Loans & Credit Cards

1. Are there special home loan rates applicable for women?

Yes. The rates are lower for women.

2. Can I get home loan for a property outside India?

No.

3.Can I make prepayment towards my home loan taken under Pradhan Mantri Awas Yojana?

PMAY subsidy is calculated taking the entire loan period into account. This subsidy amount is credited upfront to the account. If the loan is prepaid, the subsidy amount would be reversed and the subsidy benefits would be lost. 

4. If I need home loan for 2 properties at the same time, am I eligible?

Yes. The loan will be sanctioned, based on the repayment capacity.

5. Can I get home loan for purchase of Land?

Home loan is eligible only for construction of residential property.

6. Can I get a home loan for renovation of my house?

Yes, you can get home improvement loans based on your eligibility. 

7. Will NRI get home loan in India?

Yes, NRI can get home loan to buy property in India. The documentations are different from Resident individuals.

8. How to apply for a land loan?

A land loan is often treated as part of the home loan options provided by a bank and is treated in the same way as that of a home loan.

The process and requirements such as the bank’s due diligence process, EMI options, documentation, need for co-applicants, rate of interest, etc are the same for both home loans as well as land loans.

9.What is top up loan?

Top-up is a provision that helps you adding a certain amount or topping up some amount in your existing home loan amount.

10. Who can apply for a top-up loan?

Those who already have a home loan, home improvement loan or a home extension loan can apply for it.

11. I have taken home loan in my spouse’s name. Can I claim deduction on interest paid under Sec 24?

You can claim deduction under Sec 24 only if you are co-owner of the house and co-borrower in the loan. 

12. Can we take loan against SGB?

Yes, loans are available against Sovereign Gold Bond.

13. Are there any charges for part payment of my home loan?

They are generally no charges for making a part payment towards your loan. However, it could depend from bank to bank.

14. Can I pay more than the EMI towards my home loan?

Yes, you can pay more than the EMI towards your loan. 

15. Are there any penalty or charges for pre closure of my home loan?

There would be no prepayment charges on floating rate home loans taken by individuals, either on part prepayment or full prepayment.

On fixed rate home loan taken by individuals, there would be no charges if the borrower makes the repayment from his own sources and not by borrowing from another bank or finance company. There would be a penalty or charge applicable if you prepay the loan from sources other than your own.

Check the agreement documents carefully for pre payments charges on your loan.

16. When I make part payment towards my loan, should I reduce EMI or tenure?

It is better to reduce tenure of loan if you can continue to pay the same EMI. 

17. What is Pre EMI?

You’ve chosen a property that’s yet under construction. So the lender makes the disbursement in parts based on the progress of the construction of your property. However till the housing loan is fully disbursed you have to pay simple interest at the rate you have agreed upon with the lender. This is known as the Pre EMI. And from the month following in which the full disbursement is made you will start paying your EMI.

18. What is MCLR?

Marginal Cost of Funds based lending rate is the minimum interest rate that a bank can lend at. MCLR is a tenor-linked internal benchmark, which means the rate is determined internally by the bank depending on the period left for the repayment of a loan.

19. How do I know if my loan is linked to MCLR or to any other benchmark linked rate?

Home loans, like floating rate retail loans, taken between April 1, 2016 and October 1, 2019 are linked to MCLR. Loans taken post 1^st Oct 2019 would be linked to other external benchmarks.

20. What are the other benchmark linked rates available on loans? Which one should I opt for?

RBI has offered banks the options to choose from 4 external benchmarking mechanisms: the RBI repo rate, the 91-day T-bill yield, the 182-day T-bill yield, or any other benchmark market interest rate as developed by the Financial Benchmarks India Pvt. Ltd.

To ensure complete transparency and standardization, banks are mandated to adopt a uniform external benchmark within a loan category. 

21. Should I choose MCLR or external benchmark linked rate for my loan? How do I change the same?

It is highly recommended to write to your bank and move from marginal cost of funds-based lending rate (MCLR) to repo-linked lending rate-based loans. RLLR-based pricing is more transparent and will help realise the impact of policy rates from the immediately following month.

22. Why is not preferable to have loan linked to MCLR?

The MCLR for home loans is pegged at an annual reset by most banks, leading to a kind of fixed rate for a year and this is not in the interest of the consumer in a reducing rate scenario.

23. What is floating rate home loan?

Floating rate is when interest rate on the home loan varies over the tenure of the loan. When the rates change, the EMI or tenure would increase or decrease.

24. What is fixed rate home loan?

Fixed rate is when interest rate on the home loan is constant over the tenure of the loan.

25. Is it possible to change from Floating rate to Fixed rate during the tenure of the loan?

Yes, its possible to change from floating rate to fixed rate and also from fixed to floating rate. Some banks charge a small fee to change the rate.

26. What is Home loan Insurance?

It’s a plan which covers the borrower’s liability in case of death during the loan repayment period. In case of the full repayment or demise of the policy holder or if the loan is transfer of loan to another bank, the home loan policy would lapse.

27. Is it mandatory to buy home loan insurance while taking the home loan?

Purchasing an insurance plan is the sole discretion of the buyer and borrowers cannot be forced to buy insurance along with the loan. It is essential for the buyer to buy the home loan insurance, as in case of demise of the borrower, the home loan is used to hedge the risk of loss.

28. What is protected under Home loan Insurance?

Only the home loan is protected and not the home under home loan insurance.

29. Can the borrower claim tax deductions under Section 80C for home loan insurance?

It is possible claim deductions under section 80C if the premium is paid by the borrower. If the premium is part of the loan is paid by the lender, then it’s not possible to claim under section 80C.

30. Can I change the loan amount after the loan is sanctioned?

Yes, one can increase or decrease the loan amount before the loan is disbursed.

31. Can I transfer the home loan from one service provider to another?

It is possible to change from one service provider to another. But please keep in mind that the new lender might charge processing fees and the existing lender might charge prepayment cost for pre closure of the loan.

32. Is it better to reduce the tenure of loan or EMI while prepaying the loan?

It is better to reduce the tenure of loan if you can afford it as it will reduce the interest cost.

33. I have 30 months left for completing my home loan. The principal outstanding is around Rs.9 lakh now and the bank is charging 9.1% interest. I have some spare cash. Is it advisable to prepay the full amount now?

Presuming you are in the highest tax bracket, you save about Rs 33,000 income tax across these 30 months under Section 24B (I am also assuming Section 80C is covered by your EPF and insurance premium). You pay interest to the tune of just above Rs 1 lakh to the bank in this period. Therefore, your net interest outflow, because of the loan, is about Rs 77,000. This works out to a net cost of 6.5% on this Rs 9 lakh loan. Now comes the decision-making part. If you can invest the spare Rs 9 lakh in an instrument for 2.5 years, earning an interest of more than 6.5% in a relatively safe investment, without taking high risk, you should go for it and not prepay. However, if you are near retirement, and would like to get loan-free, then paying off the loan is better.

34. I want to gift a car to my daughter for her wedding. I have retired and have pension and rent as income. My daughter does not have any income. Can I take a bank loan to buy the car and register the car in my daughter’s name?

Theoretically, it is possible. However, the bank financing the car will foresee a problem if you stop paying the EMI and they need to take possession of the car (which on paper will be in your daughter’s name). The bank may, therefore, insist on adding your daughter as a co-owner to the loan. In case you avail financing from the car dealer, the paperwork may be simpler.

35. What is the difference between gold loan and overdraft?

In gold loan, just like in normal loan you pay EMI on the loan amount disbursed. In overdraft facility, you are sanctioned a limit and you can choose how much and when to utilize from that amount.

36. What are the kinds of tax exemptions on a house renovation loan?

Interest paid on amount taken as loan for renovation would qualify for tax benefit under Sec 24. Maximum amount that can be claimed is Rs 30,000/-.

37. Do we get loan to buy a land or a site?

Yes, one can get land loan to buy a plot. However one could opt for a home loan in case they are planning to build a house on the bought land. Or you could opt for composite loan for buying land and building house on the same.

37. I don’t have any credit score. I also have a credit card for the past few months. Will this affect in me getting my loan approved.

Lenders will also look at other factors while approving the loan, if there is no credit score.

38. If we just pay the minimum due in CC, will it affect our CIBIL?

Paying just minimum amount due on credit card instead of full amount would not impact credit score, but it would first increase the burden because interest at the rate of 2-3% per month needs to be paid on the remaining amount.

39. How to increase CIBIL score?

Pay credit card and all other bills on time. Don’t take too many unsecured loans.

40. Does it affect the credit score if you pay the CC bills as soon as you buy something from it? Instead of paying at the end of the month?

Paying the credit card bill any time before the due date would have the same effect on credit score. Paying credit card bills after due date would lower the credit score.

41. Is term insurance and loan insurance same. In both the cases the loan gets repaid?

Term insurance is cover on your life. The amount received by the nominee on death of policyholder could be used for any purpose – including repaying the home loan. Separate insurance on home loan also could be taken.

42. I have taken a home loan and the flat is still under construction. Can I do a part payment now? or do I have to wait for possession?

You can start prepayment. Check with lender once before starting the prepayment.

43. Can part payment be made on a home loan where the house is still under construction?

Yes, prepayment could start before possession. However, check with lender once before starting the prepayment.

44. Should one opt for lower tenure (10-15yrs) home loan or high tenure (20-25yrs) home loan?

Education Loans

1. Who gives education loans?

Most financial institutions and banks give education loans.

2. What is the maximum amount lent by the bank for education loan?

One can avail a loan up to Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad.

3. What documents are required while applying for education loan?

• Proof of admission. An educational loan cannot be applied without proof that admission has been secured in the selected institution.
• Schedule of fees from the institution
• Mark sheet of the last qualifying examination
• Photographs

4. Can I change education loan from MCLR to External Benchmark linked rate?

Yes, you can. 

5. What is moratorium on education loan?

A moratorium period is a time during the loan term when the borrower is not required to make any repayment. It is a waiting period before which repayment by way of EMIs begins.

In education loans, repayment begins only after completion of the course. 

6. How does moratorium on education loan work?

During the moratorium period, on an education loan the bank will calculate interest on your loan on simple interest basis. Interest calculations will start as and when amounts are disbursed to you and not on the entire loan amount at once.

This interest will be accumulated until the end of the moratorium period. There are some banks that offer a concessional interest rate if you take the loan and arrange to pay the interest portion of the loan during the moratorium period.

7. Can I change education loan from MCLR to EBLR?

Yes

9. Can you add spouse as a loan applicant?

Yes, but spouse also has to be co-owner in the property to be able to claim tax benefits of the loan.

10. I took an educational loan for my daughter five years ago. She has completed the course but has not got a job. Can I request for an interest moratorium till she gets a job?  

The liability is in dual name. Hence, in case the chid is unable to secure a job after the course, the payment liability falls on the joint holder, typically the parent, to pay the EMI’s.

Credit Cards

1. How does a credit card differ from a debit card?

The money that you draw out via debit card is your own money which is debited from the bank account linked to your card. On the other hand, the money that you spend (purchases) or withdraw (cash advance) via a credit card is more like a short term loan granted by card issuing entity. Instead of paying off this short term loan on a per use basis, all your expenses get converted into a consolidated bill at the end of the billing cycle.

2. What is co-branded credit card?

Any credit card that features a merchant’s logo/name as a co-promoter of the specific credit card along with the card issuer is termed as a co-branded credit card. Leading merchants in India who sponsor co-branded credit cards include airlines, online shopping websites and others.

3. What is CVV number?

The CVV Number (Card Verification Value) it is a 3digit number mentioned on back side of your credit card on the right side of the signature panel. Also known as the CVV2, this 3digit number is an essential part of the verification process especially in case of online transactions. The CVV number should not be disclosed to anyone.

4. What is a supplementary or add-on card?

A supplementary/add-on card refers to one or more credit cards that may be issued to family members of the primary card holder. Add on cards share the total credit limit of the primary card account and have the same features as the primary card. Any reward points earned through the add-on card(s) are credited to the primary card account.

5. What are reward point and how do I earn them?

Whenever you make a purchase using your credit card, you can earn reward points. The rate of reward point accumulation varies from one expense category to another as well as from one bank to another. The accumulated reward points can be exchanged in lieu of a range of freebies and discount vouchers.

6. What is an annual fee in credit cards?

An annual (yearly) fee in charged by a credit card company each year for use of a credit card. This fee varies from one card to another and may be waived off by the bank in case your card agreement contains a waiver clause on achieving a specific annual expense threshold.  There are also a number of credit cards available that have zero annual fees.

7. Should I pay the minimum amount due or the total outstanding monthly amount on the credit card?

Making only the minimum payment each month increases the amount of time it will take to pay off your debt. It also increases the amount of interest you end up paying. To pay your debts off quicker and cheaper, you should pay as much as you can on your balance each month.

8. What is the typical billing cycle on a credit card?

The billing cycle is the period of time between billings. A billing cycle may start on the 1st day of the month and end on the 30th day of the month. Or, it may go from the 15th of one month to the 15th of the next. Billing cycles are varying lengths, ranging from 20 to 45 days, depending on the credit card and the issuer.

The period of time between your billing cycle end date and your bill due date is known as your grace period.

9. What is the average rate of interest credit cards charge?

On an average interest charged per month is at 2.65%, If a credit card holder doesn’t pay his bill completely before the due date.

Interest calculated = (outstanding amount x 2.65% per month x 12 months) * no. of days / 365.

10. Are late payment charges applicable if I do not pay my credit card bill on time?

Yes, late payment charges would be applicable if you do not pay your credit card bill on time.