TAKING HOME LOAN?? READ THIS BEFORE GOING AHEAD

Taking a House is once in a life time decision for many of us with the spiraling prices of the property and the high interest rate regime in the market. Thus, selecting the right home loan product in the market becomes much more important for many of us to avoid any surprises later.

Suresh Laxminarayan, a Bangalore-based techie, wanted to build a house in Bangalore. With great difficulty, he bought a 2400 square feet plot and was on a hunting phase for a home loan. It took him a great deal of time to do a survey and finalise on a home loan from State Bank of India (SBI) about ten years ago.
“When I took the home loan I had checked out about 10 different loan products. While I was sanctioned a loan for 20 years, I foreclosed my loan six months ago, that is within ten years,” said Laxminarayan.

What are the right things he did? Read on to learn a few useful tips from him.

1. Good research: Do not go as per what your loan agent says. You do your own research of the best terms available in the market. “While taking my loan, my agent did everything to stop me from going to SBI. I later on realized why, SBI pays less commission to agents, so they earn less. Hence they badmouth the bank,” said Laxminarayan. “But SBI gave me the cheapest rate of interest,” he added.
2. Spend conservatively: keep a tab on your spends during the home loan tenure. The old adage “A penny saved is a penny earned,” holds true in case of home loan too. When you save money, you could actually use it to foreclose the loan.
3. Park your additional funds: A couple of banks have a facility, which allows borrowers to park their additional funds in the loan accounts. “This will reduce the interest proportionately from the principal amount for the time that the amount was parked. This is an interesting option. This was not there when I took a loan,” said Laxminarayan.
4. Learn what is floating or fixed rates: there are two types of interest rates that banks offer: floating and fixed interests. Floating interest rate is linked to market. It moves in tandem with a base rate.  Where as fixed interest remains fixed for a few months defined in the loan agreement. It is important to understand that in most cases floating rates work out cheaper than fixed rates in the long run.
5. CIBIL Score : It is important to have a score of 750 plus to get attractive rate of interest on your Home loan. Cibil data indicate that 80% of the home loan approvals are given to customer who have a credit score of 750 plus. Low Cibil score could possibly reject your Home loan application or you may have to pay a higher interest rate.
6. Understand foreclosure norms: Recently, RBI banned foreclosure penalties. So make sure you do not pay anything extra while foreclosing your loan.
7. Save up to foreclose: if you can save Rs 1 lakh in the current fiscal, do not use it on a dream holiday abroad. Instead use it to foreclose your loan. “My advice to every borrower is that learn to foreclose your loan as soon as possible. The sooner you free the amount you pay for equitable monthly installments (EMI), the earlier can you enjoy the freedom to spend that money on luxuries of life,” added Laxminarayan.
8. Compare processing fees: whether it is for a fresh loan or for a balance transfer. Enquire in all the banks before you finalise.
9. Read the documents: read everything written in the loan agreement before you sign on the dotted line. It is very important to be aware of terms and conditions.
10. Increase the bridge funding: every borrower has to pay some money from his own pocket while buying a house. Try to pay as much as possible as down payment. This will reduce your interest paid on the principal.

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State Bank of India(SBI) has tightened the eligibility criteria for car loans

CHENNAI/MUMBAI: The State Bank of India(SBI) has tightened the eligibility criteria for its car loans and will now extend finance to only those earning over Rs 6 lakh per annum. The bank has cited inflation as the reason behind the move, but, sources say, that the bank is being cautious given the slowdown in the economy. 

"Given the cost of petrol, maintenance, insurance and other costs, we feel that family income of Rs 50,000 is required for someone planning to buy a car," said a bank official. The bank has also started charging a processing fee of 0.51% of the vehicle's cost. 

Bankers say tightening eligibility norms is a standard operating procedure during a slowdown in the economy. "In good times, banks factor in some increase in salary for young people. But during a slowdown when jobs are not growing, salary hikes are also not certain," he said. 

Sources said that the bank had discouraged branches from extending vehicle loans above Rs 1 crore after some defaults in loans advanced for purchase of high-end cars. Officials in Mumbai, however, denied that tighter eligibility criteria were triggered by defaults. Although the loan limit is up to four times an individual's annual income, subject to a maximum of Rs 6 lakh, the bank is extremely judicious in the loan amount. The maximum amount of finance is 85% of the value of the vehicle. 

SBI's car loans are the cheapest in the country and are currently available at 10.45%. However, unlike other lenders, SBI loans are floating and bench marked to its base rate. Consequently, there are no pre-payment charges for the bank's auto loans. The bank's car loan portfolio has soared 39% to Rs 26,411 crore as of end-June 2013, up from Rs 19,040 crore as of June 2012. The auto loan portfolio of the bank accounts for nearly 3% of its advances. In terms of retail, auto loans are the second largest component of their portfolio after home loans.

Even with the higher income threshold, over 10% of the country's population would be covered — still a sizeable market for SBI. Officials denied that this will dent the market for low-end cars. "There are many people who go for cheaper small cars as a second car." 
(ET)

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