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Lenders have tightened their rules on borrower selection and amount that can be advanced. It is important to know how much optimum one can borrow. Lenders use different criteria to select borrowers and decide maximum permissible finance. They start with your credit score and if satisfied, they proceed on the following factors.
To determine exactly how much a borrower can afford for periodical repayments, they will look at applicant’s income as well as any existing outstanding debts and other financial commitments of the loan seeker. In looking at your income and financial commitments, the lender will review your current commitments, which include all of your outstanding debt, credit cards, personal loans, car finance and any other ongoing financial commitments you may have.
Shop around and ascertain interest rates which vary across banks. For instance, public sector banks’ MCLR are in the range of 8.45-9.45 percent. For new private sector banks it is in the range of 8.4-10.38 percent. For small finance banks it’s even higher at 12.5-15.65 percent. Remember to bargain for a favorable rate if you have a good credit score. Festive season is a time when many lenders come up with offers on loans where they waive of processing fees and so on.
Banks, however, may or may not lend at MCLR. They may ask for a spread or a mark-up or a margin. The actual home loan interest rate can be equal to the MCLR or have a ‘mark-up’ or ‘spread’, but will not be lower than the MCLR. The usual mark-up is in the range of 0.25-0.50 per cent, though it may increase if the credit profile of the borrower is riskier. There may be seasonal/festive offers where the bank will lower the spread, waive processing fee etc.
There are 4 credit bureaus in India they are CIBIL, Experian, Highmark and Equifax these credit bureaus will have a credit history of every borrower which will range from 300-900. The agencies analyze how regularly borrower repay credit card commitments, among other financial activities. Credit score improves when one repays his debts meticulously, falls when one fails to pay debts on time, run up big balances or uses too many different credit cards. It pays to learn what factors matter when you are trying to improve your credit score.
Lenders reputation can also be considered at the time of borrowing. This happens when you want your lender to be efficient enough in processing your loan. This helps to ensure that you get your loan amount on time.
You can foreclose a loan by prepaying the entire outstanding amount. In part-payment, you prepay a portion of the outstanding amount. Make sure you are aware of all charges associated with prepayment, so as not to incur high costs should you opt for it. Find out if there is any lock-in period associated with the option wherein no prepayments are allowed in the first 12 months or so.
Lenders insist for bank statements, investment statements, and retirement account statements of retirees, current and past two or three years.
Banks often offer lower interest rates to attract new customers but charge existing customers higher rates. Be on the lookout for changes in interest rates. If another bank is offering a better rate, it makes sense to switch loans. But the difference should be considerable enough; otherwise the switching and processing charges will eat into the gains from the lower rate. Switching is more beneficial if done early in the loan tenure. It is not so beneficial if the loan is at the end of the tenure. One has to be careful while taking advantage of lower interest offers about consistency of such offer in the long run during remaining tenure of loan as after switching over, there is no guarantee that they will not increase their basic lending rates.
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