Financial Updates


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Personal Loans and their Forte

Personal loans are the single most powerful credit facility that is available through banks, coming second to none. Every other loan from banks has a set of restriction on how it is to be used, but personal loans do not fall under any such boundaries. One could use a personal loan for practically any purpose that is not explicitly speculative. Even when compared with credit cards that offer unbridled spending capacity, personal loans leave them far behind in the race with great interest rates. In addition to the same, these loans are offered on secured and unsecured basis and just have a minimum income limit and a mediocre to high credit score requirement.

Personal loan being available in unsecured forms actually are a boon for people who do not have either substantial gold or property to offer as security. On the flip side, these loans have a higher interest rate than secured loans. These loans are offered both to salaried as well as self-employed individuals and they have slight variations in the respective loan applications. Personal loans offered to self-employed individuals also tend to be of higher value than the loans offered to salaried people.

Basic Eligibility Criteria for availing Personal Loans

Here, begins the difference between applications submitted by self-employed individuals and salaried employees. The basic eligibility of course covers age and income levels and apart from those, there are a few additional requirements.

personal-loan-calculator

  1. Age Requirements – Varying from lender to lender, the maximum age limit could be anywhere from 50 years to 70 years. But in the case of salaried individuals, this age limit is generally lower, obviously due to restrictions on the maximum age for retirement
  2. Income Levels – Salaried individuals stand at an advantage here, because salary is not something that can drastically reduce any particular month, so there are no losses to be worried about for lenders. In the case of self-employed individuals, business often have that risk of uncertain loss during the course of the loan. That makes offering an unsecured loans a great risk for lenders. So, self-employed people would need to have a higher rate of turnover in order to qualify for a personal loan amount that a salaried individual can be approved for with a lower salary
  3. Concerning additional requirements, salaried individuals are again at an advantage, since most verification details are made through the companies that they have worked with and their work history serves as the proof of their behavior concerning expenses and savings. Self-employed individuals would need to file a lot more paperwork than salaried individuals but end up with a loan amount that is higher than a salaried individual if they dot their is and cross their its properly

Apart from the above criteria, the documents that might be required banks to process the application could be of the following for salaried individuals and self-employed individuals –

personal-loan-emi-calculator

  1. Salaried Individuals –

    1. Latest ITR form that has been acknowledged
    2. Latest Form 16 from the employer along with the computation details
    3. Latest 3 months’ payslips
    4. Latest 6 months’ account statement from the bank account that serves as the salary account
    5. Photo identification proof (government approved)
    6. Latest and current address proof
  2. Self-employed Individuals –

    1. Proof of qualification or registration for doctors, engineers, MBA consultants, CA and architects
    2. Latest 6 months’ account statement from the bank account that serves as the income account
    3. Latest 2 years’ CA certified balance sheet
    4. Latest 2 years’ CA certified profit and loss statement
    5. Latest 2 years’ CA certified income computation
    6. Latest 2 years’ acknowledged IT returns copies
    7. Photo identification proof (government approved)
    8. Latest and current address proof

One should bear in mind that the rates offered to one in the same business as another might vary. That is due to the nature of business as a source of income, one’s credit history and stability in come or employment.

Check Top 3 Bank Personal Loans here:

SBI Personal Loan

HDFC Personal Loan

Axis Bank Personal Loan


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How to Repay EMI Smartly?

An EMI helps you in adjusting repayment of a loan or a credit over a period of time so that you don’t get overwhelmed by the amount. EMI stands for Equated Monthly Instalments and is one of the most popular forms of loan repayments right now. The principal amount that you have borrowed, along with the interest calculations for the tenure of the loan repayment, are divided into equal monthly instalments. With the option for EMI, anyone can now borrow a substantial amount of money and then repay it in easy instalments that don’t put a hole in the borrower’s’ pockets.

EMI calculations are therefore an important part of your debt management. If you can calculate the amount and tenure of your loan repayment, you are in an empowered position and can map out the future payments with ease. EMI calculations can be done by using an EMI Calculator which is available from a variety of aggregator portals. These calculators allow you to mix and match different combinations of principal amount, interest amount, tenure and interest rate so that you can optimize the process of repaying the loan to the best of your abilities.

Once you have calculated the best combination of principal, interest and tenure for your loan, the next step is to ensure that you are paying less interest, or that your overall tenure somehow gets reduced, once you start repaying the loan. The steps below will help you repay your EMIs smartly:

Loan Calculator

EMI Calculations easy with Bankbazaar EMI Calculator

Rate changes

Some loans such as home loans are generally available at floating interest rates. This means that the interest on your home loan is not fixed and will change in the future as and when the bank announces rate changes. So, if there has been a rate cut during the repayment tenure, you will potentially be quoted a lower EMI figure going forward. You should not get swayed by the lower monthly figure, and continue to repay the old EMI amount, as this can reduce your overall repayment tenure.

Part payments

In general, the loans you have taken will come with the clause for partial payments. Let’s say you just received a bonus in your work, or you receive a good return from your investments in the equity markets. Invest the additional cash into the loan so that the principal get reduced. Consequently, your overall interest amount will also get reduced as interest is calculated on the principal, and a lower principal translates to cutting down of the interest by some amount.

Enhance EMI amount

With time, if you find increase in your monthly income, you can opt for a higher EMI payment per month. This will allow you to wrap up the loan in a shorter duration. For instance, if you received a hike of 20% on your salary, and use this amount as top up on your existing EMI, you are potentially repaying the loan 20% faster than the normal duration. This is a significant point, as for a loan of 20 years’ duration, you can reduce repayment by more than 50 months, a good amount of time.

Balance transfer

Some loans such as home loans or personal loans can be refinanced from a different lender. What this means is that you can transfer the whole loan to a new lender who is offering lower interest rate on the same amount. This can substantially reduce the loan burden on you. As you can see, there are some ways to speed up the process of repayment as well as reduce the overall costs of repayment if you act smartly during the repayment tenure. Therefore, be proactive while repaying loans and know your options in full.


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Did the Rate Cuts Help Home Loan Borrowers?

Home loan borrowers are typically in for the long run. Loans are available in tenures of decades providing borrowers ample time to repay the loan EMI. These loans are available in both fixed and floating rates, where floating rates denote dynamic interest rates that vary according to base rates decided by the apex bank in regular policy reviews. Fixed rate home loans are to be repaid at the per-decided interest rate irrespective of market dynamics.

Despite two base rate cuts since January this year, Indian banks have been reluctant to reduce their lending rates to put it mildly. The major banks in the country had to eventually be strong-armed to reduce rates by Raghuram Rajan, the governor of Reserve Bank of India (RBI).

Their excuse – even with the rate cuts by the RBI, the overall cost of funds for banks has remained at similar levels as before the rate cuts, making rate cuts for customers a potential loss-making scenario for banks. The RBI and the Finance Ministry categorically rubbished these claims before the major banks ultimately slashed their base lending rates to customers.

So, are home loans cheaper now?

Online EMI Calculator

Calculate every EMI

Only after the major banks caved in to slashed rates, their smaller and mid-size counterparts followed suit. Moreover, banks have been actively advertising the compulsory lending rate cuts as concessions to existing borrowers. On a closer look, it can be seen that new borrowers are receiving low interest rates compared to existing customers.

If you take a look at historical data on home loan rates from 2011 onwards, you will see that rates have more or less remained the same for new borrowers. In fact, existing borrowers have had to pay higher rates at almost 11% in April 2015 as compared to figures from January 2011. The lenders have not been completely fair to borrowers in the past in terms of providing the benefits of revised rates.

In fact, a home loan borrower from the public sector State Bank of India in 2011 is at a slight disadvantage in terms of EMI when compared with borrowers who took loans from private sector lenders. And this is the scenario for the top lenders, the smaller lenders have been even more stringent is passing on benefits to customers.

A consolation here is that banks have been brought down to spreads between 0.05% and 0.15%, which in turn provides them with little leeway while differentiating among existing and new borrowers going forward. Meanwhile, housing development companies such as LIC HFL and HDFC are exempt from changes in the base rate regime. As such, they do not have any limitations of spread while offering attractive rates to customers. A similar ‘unfairness’ survey if done in 2018 may show the housing finance companies as demanding unfair EMIs.

We can all hope that this sort of competition does not become a trend in the Indian banking sector, and the regulatory bodies step in to make the lending environment fairer to all borrowers.


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Mudra vs SIDBI

What is Mudra?

Pradhan Mantri Mudra Yojana is an initiative introduced by the Government of India to fund non-corporate, non-agricultural small businesses in the country. Under this scheme, government launched Mudra Bank, a non-banking finance institution with RBI in the year 2015. Micro business units contribute to the overall economic growth of a country and provide large employment after agriculture. To fund the non-corporate small business sectors, government set up the Micro Units Development and Refinance Agency LTD (Mudra Bank). Many leading private and non-private banks joined hands with the government and generated Mudra Loan to fund the unfunded. One of the main objective of this initiative is to introduce the non-banking population in India to mainstream banking.

What is SIDBI?

Founded in the year 1990, Small Industries and Development Bank of India (SIDBI) was launched with an objective to fund micro, small and medium enterprises in the country. The functions of SIDBI include financing small scale industrial units, provide seed capital and technical assistance to the startups and to promote the spirit of entrepreneurship among the citizens. With a mission to facilitate and strengthen credit flow to MSMEs, SIDBI has come a long way in its journey. SIDBI also addresses the financial and non-financial gaps in MSME system and provides support accordingly.

Difference between Mudra and SIDBI

Loan amount: While Mudra bank can sanction loan amount of up to Rs.10 lakh, SIDBI has the authority to sanction loan of higher amounts. If a micro unit requires funds more than Rs.10 lakh, SIDBI is the right choice.

Hierarchy: SIDBI is the principal financial institution created to promote, finance, and develop small, and medium enterprises in the nation, whereas, Mudra is set up as a subsidiary of SIDBI to fund the population that is not covered by SIDBI.

Functions: SIDBI offers non-financial support to MSMEs in India and bridges any technical, marketing and other gaps identified, On the other hand, Mudra offers mere financial assistance.

mudra-vs-sidbi

Target group: SIDBI focuses on financing MSMEs in India and wasn’t doing great with the most vulnerable and the landless section of the society. Hence, Mudra was set up to “Fund the unfunded” without any collateral.

How is Mudra different from other schemes?

  • Mudra focuses on the most vulnerable, neglected section of the society for whom government funding will significantly help.
  • Mudra doesn’t require any collateral unlike other schemes which requires collateral and a guarantor.
  • Mudra aims at improving the micro financing sector in India by offering three different types of loans, namely Shishu, Kishore, and Tarun. Loan up to Rs.50, 000 falls in the Shishu category and loan amount ranging from Rs.50, 000 to Rs.5 lakh falls under Kishore and loan amount ranging from Rs.5 lakh to Rs.10 lakh falls under Tarun.
  • Unlike many other leading micro financing institutions, Mudra charges interest on a daily basis and thus avoids over burdening the borrower with hefty interest rates. For example: If a vegetable vendor borrows money to buy his supplies, he can repay the amount borrowed as soon as he/she sells the vegetables and doesn’t have to wait for 3, 6 or 9 months to repay it. The interest will be charged for the days he/she has kept the money borrowed.
  • Mudra also takes micro financing to the next level by introducing Mudra Card which is a debit card issued to the borrowers to withdraw and deposit cash without visiting a bank. This gives a borrower the flexibility to withdraw as much as they want and to repay when they have surplus.
  • Apart from financing micro units, Mudra also aims to promote banking and introduce people who have never banked before to mainstream banking.

Though, there are many similar initiatives like Mudra in India already, Mudra creates awareness and provokes mass interest which is very vital to the economy. It re brands all existing schemes and presents it to the citizens in an attractive and simple manner.

EMI Calculations: Loan Calculator


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What is the process of calculating bank’s loan EMI?

Finding out the monthly installment amount for borrowed loans is one of the foremost tasks that customers have on their mind while trying to obtain credit. Knowing your loan EMI before or after availing loan can be a real helper with respect to better financial planning.

Calculation of loan installments isn’t a simple task because of the involvement of multiple variables. Hence, out of all the methods listed below the easiest and the simplest way is to calculate EMI using an online EMI calculator.

There are other ways too to calculate your monthly loan EMI so as anticipate certainly the expenditure that you would have for each month when you start repaying your loan. This enables you to plan your savings more effectively. Listed below are the three ways in which you can calculate your loan EMI.

  • Using Online EMI Calculator

Using an online EMI Calculator is the easiest way to know your loan installment. This tool takes in certain parameters like loan amount, interest rate, processing fee and loan tenure and processe

s this data to calculate your loan EMI amount. Not only can you feed in this information after you have availed your loan but you can also feed in your desired parameters to check if the resulting EMI amount is suitable to your pocket.

The latter option will help you in securing loan from the bank that is offering rates and fees which result in the most affordable EMI.

  • Using Microsoft Excel

Microsoft Excel tool can also be used to calculate the loan installment for your loan. There are functions in Excel which help calculate different results. For EMI calculation, the function used is PMT. This functions takes in three variables for processing the EMI amount. These three variables are

Loan EMI Calcualtor

Calculate your Loan EMI

Rate = monthly rate of interest of loan

Number of periods, nper = number of EMIs

Present Value, pv = value of loan

Loan EMI = PMT (rate, nper, pv)

The function takes these three parameters and applies the PMT function to reach the final value of the monthly loan installment that you need to pay.

  • Using Mathematical Formula

Wherever you cannot access a computer or the internet for calculation of loan EMI, there you can make use of the mathematical formula that helps you calculate the same.

This formula can be applied to reach the loan installment amount that you need to pay each month for repaying your loan.

Loan EMI amount = [P x R x (1+R)^N]/[(1+R)^N-1]

Here, P stands for Principal loan amount

R is the rate of interest per month

And N is the number of monthly installments

Calculating your loan EMI even before you have applied for loan is a great step towards planning your finances. It also helps customers to choose that particular bank which offers the most suitable EMI amount to them. Also, calculation of loan EMI beforehand helps customers to plan their monthly budget accordingly.

Despite the various ways to calculate loan EMI which are listed above, the best way which is least cumbersome is calculation of loan EMI via the online EMI calculator tool. This online tool furnishes fast results without any hassle of manual calculation.


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Main Features of Loan for Self-Employed

Self-employed Loans and Business Loans

Customers need to have clarity about loans meant for self-employed for many confuse it with business loans. Business loans, in most cases, are a separate category of loans. However, there are some similarities between business loan and loans for self-employed in that both are unsecured loans offered by Non-Banking Financial Companies (NBFC) and banks. Banks, however, have stricter regulations compared to NBFCs for offering personal loans to self-employed persons. Also, NBFCs charge a higher rate of interest than banks for loans offered to self-employed persons.

Features of Loan for Self-employed

The salient features of loans for self-employed persons are listed below:

  • Age: Different banks have varying age bar for offering loans to self-employed. While the minimum age to avail of loans for self-employed is 28 years for ICICI bank, Axis bank offers loans (self-employed) at 24 years
  • Eligible persons: ICICI bank offers loans to self-employed/proprietorship firm and non-professionals, Axis bank offers loans to doctors, chartered accountants, architects and company secretaries who are self-employed
  • Turnover (minimum): Major Banks have their own set criteria in terms of minimum turnover to provide loans. For instance, non-professionals and professionals must have a minimum turnover of Rs.40 lakh and Rs.15 lakh respectively to avail of loans offered by ICICI Bank. Some NBFCs are open to offering loans to firms with an annual turnover Rs.12 to 15 lakhs
  • Stability: Banks have different set conditions in terms of business stability. For instance, ICICI Bank offers loans to self-employed persons with least 5 years of experience and doctors (self-employed) with three years of experience
  • Profit after tax: Axis Bank offers loans to self-employed persons whose firms have registered Rs.2 lakh p.a as (minimum) net profit. ICICI Bank offers loans to proprietorship firms with profit after tax of Rs.2 lakh (Rs.1 lakh for non-professionals). Akin to disposable salary which is an important factor reviewed by banks before offering loans to salaried professionals, profits after tax is a critical factor which determines whether a self-employed individual is eligible to avail of a loan offered by a bank or NBFC
  • Type of business: Most lenders will hesitate to offer loans for volatile businesses. Most banks and NBFCs look for stability and the revenue generating model of business before offering loans to ensure timely repayment and avoid bad loans or defaults
  • Income Tax Return: Not many are aware of the fact that it is important to file income tax returns without fail to avail of loans for self-employed persons offered by banks and NBFCs. Most lenders demand ITR of a minimum of 3 years to offer a loan. An individual (associated with a private limited company or LLP) has to file income tax returns in his or her name for a record of the income generated from his or her business.

how-to-get-a-loan-to-start-small-business

Documentation

The following table shows the list of common documents requested by banks and NBFCs for offering loans to self-employed persons

Identity Proof
Address Proof
Audited Financials (two years)
Office Address Proof
Office Ownership Proof
Bank Statements
Passport size Photographs
Proof of Occupation
IT Returns

*May vary from bank to bank


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Advantages and Disadvantages of EMI

EMI or Equated Monthly Installment is a fixed amount paid by the borrower to the lender at a specified date each month. EMI’s are used to pay off both interest and principal amount each month for a certain period of time until the loan is fully paid. EMIs are very different from variable payment plans where in the borrower can make higher payments, but in EMIs, borrowers are allowed to make fixed payments each month.

How does it work?

EMI is fixed payments made every month as a part of loan repayment or a purchase. EMI constitutes of the principal amount to be paid and a certain rate of interest. The rate of interest depends on the amount borrowed, the duration for which it is borrowed and the lender. The principal component is lesser than the interest component in the initial period of repayment and the rate of interest will decrease gradually and the principal amount will increase over the period of repayment.

How to calculate EMI?

EMIs can be calculated by using EMI calculators that are available on the lender’s websites or financial websites. EMI calculators require a few parameters to produce the desired results.

loan emi calculator

Calculate your EMI

  • Loan amount
  • Tenure period
  • Interest Rate
  • Processing Fee (If any)

Advantages of EMI

EMIs are a boon to people who depend on a steady source of income and are incapable of paying off lump sum amounts at a time. Listed below are some of the advantages of EMIs.

  • Affordability: EMIs give the consumers the freedom to afford things that they won’t be able to make full payments for. EMIs lets the consumer make payments in installments thus allowing them the freedom to purchase a home, car, home appliances for which they can’t make lump sum payments.
  • Flexibility: The EMI option lets you decide the amount that you want to pay in installment and the duration for which you want to make the payment depending on your financial situation and income.
  • Absence of a middleman: The EMI is directly paid to the lender and there are no hassles of a middleman.
  • Easy on the wallet: EMIs save you from burning a hole in your pocket since you only have to make minimal payments every month instead of a lump sum payment.

Disadvantages of EMI:

There are several disadvantages to EMIs. Listed below are some of the disadvantages of EMIs.

  • Long Term Debt: EMI is a long term debt. One has to keep making payments till the entire loan is paid off.
  • Additional costs: Additional costs in terms of interest. One doesn’t have to pay interest if the payment is made all at once.
  • Prepayment penalty: Several institutions do not allow prepayment and even if they do there will be serious penalties that one will have to pay for prepayment.

Serious consequences: One will face serious consequences if one fails to make timely payments. The consequences might be as serious as repossession of purchased commodities, heavy penalties and strict legal action.

EMI Calculator – Calculate your EMI in 3 EASY Steps