Getting loan has become very easy in India to the extent that it has become a part of everyone’s life. Most of the banks, NBFCs, housing finance companies are trying their best to market and sell loans to almost all individuals in the country. Of course, there is nothing bad in taking a loan but why it is being used matters a lot. If you are looking to take a loan to investment in something that offers more return than the interest on the loan, then it is a wise decision. But if you are looking to take a loan for utility bill payments or vacation purpose, there is a real need to rethink.
Loans will be approved by any banks or NBFCs only up to 40% of your income excluding all expenses. This is calculated by the banks prior hand to make sure the applicant has the credit capability to repay the loan without defaulting. Offers, facilities, services and discounts offered by each bank are different thus it is important to compare between different banks and choose the best one that suits your requirements.
Good Loan vs Bad Loans
Loans are considered good if they are used for below reason and if they are with these features:
- If it is taken for investing in a property like house or land
- Borrowing for emergency needs that can be repaid within 1-2 years’ time
- If it is used to invest in plans that will increase your future earnings
- For business requirement that are expected to meet breakeven within 2 years
- Using loan for needs and luxuries is not acceptable however it can be used for investment and increasing future earning capacity
Also good loans can termed as those loans that are available for low interest rates with maximum benefits. This is where the competition lies between various banks and NBFCs. Those who are willing to offer great services at lower charges will attract more and more customers.
Characteristics of bad loans are listed below:
- The interest rate is variable or higher.
- You are not taking advantage of various tax breaks on home equity loan or a mortgage or line of credit.
- There is too much secured debt that leads your assets in jeopardy.
- There is a need to carry too much debt into your retirement years, this is when the income will be less.
- All monthly debt payments includes mortgages and credit cards, these will take up more than approximately 36% of the gross monthly income.
Just because a bank is ready to offer you loan, do not consider. They might be ready to offer loan because your CIBIL scoring is good. So compare what is offered by other banks before applying for a loan anywhere. Make use of sites such as Finance Buddha which is available to serve different types of loan requirement is a very professional and organized manner with lots of information handy.
Important Things to be kept in mind before Applying for a Loan:
- Only self-employed and salaried individuals can avail loan
- Loans amounts vary according to the individual eligibility and bank policy and procedures
- Special loan is offered for chartered accountants, doctors, engineers, company secretaries, and architects
- Banks offer flexible repayment options, tenure ranging up to 60 months
- EMIs repayment option
- Repayment track-record of existing personal, home or auto loan is considered
- Hassle-free loans with no collateral, security or guarantor
- Minimal documentation, simple procedure and quick approval
- Life insurance policy premium-receipts is considered as a valid proof for processing loans
- Taking a loan ‘just because it is easy to get one’ is the worst idea. Avoid putting yourself into debt. Be clear why a loan is required and stick to the plan.
- Every penny borrowed will have to be repaid with interest, think if there is really a need for loan.
General Eligibility Criteria for a Loan in India
|Eligible Criteria||Salaried||Self-employed Professionals|
|Income||₹ 3,60,000||₹ 4,80,000|
|City||Mumbai, Delhi, Bangalore, Chennai and Hyderabad||All over India|
|Employment||Fulltime with at least 2 years of experience||At least 5 years of earning turnover|
|Documentation||Bank Account Statement/ Latest Electricity Bill/ Latest Telephone Bill/ Latest Credit Card Bill/ Employers letter certifying current mailing address/Passport(Valid)- provided the passport address is present address mentioned in application form / Existing Registered House Lease/ Government I-card with photo||Bank Account Statement/ Latest Electricity Bill/ Latest Telephone Bill/ Latest Credit Card Bill/ Employers letter certifying current mailing address/Passport(Valid)|
|CIBIL||Required (650-900)||Required (650-900)|