Stuck in debt & don’t know how to cope up

July 8, 2009
  1. Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate.
  2. Calculate your net worth and see if any of your investments could help you prepay a part of your loans.
  3. Make a contingency plan for the immediate future. Talk to your bank along with your debt counselors and explain your situation and see if you can resume your loan at a later date but do make an effort to prepay some amount.
  4. If it is a double-income household, try and see if your spouse can support you in the event of a job-loss in the short term before you land a job.
  5. Manage your current finances judiciously to battle through the current situation and emerge wiser.


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Find how banks decide to give you a loan or not

July 14, 2008

Well before reading this article on Rediff, I too was not clear on which basis banks decide to give to  X person, here is good article which will help you to know the process which banks follows to give loan.

Lenders now are armed with your credit report provided by Cibil (Credit Information Bureau India Limited) that has all the pertinent details of your credit pattern (loans and credit cards). More importantly, since this data is collated from across the country, whether you have defaulted in Mangalore or in Mumbai, you are still on the radar.

And when you apply for a loan or a credit card, lenders call for a copy of credit report from Cibil before considering your case. This report has a credit score that is arrived at by analysing your repayment record, outstanding debt, credit enquiries, amount of credit limit utilised and various other parameters.

Though prima facie, two individual cases may look similar, their credit scores may differ owing to other factors like age, income, number of dependents and other factors. In short, this credit report contains the complete snapshot of your credit history.

This is an important tool at the hands of the lenders because it is a known fact that risk perceptions change for different borrowers.  And this is determined by borrower’s credit history.

This is a significant change because now banks need not depend on their own experiences to assess the credit worthiness of the borrowers. What it just needs to do is track your past record from Cibil. Also, it would help banks to be in a position where they can distinguish between the qualities of customers. Till now, they were offering same interest rates. Now they can offer customers, with a good credit history, incentives to bank with them.

Further, a good credit score puts you on the higher pedestal before any lender, you may be offered softer rates.

This system is quite prevalent abroad, where banks and financial institutions have access to a database that contains the following:

List of credit cards

  • Typically, Cibil collates data on credit worthiness of all borrowers provided by member banks, financial institutions and credit card issuing agencies. Based on this, it prepares the Customer Information Report and then assigns a score to it which enables lenders make objective decisions.

It is therefore important that you do not spoil your credit score by making late or missing payments or having too many outstanding loans or even loan requests as your credit score is an indication of your financial health.

  • Payment history of credit cards and other loans
  • Regular payment history of rents and other utility bills
  • Savings accounts history, including bounced cheques
  • Total outstanding debts
  • Available credit on the cards
  • Further, if you feel that the credit score is not correct or unfair, then you can first approach the bank that has reported you to the Cibil. Also, you can complaint to Cibil directly to rectify the situation.

    Home loans: Why your age and tenure are important

    June 23, 2008

    Source: Rediff & ApnaLoan

    Choosing right home loan tenure is as important an option as choosing an interest rate for the loan or focus on repayment and prepayment options.

    There are several factors to be considered when one decides to take a home loan for a specific period.

    Is age on your side?

    The first important factor is the age. The younger the age, higher is the tenure available to a home loan borrower. This means, if one decides to take a loan in her/his 30s, s/he can get a loan for 20 years — the maximum loan tenure offered by most Indian banks currently.

    Interest rates: Beware of ups and downs

    When taking a loan, one must take into account the fact that interest rates fluctuate during the loan tenure. You just have to consider the interest rate movement on home loans in the last eight years to understand how fluctuating these rates have been.

    The fluctuation will impact the home loan EMI (the amount of money you pay every month to your lender), whether one takes a loan at a fixed interest rate or floating interest rate.

    Why age is important

    If the loan borrower is younger, s/he can get an extension in her/his loan tenure. Remember that some banks offer maximum loan tenure of 25 years. If the loan borrower is in her/his 40s, the only option available in such a case would be to increase the EMI. And this can cause a lot of pain especially in times of soaring inflation.

    But this is easier said than done. The reason is, by the time you are in your 40s, the rate of increase in potential income is much lesser as compared to what one can expect at a younger age, say in mid 20s or early 30s.

    Another benefit of a younger age is the increased loan eligibility. Even though the current income is taken into account while giving a loan, the potential of increase in salary is also taken as a factor. So, one can easily opt for a top-up loan (a loan on top of an already existing loan) to meet personal needs or take care of an increased EMI if at all a borrower faces such a situation.

    There are repayment options such as step-up repayment facility where the EMI is low in the initial period and increases at a later stage. This actually coincides with an increase in salary of a salaried borrower. This could be ideal for young borrowers who are climbing rungs professionally. But this is an option available for the younger lot.

    How it makes a difference!

    Let’s take an example. A 30-year old individual, say Amit, takes a home loan of Rs 30 lakh at an interest rate of 9 per cent for 20 years say in 2006. Amit earns about Rs 50, 000 per month then. Now let’s assume that the interest rate on Amit’s home loan increases to 11 per cent in 2008. Since Amit is 30 years old, he has an option of increasing the loan tenure to 25 years (even after increasing the loan tenure to 25 years Amit is still below his retirement age of 60 years as mentioned above).

    Impact of changed rates with the tenure increase option

    As the table below shows in the five years since 2003 Amit’s EMI has increased by Rs 4,605 in 2008. This is an annual increase of Rs 921 every year. This may not pinch much when prices are down but when inflation is around 11 per cent (as the figures for the week ending June 7 showed) then it sure pains a lot.

    EMI increase if Amit increases his tenure Situation in 2003 Situation in 2008 if the tenure is increased to 25 years
    Interest rate 9 per cent 12 per cent
    EMI on a Rs 30 lakh loan Rs 26, 992 Rs 31, 597

    Now let’s see the calculations if Amit were in his 40s. In this case the option of increasing the loan tenure would not be available as adding 25 years would take Amit beyond the eligible age of 60 years. The only option then would be to increase his home loan EMI.

    Impact of changed rates if the EMI is increased

    EMI increase if Amit were in his 40s Situation in 2003 Situation in 2008 if the EMI is increased
    Interest rate 9 per cent 12 per cent
    EMI Rs 26, 992 Rs 33, 033