit cards, and you use only one of them, then your credit score may get negatively impacted. Hence you need to be smarter and spread your spends over numerous credit cards and not just one.
  • 7. You need to create credit history if you do not have one: For first-timers, there is an absence of credit history. Lenders might hesitate to give them a loan, owing to their zero credit score. So what you can do is open up a fixed deposit and take a credit card against it. And once you have one in your hand, then you can work towards it and improve the credit score.

We recommend you to check the credit score before applying for any loan to ensure that there are no issues in the credit history. Even if there are any, make sure you get them rectified by the agencies before applying for the loan. Our aim for writing this out was to make you understand the importance of a good credit history, and we hope that you take smarter steps towards financial goals.

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Unsecured Versus Secured Loans

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One of the most common questions that we ask ourselves is “What kind of loan do I opt for?”
We take baby steps towards Loans. Loans are like those tricky questions in our exams, where we have to meditate hard to make the right choice.
Deciding upon which loans to take depends upon numerous parameters such as whether you want to take up a house or cater to your your child’s education or go on a vacation.

Taking loans is a financial commitment, and by agreeing for it, you are basically agreeing to pay a fixed part of your salary till your loan is repaid.
Loans can be majorly categorised into unsecured and secured loans. Sit back and read on further to know about these loans.

Secured Loans:- These loans are guarded by an asset or a collateral Through secured loans, you can get a huge sum of money. Putting your house or your car is a good enough security against the loan taken. Secured loans offer lower rates of interests, higher borrowing limits and longer repayment terms as compared to unsecured loans. The lender has the right to take you asset incase you become delinquent. Also if the selling price does not cover the debt, then the lender can pursue you to settle the difference in amount.

Some examples of Secured Loans are
1. Mortgage wherein your house is taken as security against your loan
2. Auto Loan: Here your vehicle is taken as security against your loan

The perks of Secured loans:-
Cost:- Secured loans are less expensive as compared to Unsecured loans.
Easy Accessibility – Secured loans can be obtained even if your credit score is bad. The lender can seize property incase of failure in repayment.
Tax deduction on interest:– The interest paid on the loans such as mortgage is tax deductible.

The downfalls:-
Losing your assets – You can lose a valuable asset, however the lender loses zero.

Unsecured Loans:- Here you do not have to give the right to your assets to the lender. Lenders are more prone to risks here.
When you apply for an unsecured loan, the loan gets sanctioned by the user on the basis of repayment capability. The borrower is judged on certain parameters such as credit history, capital, collateral , borrower’s current financial situation as well as prevalent economic factors) . His/her character is also taken into consideration to convert decisions to actions.

Some examples of Unsecured Loans are
1.Credit Cards
2.Personal Loans

The perks :-
Secured Assets – You do not lose assets, because the loan does not require a collateral backing them

The downfalls :-
Harder to get – Unsecured loans might be harder to get from the lender. You need to have a good credit rating, and if you do not have one, you might be considered risk worthy.
High Interest Rates – The interest rates may be higher.
Receiving the loan of Lesser value – Also you might not get the desired amount depending upon your credit scores. Hope we have helped you to get a better understanding of loans that exist.

Be smart and take smarter decisions!
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Default on loan can severely affect your credit score!

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Authored article by Akshay Mehrotra, Co-Founder & CEO, EarlySalary.com

Default on a loan can severely affect your credit history and may dramatically reduce your chance of getting any credit.

Sometimes when we are young we choose not paying credit card for various reasons. Sometimes we just don’t have the money, sometime, the utility of the benefit accrued from the loan is long gone and other priorities calls for money ahead of repayment or Sometimes, we are just outright lazy and keep doing late payments while knowing the consequences.

The fact is if once a delinquent, always a delinquent customer, Banks and other financial Institutions treat you with caution. It is necessary to understand how Financial Institutions look at your repayment track record and what are these credit bureaus. In 2005, CICRA (Credit Information Companies (Regulations) Act) came which paved way for specialized institutions for monitoring and recording all loans taken from Banks and other Financial Institutions. These companies (known as CICs) collect, process and present information about each borrower and assign a credit score. Today, there are four CICs in India, CIBIL, Equifax, Experian and CRIF High Mark. Hence, A credit history of every customer submitted to all four bureaus, which allows Financial Institutions to dive into and judge whether a customer applying is worthy to give loan or not.

Credit information by definition could means any information relating to :—

  • The amounts and the nature of loans, amounts outstanding by a credit institution to any borrower;
  • The nature of security provided by borrower;
  • The guarantee furnished;

Does giving guarantee for someone else’s Loan also impact Scores? – The answer in short is yes. The financial institutions send the guarantor details to CICs, in addition to a person taking loans. Hence it is important to understand that the role of a guarantor is crucial. If the borrower defaults, then you as the guarantor will suffer too as you too will be in the “defaulter” basket. Thus, Think hard before becoming a guarantor.

Not performing on loans and credit products severely impacts your credit score; a credit score basically is a system that enables a credit institution to assess the creditworthiness and capacity of a borrower to repay his/her loan and advance. While it is subjective and depends on Institutions’ internal policies, but according to my understanding a late payment on a credit card will severely impact one’s chance of getting a personal or Home loan.

Hence, taking a loan from one bank and thinking no other bank will know the credit history, is a fool’s paradise. If you are not repaying your credit, the information will be accessed by the financial institution who can lend to you and it will affect their decision.

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