Personal Loan Rejection

Are you facing a Personal Loan Rejection? A rejection can be disappointing, especially if there is an urgent need for funds.

However do not feel disheartened. There is an option of applying again as long as you know and understand the steps you need to take to turn your rejection into an approval.

There could a number of reasons for the same; an analysis could help you to deal with the situation.

Since the Economic Meltdown of 2008, most Banks / Financial Institutions have become extremely conservative creating systems to keep defaults under check. The Personal Loan being an unsecure loan strict guidelines have been put in place as a result.

Hence before reapplying, or even applying for the first time, It is important to consider the following steps carefully:

• Firstly get the facts of why your loan was rejected from the agency. If the reason is not a valid one, you could ask for a relook or a reassessment of your loan application.
• A healthy credit score of over 720 points or more is needed for an approval.
• Check your credit score for any errors; at times there could be a wrong entry under your profile causing your score to decrease (Persons with similar names & date of birth could cause a wrong entry).
• A  Credit /Loan transaction has not been reported to CIBIL by the concerned Bank.
• Another major reason for rejection could be a verification issue. Hence all contact numbers & address provided should be valid & operational.
• To be safe, give additional contact numbers (for yourself/workplace). Be careful to give a correct email id that is updated as per record.
• Documents provided to the Bank should be clear & authentic.
• In case you find your Credit Score is below the mark, the following steps can be taken to improve your score:
• Pay all Credit Card bills by the due date.
• There must be enough balance in your account before your Loan installment is due to avoid the payment to bounce.
• In case there is a bounce, even if the money is credited thereafter a it will show in your credit history. So take your payments seriously.
• Use your Credit Cards carefully. Maintaining a 30% usage is ideal.
• Do not make in discrete applications for Credit Cards or Loans.

Remember that you need to be realistic. Check your eligibility & do your homework before Applying For a Loan.

If you need further guidance about applying for a loan, reapplying, to check eligibility or even if you have any query, feel free to reach us at yourloanadvisors.

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BENGALURU: The 26 nationalised banks, which are expecting a Rs 25,000 crore government bailout in the coming financial year have lost at least Rs 30,873.86 crore to frauds in four years — 2011-12 to 2014-15.

According to documents accessed from the Ministry of Finance, these losses are only due to frauds of Rs 1 lakh or more. Some of these cases are being probed by investigating agencies.

In the latest development, the Central Bureau of Investigation, which is also probing the Kingfisher Airlines BSE 3.03 % case, arrested a chartered accountant of Udaipur and a businessman of Jaipur in an on-going investigation of a case relating to an alleged loss of approximately Rs 1,000 crore to Syndicate Bank.

Syndicate Bank is headquartered in Karnataka. In the said period, the bank has lost Rs 1,133.31 crore and has reported 445 cases of fraud involving Rs 1 lakh or more.

MUMBAI: Come April and the cost of taking loans for homes, cars, televisions and washing machines is likely to become cheaper, regardless of whether Reserve Bank of India Governor Raghuram Rajan cuts interest rates or not.

The switchover to the marginal cost-of-funding formula, coupled with sharp cuts in small savings rates, will force lenders to pass on the benefits to customers.

“The transmission framework is being put in place,” said Srinivas Varadarajan, head of fixed income and currencies (India) at Deutsche Bank. “This should now enable banks to bring down deposit rates. With the latest round of (public savings) rate cuts, the government has done its bit.” The government reduced interest rates by 60-130 basis points for some term deposits, public provident fund and Kisan Vikas Patra.

The quarterly revision will ensure that interest rates under small savings schemes are more dynamically related to current market rates, thereby enabling banks to move their interest rates in line with current money market rates, the finance ministry said on March 18.

According to Varadarajan, there are three elements of this structure – calibrating public savings rates to the market, the marginal cost of lending and changes to the liquidity framework. The RBI has mandated banks that all rupee loans should be priced with reference to the Marginal Cost of Funds-based Lending Rate (MCLR).

Lenders until now mostly followed the average cost of deposits formula, while MCLR brings down the cost of deposits faster in a falling-interest rate regime. This, in turn, gives lenders leeway to cut lending rates. “Obviously, the deposit rate cut has to precede the lending rate cut,” said Rajnish Kumar, a managing director at State Bank of India.

“As per the formula, unless you determine the marginal cost of deposit, you cannot arrive at the marginal cost of lending rate.” The MCLR formula calculations are yet to be finalised in most banks.

No lender has arrived at a figure or a fool-proof methodology, bankers said. “Bond yields will now come down by about 25 bps in the next three to six months, leading to lower corporate borrowing costs,” said Badrish Kulhalli, fund manager – fixed income at HDFC Standard Life. “Small savings rates have been quite sticky and the cut in these rates signals a lower interest rate regime.

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What Does The Reserve Bank of India (RBI) Policies Mean For The Common Man?

Beyond the initial frenzy over the rate cuts and the momentary brouhaha in stock markets, the big question is how much of the RBI’s policy actions in the past have benefited the individual Home Loan or auto loan buyers on the street.

Theoretically, if the RBI cuts its overnight lending rate to banks (repo), banks should pass on its benefit (since their cost of borrowing comes down) to the end-consumer with a short lag. In reality, this doesn’t happen since there are a few other factors that often come into play.

That’s precisely why the RBI, under Raghuram Rajan, despite trying all possible measures to compel banks pass on the 125 basis points rate cut to the consumer has largely failed. In fact, the central bank has openly expressed its helplessness to ensure effective monetary transmission in the banking system. Here are the major reasons why this happen:

For one, banks do not want to compromise much on their interest earning margins. Unless deposit rates fall, banks wouldn’t be able to lower their lending rates. Else, banks will have to take a hit on their net interest margins (the interest banks earn on advances minus what they spend on deposits), when they are required to pay higher deposit rates and earn less on advances.

One major reason why banks are unable to lower their deposit rates is the higher rates on small savings schemes such as post office savings, various government schemes and PPF. Already in comparison, banks are offering lower return on their deposits.

Banks are offering 7-8 percent rate of interest on five-year deposits, while interest rates on various small savings schemes of the government such as Kisan Vikas Patra, public provident fund and National Savings Certificate are currently some where close to 8.5-8.7 percent.

Savers would prefer the high yielding small savings schemes over bank deposits if banks keep lowering deposit rates. Banks are set to lose in the game then. This is one reason why lenders are lobbying with the RBI to prod the government to bring down the small savings rates. But, if indeed that happens the common man is set to lose again as he will get lower returns on savings.

Secondly, Indian banks’ greed for higher net interest margins (NIMs) has prevented them from lowering their lending rates, in comparison with institutions in other countries. Indian banks enjoy the highest NIMs than their counterparts in other part of the world. NIM is the difference between interest earned on loans and expended on deposits. For instance, the average NIMs of US banks stand around 2.95 percent.

The average NIMs of Indian banks had fallen from 3 percent in 1999-2000 to 2.5 percent in 2009-10 but the bigger banks grew their NIMs aggressively thereafter. Presently, if one takes an average, Indian banks’ NIM would stand well above 3 percent. For some private banks, it can go well above 4 percent.

Until the time banks show willingness to sacrifice their NIMs and pass on the benefit of lower rates to consumers, the benefit of the RBI rate cuts would not reach the consumer.

Thirdly, the base rate system, which banks have been using as benchmark rate for lending, has so far clearly failed to reflect the central bank’s policy steps on the lower bank lending rates. Banks cannot lend below their base rates. This was introduced in 2010 to stop the practice of banks lending much below the erstwhile benchmark prime lending rates (BPLR) to certain borrowers, creating anomalies in the system.

While banks were given freedom to decide their base rates based on their cost of deposits, among other factors, and revise the rate quarterly, banks have always found a way to manipulate the methodology by choosing the most convenient maturity bucket to maintain the base rate high. Following this, the RBI has now decided to tweak the base rate methodology again based on the marginal cost of funds.

Fourthly, the high level of stressed assets on the books of banks has forced banks not to attract fresh large borrowers. Instead, they want to preserve the capital for provisioning and risk-free retail lending. That’s why lending to industries has not picked up in the last two years but auto and Home Loans have been growing in a healthy manner.

Banks do not want to take further risks before they repair their cracked balance sheets and manage to raise fresh capital. The worst-affected are state-run banks, which control 70 percent of the banking system. These banks continue to be capital starved since the government, their owner, does not have the wherewithal to meet their huge capital requirements.

For the above reasons, when banks limit the rate transmission to a minimum (as has been happening in the last one year), it actually doesn’t make much difference to the borrowers since his interest cost burden doesn’t come down drastically. The resultant decline in the EMI burden of the borrower would ultimately amount to a small amount (let’s say for Rs 20 lakh loan, a few hundred rupees less), which shouldn’t be the deciding factor for someone to go for a fresh loan typically.

Nevertheless, as Firstpost has noted before, it’s certainly an incentive to average Indian consumer, for whom, even a minor decline in their interest cost burden is a boon. But the catch here is that if banks are pushed to the corner to lower their lending rates by a big margin that would eventually hurt savers as well—even those invest money in small savings schemes.

The RBI Rate actions have lost the effectiveness to make an impact in the lives of common man on account of multiple roadblocks in the banking industry listed above. The task is to repair the banking system first and address the structural anomalies such as the flawed base rate calculation. That’s where the central bank wants to act now.

But the point here is unless banks give up their greed for high margins and pass on the rate-benefit to common households, RBI Policies will continue to be a non-event for the common man.

In an interaction with ET Now, Chanda Kochhar, MD & CEO, ICICI Bank, shares her views on the government’s FDI reforms and about the Indian economy. Excerpts:

ET Now: What are your thoughts on the government’s FDI Reforms?

Chanda Kochhar: It kind of takes away the two sub limits that were there in the whole entire foreign holding limits. It makes the process simpler. It makes it more flexible, and therefore increases the possibility of participation of foreign investors even more.

Of course ICICI Bank BSE -1.90 % always had the specific approval in this regard but not it just opens it up for various other banks and makes the process much more flexible.

ET Now: So even in the case of ICICI Bank foreign investors own about 67.3 per cent combination of investors, do you see appetite for more foreign capital?

Chanda Kochhar: Yes, clearly because the limit is 74 per cent. ET Now: Let us talk about the macro picture as well, and the last time as well we spoke about the investment cycle during the budget day… Are you disappointed by the fact that the investment cycle has still not turned? it has been 17 months of this government, everybody in corporate India thought it could have happened by now… why according to you has it still not there?

Chanda Kochhar: I would say two things, one is that we should understand why the private sector investments has not picked up, and the second is we should not make too much about it. There are other things that are happening that can actually kick start the economy.

As far as the private sector is concerned, currently a lot of their cash flows are tied up in projects that have just got completed or getting completed, and till the time these projects generate cash flows, the debt on these projects has already been taken. Till the time these projects generate cash flows you will have less scope for them to start investing in the new projects.

So we have to wait for these projects to clearly start generating cash flows. In the meanwhile, as I said a lot has happened on the macroeconomic side whether it is current account deficit, fiscal deficit, inflation control, interest rates that is one part.

The second is really on factors that are churning the economy whether it is coal production, whether it is giving out of mining licences, whether it is the whole push behind roads and highways the likelihood of railways, and defence now kicking in, and this is what is churning the economy currently. Then it should be followed by private sector investment as those issues get sorted out.

ET Now: In your view are we still what 12 months away from private sector investment revival?

Chanda Kochhar: I think so. Yes.

ET Now: At least 12 months?

Chanda Kochhar: Yes, about 12 months away.

ET Now: There was a sense of euphoria in the mood of corporate India. I am talking about corporate India in general, and not ICICI Bank in particular. Do you think people are now more cautiously optimistic about the pace of reforms that we have seen over the last 17 months?

Chanda Kochhar: We must remember that whether we look at it is not just about India. When we look at even globally, times are very challenging, and one cannot deny the fact that commodity prices are so low, and in fact my belief is that they will continue to be low for some time to come.

The financial markets being very volatile now all these things do impact the overall economic activity and the mood of the industrial sector moves on account of various such factors, so it is not to say that work has not got done.

A lot of work has got done but at the same time yes even the global scenario as such that one has to be just cautiously optimistic about everything.

ET Now: What would also help change mood, as another slew of rate cuts so we have seen some move on that front, I am not saying that the rate cut will revive the investment cycle but actually probably help aid the mood as well? How much elbow room do you think there is for the RBI to cut rates in this fiscal year?

Chanda Kochhar: As far as RBI is concerned they have done 125 bps, they said very clearly they have kind of front loaded some amount of that cut, but I still think there is elbow room for another about 25 bps up to this fiscal year, but that is the RBI monetary policy.

As far as the bank lending rates are concerned you would see a little bit reduction even before any next monetary policy reduction, because the cost of funds for the banks continue to come down.

ET Now: And by how much would the reduction be?

Chanda Kochhar: That of course is going to be decided by every banks ALCO meetings.

ET Now: This is likely to happen even before the next policy in December you are saying? Sure, but do you think the other issue that the governor will also have to keep in mind is the Fed action, and there is some amount of uncertainty and the markets are beginning to price in a likely Fed rate hike in December itself. Will that also weigh on our mind and how prepared are we to the fact that the volatility that will come on account of a Fed rate hike?

Chanda Kochhar: I think the Fed rate hike now has been expected for long. In that sense it is not going to catch the market by surprise. Also, if you look at India’s macroeconomic conditions, we are actually much better placed than any other country in terms of our foreign exchange situation is concerned.

If you look at our reserves, reserves at a very comfortable position, we cover substantial number of months of imports. Not just that, even when you look at our currency, it has performed much better compared to most other currencies in the world.

Whether you look at it in the last three months, or the last one year as a whole, comparatively we are in a much more stable position.

ET Now: Let us talk about ICICI Bank as well, while you have mentioned that FY16 total additions to recast assets and slippages are likely to be lower than FY15, how confident are you of achieving this, especially given the numbers that was reported in Q2, how confident are you of achieving this?

Chanda Kochhar: Well, as of now we are continuing to move in that direction itself. Of course this is all pinned on the basis of certain assumptions that recovery will happen at a certain pace, some of the executive decisions around large projects will come at a certain pace, but I do not have a reason to believe that that will not happen. As I see the situation currently, we are still in the same direction as I have mentioned.

ET Now: The other big concern that the banking sector and the government itself is grappling with is a whole bunch of stressed infrastructure projects that are stuck right now, and one is not able to find a way out of them, promoters are unable to infuse more equity, what is the way out according to you? Or do you fear that there will be fine day the government will force the banks to write down these loans, what is the way out of this mess because that is critical to the economic revival, is not it?

Chanda Kochhar: I think it is important that we sit down. Again, as the whole ecosystem it is the promoters, it is the banks, it is the governments, the central government and the state government and so on, and close those final last mile issues around each project so that each one of them then start getting into the cash flow.

According to me, many of them can be solved, if it is not all, but many of them can be solved, and if we go on solving them stage by stage, there should not be a requirement that many of these turn NPA. But if the solutions get very delayed then we must also remember that the financing cost, the interest burden itself becomes a burden.

So it is really for the whole ecosystem to work together rather than kind of assuming that the whole thing is coming falling down like nine pins, I think that is not true.

At the same time we cannot be complacent and we will say that we will see whenever the economy revives, I think we have to find that middle path, put our heads down, do project by project solution and maybe we will solve many of them but not all.

ET Now: Sure. I want to talk about some of the value unlocking steps that you have taken specifically, with ICICI Lombard General Insurance. By now you approved sale of 9 per cent stake, with this the stake of Fairfax goes to 35 per cent in JV, does it change the board composition and do they have a provision to further increase the stake at a later stage?

Chanda Kochhar: No. Even beyond 26 per cent actually there was no provision. I mean our JV agreement was really 74-26 but when these changes in the guidelines happened we had a fair kind of discussion with the JV partner and they were very keen to increase the shareholding and that is how this transaction has happened.

So again, there is no future; kind of right, so to say going forward. But I think it is a great step, first of all, it actually conveys the right value of the asset that we are holding and the second is it conveys the confidence that both the JV partners have in the working.

ET Now: With insurance FDI being hiked as well when do you see foreign partners increasing their stake in the life insurance JV as well? That is another thing that the market is anxiously awaiting?

Chanda Kochhar: Yes. I think you will soon see deals on the life insurance side for sure. Again it is not necessary that only the JV partners have to increase stake, you may find other interested investor.

ET Now: Non strategic?

Chanda Kochhar: Yes, non strategic investors wanting to invest, so you could see something like that as well. But whichever way, it is an inflow of foreign capital. So I think you would see some of these.

ET Now: But by when do you see that happening?

Chanda Kochhar: As we speak, many are being discussed so you would see some action soon.

In a chat with ET Now, Ashish Parthasarthy, Hd-Treasurer, HDFC Bank, talks about the new base rate methodology for banks. Excerpts:

ET Now: What do the new base rate norms mean for the banking space? How will the differential rates with different tenors work? Could there be downward pressure on NIMs?

Ashish Parthasarthy: It’s difficult to tell at this point. The guidelines have turned out to be more complicated than expected. The rates are different for different tenors. But the cost basis is ‘all costs’. So, I do not know how it will eventually pan out.

My guess is that it will play out differently for different banks. That is because the cost structures of banks vary wildly. They could be different reference points like size of wholesale operations and retail operations, and even efficiency.

At this point only one likelihood appears clear, which is that the frequency of rate reset will increase. That will obviously reflect in the immediate deposit rates in the system.

In a scenario of falling rates, there could in that case be a marginal downward pressure on bank NIMs. It would be exactly the opposite when the scenario is one of rising rates.

ET Now: If I were a customer, should I have been worried over the cost of my loan?

Ashish Parthasarthy: I don’t see the need for that kind of a worry. From what I understand, the complication is for the bank, not for the customer.

Banks will now have to keep their focus on all four benchmark rates. While resetting the rates on a certain day, banks will have to bear in mind the deposits or outstanding liabilities of the previous day as well. That is usually a tough task.

For the customer, I do not think it makes much of a difference. The only way a customer could be inconvenienced is if the rate reset was made monthly. In such a scenario, the customer will be faced with monthly variation in rates — an irritating prospect.

Banking products will perhaps evolve to eventually be able to play this reset clause profitably. They do have the freedom to reset rates in different frequencies as long as the reset frequency is less than a year. So, you will ultimately have to move to slightly staggered resets. Otherwise, frequent changes will turn out to be headache.

For retail customers, a lot of loans other than home loans have a fixed rate. These include Personal Loans, car loans, etc. For them, these changes won’t matter.

ET Now: What about the impact on the margins of the banks?

Ashish Parthasarthy: It is too early to say anything conclusive. But I can say one thing with conviction that the impact won’t be big.

Under the new base rate regime, you are basically looking at pricing your reference rate at the deposit rates that are prevalent at this point. Now, consider the fact that your deposit base has a rate which remains fixed for some time. It means that in a falling rate scenario, there would be some reduction in NIMs.

But in a rising rate scenario, the NIMs will tend to expand. That’s because you will have the benefit of earlier deposits at prevalent rates.

So, it will work differently in different cycles. But the impact should not be very large. It will vary from bank to bank, and this variation could be significant.

ET Now: How do you expect the rupee to behave over the course of the next three months?

Ashish Parthasarthy: We are of the view that the rupee will tend to depreciate over a period of time. We see it operating in a range of 66 to 67.50 over the next three months or so.

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The much-awaited Reserve Bank of India (RBI) guidelines on calculating the benchmark lending rate are finally out. In yet another attempt to make banks pass on policy rate cut benefits to borrowers, the RBI has brought out a new methodology: Marginal Cost of Funds based Lending Rate (MCLR). Marginal funds refer to money raised by banks in the last month or quarter before the lending rate review. The new methodology will come into effect from 1 April 2016 and is expected to curtail banks’ ability to hold on to higher base rates despite the RBI slashing rates.

How it Works

So far, banks followed diverse methodologies for computing the minimum rate at which they could lend—the base rate. Now, the RBI has asked all banks to follow the marginal cost of funds method to arrive at their benchmark lending rate. MCLR will be calculated after factoring in banks’ marginal cost of funds (largely, the interest at which banks borrow money), return on equity (a measure of banks’ profitability), negative carry on account of cash reserve ratio (the cost that banks incur on account of keeping reserves with the RBI), operating costs and tenure premium (longer the loan term, higher the interest/premium).

The actual lending rate will be MCLR plus the spread determined by banks after taking into account their business strategy and credit risk of the borrower, among other parameters.

Banks can review MCLR once a quarter till March 2017, after which they will have to publish the MCLR on a monthly basis. Lenders will also have to specify the interest reset dates on their floating rate loans. They can either grant loans with reset dates linked to the date of sanction, or the date of MCLR review. The interest rate charged to a borrower will be applicable until the next reset date. The gap between two reset dates cannot be longer than a year.

Core Benefits

The RBI expects the new formula to make floating lending rates more responsive to its policy rate cuts. Ratings agency ICRA believes that the norms will improve policy transmission for new borrowings. “(MCLR) will impact new borrowers immediately: they will benefit in a declining interest rate scenario and take a dent when interest rates are rising,” says ICRA. Even existing borrowers will have the option to switch to MCLR when it is introduced. “They should move to the new system as it is more sensitive to interest rate changes, but they must be prepared for frequent changes in their loan tenure, given that interest rate changes typically affect tenure rather than EMIs,” says Vineet Jain, Founder and CEO of loan aggregator portal loanstreet.in.

Since January 2015, RBI has slashed the repo rate by 125 basis points (bps), but banks have passed on only around 50-60 bps to their borrowers. When RBI had ushered in the base rate regime in 2010, the objective was to ensure better transmission, transparency and fair treatment to new and existing borrowers. However, it met with limited success as banks displayed great haste in hiking rates in a hardening interest rate scenario and reluctance in reducing them when the situation turned benign, disappointing borrowers. MCLR is being seen as one of the tools to get banks to be more generous.

While RBI Expects the new regime to benefit retail borrowers, hurdles remain. For instance, ICRA notes, the complete transmission or RBI’s cuts to the retail borrower will depend on the extent banks cut term deposit rates as well as the proportion of term deposits in the overall liabilities of a bank. “If a reduction in banks’ deposit rates matches the repo rate reduction and term deposits constitute 60% of the funding, reduction in MCLR will be limited to 60% of the repo rate cut,” says ICRA. Bear in mind bank rates could fall in the next few quarters, as RBI is expected to ease policy rates—but they will go up sharply once the cycle turns and RBI increases rates.

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Definition of a Repo Rate

Repo Rate is the rate at which a country’s central bank (RBI in the case of India) lends money to commercial banks in case of any shortfall of funds. A Repo Rate is a Repurchasing Option or Repurchase Agreement for funds given to commercial Banks by the Central Bank as loans against government bonds or securities deposits. The funds are repaid with interest according to the Repo Rate issued by the Reserve Bank of India.

Repo Rate is used by monetary authorities to control inflation. An increase in the Repo Rate will restrict liquidity and control prices, whereas a lower Repo Rate facilitates borrowing. A higher repo rate increases the interest rate of the loans forwarded by commercial banks, whereas a lower repo rate will help reduce the cost of funds. The Reserve Bank of India declares a current Repo Rate, taking into account the state of the economy.

How Does a Repo Rate Work?

Commercial Banks request funds from the Central Bank in exchange for their government bonds and securities when in need of funds, which are repurchased at a marginally higher price. Banks further utilise funds for running their business and issuing funds as loans. Therefore, the current Repo Rate is the basis for all types of loans, including secure loans such as home loans and Loans Against Property, unsecured loans, Personal Loans, and Credit Cards. As the Repo Rate increases, your Home Loan will cost you more, and vice versa.

How does the Repo Rate affect the interest rates issued by Banks?

The RBI has implemented a system of Repo Rate-Linked mortgages to enhance transparency in lending to customers, especially for loans with longer tenures, such as home loans and mortgages, which are provided at a floating interest rate. The current lending frameworks available for mortgage loans include the EBLR and MCLR methodologies.

How Does the EBLR Function?

The EBLR, or External Benchmark Lending Rate, is directly linked to the external benchmark of the Repo Rate. It was incorporated in October 2019 to give customers the direct effect of changes in the Repo Rate. If the Repo Rate is cut, the impact will be passed on to customers with a home loan or mortgage. Similarly, the customer will be charged a higher interest if the Repo Rate Increases.

Banks add a spread over the external benchmark or Repo Rate to determine the EBLR offered to customers; the spread added comprises of:

• The bank’s cost of funds.
• Operating costs.
• Profit margin.
• Risk assessment.

Therefore, the EBLR Rate issued to the customer includes Repo Rate + Spread = Interest rate. Banks must reassess the EBLR Rate issued to customers every three months, per the Repo Rate or the 91-day treasury yield. This methodology, though transparent, is volatile and has been adopted by leading PSU Banks such as the SBI (State Bank of India) and Union Bank.

Details of the MCLR Lending Regime

Most Banks adopt the MCLR, or Marginal Cost of Funds Lending System, based on the Repo Rate and other factors. The minimum benchmark set by the RBI (Reserve Bank of India) is also considered. As per the MCLR system, banks have more flexibility in calculating the costs and can factor in their current deposits and profits.

However, it is slower in responding to changes in the Repo Rate and reviewing the rates offered to customers yearly. On the other hand, customers are also comfortable paying a steady EMI for a while. The interest rate offered to an applicant as per the MCLR regime depends on:

• The cost of funds borrowed as per the Repo Rate.
• Operating costs that include administrative expenses and utilities.
• Other individual factors, such as the Loan tenure and CIBIL Score.

The RBI (Reserve Bank of India) closely monitors the MCLR rate forwarded by most private Banks, such as the HDFC Bank and Axis Bank.

Home Loans and Mortgages are issued at a floating interest rate for a longer tenure, so applicants must be vigilant about the current Repo Rate and any fluctuations afterwards. Fresh Applicants are offered a lower interest as a sales call for their Home Loan. The interest rates are later increased if the cost of the bank’s funds increases. If the benefits of a lower Repo Rate are not offered to a Home Loan applicant, the customer can choose a Balance Transfer to an external bank that provides greater transparency.

Short-term loans, auto loans, Business Loans, and Personal Loans come with a fixed interest rate and monthly EMI at the time of disbursement. According to its policies, the bank determines the interest rate based on its fund cost, including the Repo Rate and added margins. If the interest rate changes, the applicant has the option to transfer the loan amount through a Personal Loan Balance Transfer to an external bank offering better terms.

Ultimately, the cost of funds borrowed from the governing Bank, the RBI, sets the basis for further lending, such as a Home Loan, Loan against Property, Auto Loan, Business Loan, or Personal Loan. Keeping a tab on this is essential for customers using credit.

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New Delhi: Home Loans not only help you realize your dreams of buying that house you have always wanted but also help save tax. But sometimes, the procedure of applying and getting a Home Loan can be complicated and frustrating. To avoid hassles and save cost, you must choose the right Home Loan.

Here are 7 Tips To Choose The Right Home Loan:

1. Research well: These days loans are made attractive for the buyers with lower interest rates and additional schemes. Therefore it is better to educate yourself about the terms and conditions of each loan agreement so that you are prepared beforehand. Clarify all your doubts regarding the loan scheme before you finalize anything and don’t hesitate to ask questions to the sales person even if you have the smallest difficulty understanding a particular clause.
2. Take a look at the EMI: Calculate the EMI (Equated Monthly Instalments) that you will be able to afford beforehand. Remember that you know your money more than anyone else, so keeping in mind your current job and income you can make an approximate calculation about the amount of EMI you can pay. Don’t make hasty decisions on this one, because paying penalties due to non-payment of EMI on time can prove to be more troublesome. If you have a temporary job, there are other things to take into consideration so make a wise decision taking care of all the parameters.
3. Negotiate on the interest rate: Even though banks and financial institutions swear that interest rates are non-negotiable, they could still make a few adjustments, if you list a few honest issues with the high rates. This can be done only if you have finalized the property you want to buy and you need it as soon as possible. Also, if it is the end of the month, it could prove to be beneficial for you. Sales persons have an aggregate number of sales that they need to complete every month; so in order to complete their target they are bound to give you certain benefits.
4. Loan eligibility: Carry documents which include information like your credit history when you apply for a Home Loan. You should have paid all your credit card bills and car loans on time in order to move a step higher on the eligibility list while applying for a loan. If you have a clean record in your credit history for payments done on time, then you can use it as an advantage when applying for your Home Loan. Also, try to focus on the tenure of your loan. If you opt for a long tenure loan then you will be paying more overall as the interest paid would be very high.
5. Additional charges to be kept in mind: When you are Applying for a home loan, you need to be educated about the various other charges that the lenders add to the current schemes. They will add administrative and service charges or processing fees. These additional fees fall under the amount that is sanctioned in your name and not under the amount that you take home. So before you finalize any deal, you should make note of such additional charges that the lenders put in the scheme.
6. Read the fine print of the agreement carefully: Even if the home loan agreement with your bank is a bulky document, make sure you read it thoroughly. Sometimes, lenders may verbally agree to certain points but in the end whatever is present on the paper will only be taken into consideration. So it is best if you could just spend some extra time reading the document carefully rather than getting stuck in complications later on. Never sign on a blank loan paper even if the sales person asks you to do so. Ask questions if you have any doubts, because it is very important to be aware of every term and condition mentioned in the loan.
7. Never leave a doubt: Applying for a Home Loan seems really easy but it comes with its own set of complications. Keeping these few key points in mind would be a good way to start with it. Apart from that, never leave a doubt in your head because it may cause problems later. For your satisfaction clear out everything beforehand and your dream home will be yours in a hassle free manner.

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