Blogs

The future of credit rating: Emerging trends and technologies in credit scoring 

Posted on by HomeCapital Team

As we move towards a more digital and data-driven world, the traditional methods of credit rating are also evolving. The process of credit scoring, which has been around for decades, is now being revolutionised by emerging technologies and innovative techniques. With the help of artificial intelligence and machine learning, big data analytics, credit scoring is becoming more accurate, efficient, and transparent. 

In this blog, we will explore the future of credit rating and how emerging trends and technologies are shaping the credit scoring landscape. 

What is a credit rating? 

A credit rating is an evaluation of a borrower’s financial standing, used to assess their creditworthiness and potential for loan repayment. This assessment is typically conducted by credit rating agencies, who consider a range of financial factors, such as income, debt levels, and payment history, to assign a credit rating. The borrower can be entities such as individuals, groups, businesses, non-profit organizations, governments, and even countries. 

Credit ratings are a critical factor that lenders consider when evaluating loan applications. A higher credit rating means a lower risk of default and a greater ability to repay the loan on time. In contrast, a lower credit rating may result in less favourable loan terms or even a loan denial. 

Importance of credit ratings 

Credit rating is a critical measure of creditworthiness and financial standing for both money lenders and borrowers. For lenders, credit rating helps make better investment decisions by providing a reliable indicator of the borrower’s creditworthiness and risk factor. High credit ratings assure lenders of the safety of their investment and encourage them to offer more favourable loan terms. 

For borrowers, credit rating makes it easier to get loan approval and access more favourable loan terms, including lower interest rates. A high credit rating signifies a lower risk of default and makes borrowers a more attractive option for lenders. Maintaining a good credit rating is crucial for both parties, as it opens up more opportunities for borrowers and provides greater confidence for lenders. 

How do India’s several credit rating agencies operate? 

Credit rating agencies in India follow a similar process when assigning a credit rating grade to a borrower. The agencies analyse the financial statements, past repayment behaviour, and current debt servicing of the borrower. Some agencies may also take into consideration the reputation of the board and the firm in the market. Once the relevant data is collated, the agencies add weightage to each factor according to their system. This ultimately helps them arrive at a credit rating grade for the borrower. It is essential to note that different rating agencies may have varying rating systems, which can lead to different credit rating grades for the same borrower. 

Credit rating Vs. credit score  

Credit scores and credit ratings are two distinct measures of creditworthiness. Credit scores are assigned to individuals, while credit ratings are assigned to corporate and government entities. Credit ratings vary from AAA to D, whereas a three-digit number derived through an algorithm run on the individual credit history data is referred to as a credit score.  It ranges between 300 and 900. While credit scores are typically only used by lenders or potential guarantors, credit ratings are used by a wider range of stakeholders, including stock market investors, and business and investment banks. 

Credit scoring trends and technologies to watch 

Credit scoring is undergoing a transformation as new technologies and data sources become available, creating new opportunities for lenders to make better, more informed credit decisions. Here are four credit scoring trends to watch in the coming years. 

1. Explainable AI for more transparent credit decisioning 

Credit scoring uses artificial intelligence and machine learning more and more. Yet it may be challenging to understand and explain these systems’ judgements. To ensure accountability and fairness, lenders must adopt explainable AI (xAI). Which enables them to shed light on how AI systems assess data and make decisions. By providing transparent and easy-to-understand results, xAI can help build consumer engagement and enable borrowers to take control of their financial well-being. 

2. High-frequency data for resilience in decision making 

With the vast amounts of digital data now available, lenders can improve credit scoring and better predict repayment behaviour by using granular, high-frequency data. The pandemic has shown the benefits of using such data to build resilience in decision-making, enabling lenders to understand customers at a deeper level and extract more value from existing data. For people with thin files or no credit history, alternative data sources show significant potential for improving access to credit. 

3. The democratisation of data for faster credit decisions 

To accelerate decision-making, organisations are democratising high-frequency data. Providing enterprise-wide access so that everyone can understand the data and use it to expedite decision-making. With faster data updates, lenders can make more timely decisions, providing a better customer experience and improving financial literacy. 

4. The broader role of data analytics professionals 

As the volume of data rises and new granular data sets emerge, data analytics (D&A) professionals will need to broaden their skill sets. Advanced competencies are required to analyse and interpret data and turn it into actionable insights. D&A professionals will have a more influential role in credit risk management as lenders rely more heavily on data-driven decision-making. 

Conclusion 

The future of credit rating is promising, as emerging trends and technologies continue to improve credit scoring models. From AI and machine learning to alternative data sources, credit rating agencies and lenders alike are poised to make better, more accurate credit decisions. As borrowers and lenders, it’s important to stay informed about these changes and how they may impact creditworthiness. And for those in need of assistance with home buying, HomeCapital offers interest-free solutions for down payments, payments on possession, stamp duty payments, and other property-related expenses. 

Secured loans 101: Understanding the basics

Posted on by HomeCapital Team

Secured loans can be a smart financial decision for those looking for a larger sum at a lower interest rate. However, before jumping into a secured loan, it’s important to understand the basics. From eligibility criteria to benefits, understanding the nuances of secured loans can help you make an informed decision about whether this type of loan is right for you.

In this blog, we’ll explore the fundamentals of secured loans, including what they are, how they work, and what you need to know before applying for one.

What are secured loans?

A secured loan is a type of debt that requires the borrower to pledge an asset as collateral to obtain funds. The asset can be an immovable property, such as a house or land, or movable assets, such as a car or stocks. By pledging the asset as collateral, the borrower reduces the risk for the lender, who can offer more flexible repayment terms and lower interest rates.

In case the borrower defaults on their loan repayment, the lender has full right to take possession of the collateral. A secured loan is one of the best and assured sources of obtaining a high volume of funds. They are easier to obtain than unsecured loans, which do not require collateral but come with higher interest rates and stricter eligibility criteria.

Features of secured loans

The following are some of the most important features that make secured loans an appealing choice for borrowers:

●      Collateral requirement

One of the main features of secured loans is that they require the borrower to pledge an asset as collateral, such as property or movable assets. This provides lenders with added security and reduces the risk of default.

●      Low interest rates

The interest rate on secured loans is generally lower when compared to those of unsecured loans, as lenders are able to provide better conditions owing to the decreased risk linked with loans that are secured by collateral.

●      Wide availability

Secured loans are available to a variety of borrowers, including both salaried and non-salaried individuals, as well as small businesses and corporations.

●      Customizable options

Another key feature of secured loans is their flexibility. Borrowers can often customise their loans to meet their specific needs, including selecting repayment options and choosing between fixed or variable interest rates.

●      No guarantor required

Unlike some other types of loans, it do not require a guarantor. This can make them a more accessible option for borrowers who may not have a strong financial network.

●      Asset takeover possibility

Finally, it’s important to note that secured loans come with the risk of asset repossession if the borrower defaults on the loan. This makes it crucial for borrowers to fully understand the terms of their loan and ensure that they are able to make payments on time.

What is the eligibility for secured loans?

In order to be eligible for a secured loan, borrowers must meet certain criteria. Here are some general guidelines for secured loan eligibility:

1.    Age requirement

While the legal age for contracting in India is 18, most banks require borrowers to be at least 21 years old to qualify for a secured loan.

2.    Indian residency

To qualify for a secured loan in India, borrowers must be Indian residents. Some banks may also offer loans to NRIs, NREs, and NROs, but the terms and eligibility criteria may vary.

3.    Minimum annual income

To be eligible for a secured loan, many lenders typically mandate a minimum annual income of ₹ 2,50,000 lakhs or more, though this criterion can fluctuate depending on the lender as well as the loan amount.

4.    Eligible applicants

Secured loans are typically available to a variety of applicants, including salaried individuals, self-employed professionals, business institutions, HUFs, and farmers.

5.    Adequate collateral

Possessing assets of adequate value to match the loan amount is considered one of the fundamental prerequisites for obtaining a secured loan. These assets will be offered as collateral against the loan, providing lenders with added security and reducing the risk of default.

Benefits of secured loans

Secured loans come with a range of benefits for borrowers, making them an attractive financing option. Listed below are several key advantages associated with secured loans:

●      Higher loan amounts

With secured loans, borrowers can avail of larger loan amounts that are contingent upon the value of the collateralized property. Nevertheless, it is crucial to note that the loan amount cannot surpass the appraised value of the mortgaged property.

●      Flexible repayment options

Borrowers have the flexibility to choose from multiple repayment options for secured loans. For example, they can opt to pay back the loan through E-NACH mandated EMIs or post-dated cheques. Additionally, they can choose to prepay the loan if they have additional funds available.

●     Accessible to individuals with an average credit history

Even individuals with an average credit score can avail secured loans. Making timely payments on a secured loan can help improve the credit score of the borrower over time.

●      Tax benefits

Home loans have an additional advantage of tax deductibility on the interest payments, which can effectively lower the overall borrowing expenses.

●      Low minimum income requirements

The minimum income requirement for secured loan applicants is relatively low. This is because the applicant has already assured the bank of their repayment capacity by offering an asset as collateral.

Conclusion

Secured loans can prove to be an excellent option for individuals who need a large amount of money and are willing to put up collateral in exchange. With the potential for higher loan amounts, flexible repayment options, and the ability to improve credit scores, it provide borrowers with a number of benefits. If you’re considering a secured loan, make sure to do your research and go for a lender that offers favourable terms and interest rates.

Interested in exploring secured loans for your financial needs? Look no further than HomeCapital. We offer interest-free smart credit for all your home related needs. Get in touch with HomeCapital now to discover further details and commence the initial phase towards safeguarding your financial future.

The impact of credit scores on mortgage underwriting

Posted on by HomeCapital Team

When it comes to the complex process of purchasing a home, it can evoke both feelings of excitement and overwhelm. One of the crucial aspects of this process is mortgage underwriting, where your credit score carries immense weightage. Your credit score is a primary factor that lenders consider during underwriting and can significantly affect your chances of obtaining a home loan, as well as it’s rate of interest.

In this blog, we will explore the role that credit scores play in mortgage underwriting and the ways in which they can affect your loan application.

What is mortgage underwriting?

Mortgage underwriting is the process through which mortgage lenders evaluate the risk of lending money to potential borrowers. This involves evaluating various aspects of the borrower’s financial history, such as their credit score, income, employment history, and debt-to-income ratio, to determine whether they are eligible for a mortgage loan and the terms and conditions that will apply.

The underwriting process is essential because it helps lenders make informed decisions on loan approvals, which, in turn, ensures that they can minimise their risk of financial loss. If the underwriter determines that the borrower is eligible for a mortgage loan, they will also determine the appropriate loan terms, including the interest rate, duration of the loan, and the size of the down payment.

How does credit score affect mortgage underwriting?

Your credit score has a major role in mortgage underwriting. Mortgage lenders make use of your credit score to determine whether you are likely to pay back the loan on schedule and in its entirety.

If your credit score is low, the mortgage underwriting process may become more complex, and the lender may require additional documentation, verification of your income and employment, or other compensating factors to offset the risk. Moreover, a low credit score may result in higher interest rates or even stricter loan terms for your mortgage application.

On the other hand, having a high credit score can increase the likelihood of obtaining approval for a mortgage with favourable terms and conditions. If your credit score is good, lenders may provide you lower interest rates, higher loan amounts, greater flexibility in payment options and other favourable loan terms.

Any changes to your credit score during the underwriting process, such as late payments or new debts, can impact your loan approval and terms. Hence, it’s crucial to keep an eye on your credit score and promptly deal with any concerns to enhance your likelihood of obtaining approval for a mortgage.

How to monitor your credit score during mortgage underwriting

During the mortgage underwriting process, it is essential to monitor your credit score to ensure that it remains stable and does not hinder the approval of your home loan. Here are some pointers on how to monitor your credit score during mortgage underwriting:

  • First, avoid applying for new credit during the mortgage process. This includes opening new credit card accounts, applying for a car loan, or increasing credit limits. Such activities can impact your credit score negatively.
  • Second, it is crucial to maintain a low credit utilisation rate during this period. Credit utilisation is the amount of credit you use compared to your credit limit, and it makes up 30% of your credit score. It is best to keep your credit utilisation rate below 30%.
  • Third, ensure that you pay every account on time. Late payments can have a severe impact on your credit score, and one missed payment can take off 60-120 points. Consider setting up automatic payments if you struggle to pay your bills on time.
  • Finally, if you have old collection accounts, it is advisable not to contact the creditor or dispute the balance, as any activity on the account can make it new again. Keep in mind that old accounts get less weight in credit scoring models.

Conclusion

Credit scores play a crucial role in the mortgage underwriting process. A low credit score can result in strict loan terms or a higher interest rate, whereas a good credit score can lead to faster loan approval and lower interest rates. It is important to monitor your credit score and maintain good credit habits during the mortgage process to ensure a successful outcome.

If you need financial assistance for your home-related needs, consider checking out HomeCapital‘s personal loan option of up to ₹15 lakhs, designed to cater to all your home-related requirements while offering smart credit solutions.

What are external development charges?

Posted on by HomeCapital Team

When buying a property, there are numerous factors that need to be considered before making a final decision. One of the key factors that can significantly impact your investment is External Development Charges (EDC). While EDC may not be the first thing that comes to mind when purchasing a property, it is a crucial aspect of real estate investment that can have far-reaching implications. Whether you are a seasoned investor or a first-time homebuyer, understanding EDC and how it is calculated can help you make informed decisions and avoid any surprises later on.

In this blog, we will provide you with a comprehensive guide to EDC, covering everything from its meaning to its implications, and how it differs from other charges.

Understanding external development charges

The term “External Development Charges” (EDC) refers to the charges that are paid by real estate builders to the municipal authorities for the creation and maintenance of civic facilities that are included in a real estate project. As per the guidelines set by the Real Estate (Regulation and Development) Act (RERA), 2016, EDC is utilised for the development of essential infrastructure such as roads, water and electricity supply, drainage and sewage systems, waste management, landscaping, and other similar projects that benefit the entire project. Although the civic authorities determine the charges, the ultimate responsibility of payment lies with the homebuyer, as the developer generally transfers the cost to them. EDC is calculated based on the size of the project and can add up to 15-20 percent of the total project cost for the homebuyers.

External development charges Vs. Internal development charges

External Development Charges (EDC) and Infrastructure Development Charges (IDC) are two distinct fees collected in real estate development. EDC is a fee paid by developers to cover the cost of developing amenities within a specific project, while IDC is a government-collected fee that funds larger infrastructure projects across the state, such as highways, bridges, and transportation systems, that promote socio-economic growth.

EDC is primarily focused on developing essential amenities such as roads, water and electricity supply, landscaping, drainage and sewage systems, waste management, and other similar projects within a specific real estate project. The charges for EDC and IDC vary depending on the location and type of project. For example, in Gurgaon, Haryana, EDC and IDC charges differ based on the potential of the area, with varying fees for hyper, high, medium, and low-potential zones.

What amount does the buyer have to pay?

The amount that a homebuyer pays towards External Development Charges (EDC) varies based on the size of the apartment. Typically, a homebuyer needs to pay around 10 percent of the base cost of the apartment towards EDC. The EDC is paid by the developer and is based on the total amount of land and construction at the time permits are issued.

For instance, the most recent changes to the collection of EDC from realtors in Gurgaon stipulate that 20% of EDC will be recovered upon issuance of the change of land-use permit, 40% upon approval of the construction plan, and the remaining 40% prior to authorization of the occupancy certificate.

Developers usually mention the details of EDC and Infrastructure Development Charges (IDC) in the price list. The charges for EDC and IDC differ based on the location, so buyers should seek details regarding the prevalent rates in their area from the developer.

What are the consequences of not paying EDC?

If the developer is late in paying the External Development Charges, a penalty will be assessed and the developer will be responsible for paying it. The penalty amount cannot be passed on to the buyers of the project under any circumstances. It is the responsibility of the developer to ensure that the payment of EDC is made on time, as per the terms and conditions laid out by the municipal authorities. In case the developer doesn’t do so within the stipulated time period, it can lead to legal action against the developer, which can result in delay or cancellation of the project.

How to figure out the EDC of your project

To calculate the External Development Charges (EDC) for your project, you need to have a fair idea about the Floor Area Ratio (FAR) applicable in your area. FAR is the ratio of the building’s total floor area to the entire plot area on which the structure is constructed. Once you know the FAR for your area, you can calculate the maximum permissible size for development of the building based on the total area of the plot. For example, if the FAR for a project is three, and the total area of the plot is 1,000 sq ft, the maximum permissible size for development of the building would be 3,000 sq ft (FAR x Plot area).

After determining the permissible area for development, you can calculate the EDC rate per sq ft by dividing the applicable EDC rate per acre by the total permissible area. However, it is important to note that EDC rates vary across locations and the type of project. Therefore, it is advisable to stay updated on the current FAR and EDC rates applicable in your area.

While the Department of Town and Country Planning (DTCP) has established a formula to enable the consistent calculation of EDC, you as a buyer should also make use of RTI wherever it is necessary to gain a clear picture of the EDC costs that are relevant to your project.

Conclusion

External Development Charges play a significant role in the real estate sector, as they provide for the development of civic amenities within the project and are crucial for the overall development of the area. As a homebuyer, it is important to understand the concept of EDC and IDC, as well as the rates applicable in your area to make informed decisions.

If you are a homebuyer looking to purchase a property in India, HomeCapital’s Down Payment Assistance (DPA) Program can help you manage the upfront cost of buying a home. As India’s first DPA program, HomeCapital provides interest-free assistance to eligible buyers, making the home buying process more accessible.

Things to consider before accepting a pre-approved personal loan offer

Posted on by HomeCapital Team

When it comes to managing unexpected expenses or fulfilling important financial goals, a personal loan can be a helpful tool. And if you’ve been pre-approved for a loan, it might seem like a no-brainer to accept the offer. However, it’s important to carefully consider the terms and conditions before consenting to the loan agreement. In this blog, we’ll discuss some of the key factors you should take into account before accepting a pre-approved personal loan offer.

What is a pre-approved personal loan?

A pre-approved personal loan is a type of loan facility that is offered to select customers by various non-banking financial companies (NBFCs) and banks in India. It is an instant loan that requires minimal documentation and does not require any collateral or security. This loan is offered to customers who have a pre-approved loan offer from the lender based on their creditworthiness and repayment history.

The purpose of offering pre-approved personal loans is to meet the urgent financial needs of customers and to decrease the loan disbursal time considerably. The interest rate offered on pre-approved personal loans can range between 10.49% p.a. and 14% p.a. depending on the applicant’s profile. However, the interest rate may vary from lender to lender, and customers must check with the lender for the current interest rate before availing a personal loan.

Pre-approved personal loan features

Pre-approved personal loans are a highly sought-after loan facility that offer several convenient features to eligible customers. These features include:

1.    Quick loan disbursal

The loan disbursal process for pre-approved personal loans is lightning-fast. If you’re an existing customer of the bank or NBFC, the loan amount will be credited directly to your account with minimal documentation.

2.    Minimal documentation

The loan approval process is simple and hassle-free, with minimal documentation required. Customers can apply for the loan online or via a mobile application, making it easier for them to obtain credit when they need it.

3.    No collateral required

Pre-approved personal loans do not require customers to provide any collateral or security to obtain the loan. This feature eliminates the need for time-consuming paperwork and makes it easier for customers to access credit quickly.

4.    Varying loan amounts

The loan amount offered for pre-approved personal loans varies for each individual, based on factors such as their credit history and repayment record. Customers can get the loan amount they need, based on their unique financial requirements.

5.    Repayment facility

Pre-approved personal loans must be repaid through Equated Monthly Instalments (EMIs). Customers with an existing account with the lender can opt for auto-debit facilities to pay their EMIs, making the repayment process even more convenient. The standard repayment tenure is 12 to 60 months, depending on the lender.

6.    Fees and charges

During and after the disbursal of pre-approved personal loans, lenders may impose various fees and charges on customers, including processing fees, EMI bounce charges, secure fees, outstation collection charges, foreclosure charges, and others. You must carefully read and understand the applicable fees and charges before applying for a pre-approved personal loan.

Who is eligible for a pre-approved personal loan?

These loans are typically offered to customers who have a proven track record of creditworthiness and are likely to repay the loan amount in a timely manner. Eligibility for pre-approved personal loans may depend on several factors, including:

●      Credit score

The lender considers your credit score to be a crucial element in deciding whether you qualify for a pre-approved personal loan or not. A good credit score can increase your creditworthiness and make you eligible for a pre-approved loan offer from the lender.

●      Transaction history

Your bank may review your transaction history, including your income and transaction rates, to assess your eligibility for a pre-approved loan. A good transaction history can demonstrate your financial stability and increase your chances of being approved for a pre-approved loan.

●      Previous loans

If you’ve previously taken out loans and repaid them on time, your lender may pre-approve you for a personal loan based on your repayment history. Similarly, paying your credit card bills on time can demonstrate your creditworthiness and increase your chances of being pre-approved for a personal loan.

●      Savings and income

If you have substantial savings in your bank account and a steady source of income, you may be eligible for a pre-approved personal loan even if you don’t have a credit record or repayment history.

Considerations for pre-approved personal loan

Before accepting a pre-approved personal loan offer, it’s crucial to consider several factors to ensure you’re making a sound financial decision. Below are some of the major factors to keep in mind:

  • Firstly, it is crucial to note that because pre-approved loans are Invitations to Apply, they may only be available for a limited time. Therefore, carefully review the loan terms and conditions, including the repayment tenure, interest rates, and other fees.
  • Secondly, always inquire about the pre-payment and pre-closure charges as they can impact the total cost of the loan. If you plan on pre-paying the loan or on making lump sum payments against your loan, it’s essential to know these charges upfront.
  • Thirdly, find out about zero processing fees. While pre-approved loans often come with reduced processing fees, some lenders may waive them altogether. Knowing this can help you save on upfront costs.
  • Lastly, don’t forget to compare the available features and interest rates with other lenders before accepting the pre-approved loan offer. Doing so will give you a better idea of the market rates and help you make an informed decision.

Conclusion

Pre-approved personal loans can be a lifesaver in times of financial need, providing quick access to funds with minimal documentation and competitive interest rates. However, before accepting a pre-approved offer, it’s essential to consider the loan tenure, pre-payment charges, processing fees, and interest rates offered by various lenders to make an informed decision.

If you’re a home buyer looking for interest-free assistance with your down payment, payments on possession, stamp duty payments, and all other property payments to developers, check out HomeCapital. With an easy and hassle-free process, you can get the financial support you need to make your dream of owning a home a reality. Visit HomeCapital’s website today to learn more.

The advantages of applying for personal loans through fintech platforms

Posted on by HomeCapital Team

Personal loans are a popular way to access funds for various financial needs such as debt consolidation, home renovations, or unexpected expenses. While banks have been the traditional go-to option for personal loans, fintech platforms are quickly gaining popularity as a more efficient and convenient alternative. Fintech companies use technology to provide instant loans with minimal documentation, customisable solutions, and competitive interest rates.

In this blog, we will discuss the advantages of applying for personal loans through fintech platforms and how they can benefit borrowers.

An overview of fintech platform

A fintech platform is a financial technology service that provides financial solutions through advanced technology such as software, the internet, and mobile devices. These platforms offer a range of financial services such as online banking, mobile payments, investment management, and insurance.

One of the main advantages of fintech platforms is that they provide quick and efficient financial solutions to customers, with services such as instant personal loans that can be availed in minutes. They also use big data and artificial intelligence to analyse customer behaviour and preferences, providing tailored solutions for each individual.

How do fintech platforms provide personal loans?

Getting a personal loan from a fintech company is easy and straightforward, with the loan amount being disbursed based on the borrower’s credit score, income, and repayment capacity. While the exact process may differ depending on the lender, fintech platforms generally follow a similar approach that comprises two main steps.

1.    Approval process

By leveraging technology, Fintech lenders have enhanced the loan application procedure, resulting in increased speed and efficiency. The foundation of digital lending lies in the lender’s capability to utilise digital information for prompt, automated, and precise underwriting determinations.

Online lenders typically use alternative data sources such as social media, online activity, and other non-traditional sources to evaluate potential borrowers and make remote credit judgments quickly. This not only simplifies the loan application process but also ensures that borrowers can receive personalised loan solutions tailored to their specific needs.

2.    Payment and repayment process

Digital channels like online banking, e-commerce platforms, and mobile wallets are utilised by Fintech lenders to provide loans and collect repayments. This not only increases efficiency but also enhances security by creating a clear user history that reduces lending fraud.

Borrowers can also access their funds quickly and easily through these digital channels. Monthly repayments can be made through the same digital channel used for loan disbursement, and many fintech lenders offer an auto-debit feature known as E-NACH to ensure timely repayments, further simplifying the repayment process.

Benefits of obtaining a personal loan from a Fintech company

The popularity of personal loans from Fintech companies is on the rise, primarily due to their numerous advantages over conventional bank loans. Below are some benefits of obtaining a personal loan from a Fintech firm:

●      Instant loan disbursement

Fintech companies are known for their ability to provide quick and hassle-free personal loans. With their risk assessment algorithms, fintech lenders can assess your repayment capacity in a matter of minutes, based on factors such as your credit score, income, and other financial details. With minimal documentation required, fintech firms can disburse loans within as little as 5 minutes to 48 hours, making it an ideal choice for urgent financial requirements.

●      Online verification and approval

Unlike traditional banks that may require you to go through a tedious in-person verification process, fintech loan providers carry out the KYC (Know Your Customer) verification process online. You can simply upload your bank statements, employment proof, Adhaar, and address proof online, and their speedy algorithms will quickly verify your information. The acceptance or rejection letter is then automatically sent to you, so you can plan your next move accordingly.

●      Customisable loan solutions

While most banks have fixed personal loan eligibility criteria and repayment terms, fintech loan providers offer more customisable solutions. With a fintech firm, you can tailor the loan amount, loan term, and even the personal loan interest rates to suit your needs. This flexibility is particularly helpful if you have a unique financial situation or need a loan for a specific purpose.

●      Wide accessibility

Unlike some traditional banks that may have a limited list of verified employers and professions, fintech firms are generally more open to offering loans regardless of the applicant’s profession. If your credit score is in good standing, you can obtain a substantial credit limit at a low rate of interest for a personal loan.

●      Cost-effectiveness

Fintech companies usually offer attractive interest rates and may not charge any fees for prepayment or early settlement of your loan. This can help you save money and settle the loan faster, making the personal loan a more cost-effective option than traditional bank loans.

Conclusion

The emergence of fintech platforms has made it easier and more convenient for people to apply for personal loans. With instant loan approvals, online verification, customisable solutions, wider reach, and more cost-effective interest rates, fintech companies have disrupted the traditional banking system in a positive way. Whether you require a personal loan for home improvements, debt consolidation, or any other purpose, fintech platforms can offer a seamless borrowing experience.

If you require a personal loan for any home-related expenses, consider checking out HomeCapital. With loan amounts up to ₹ 15 lakhs and a hassle-free digital application process, HomeCapital can help you meet your financial requirements with ease. Visit HomeCapital’s website today to learn more and apply for your personal loan.

What is part payment on home loan?

Posted on by HomeCapital Team

Purchasing a home is a significant milestone, and for many people, a home loan is the only way to achieve this dream. However, paying off a home loan can be a long-term financial commitment that lasts for decades. As borrowers make regular payments towards their home loan, they may find themselves in a position where they have additional funds and wish to reduce their debt burden. This is where part payment on a home loan comes into play. By paying off a substantial portion of the home loan amount before its tenure, borrowers can reduce their total interest burden, thereby saving a significant amount over the entire loan tenure.

In this blog, we will explore in detail what part payment on a home loan means, its benefits, and when borrowers should consider opting for it.

Understanding part payment on home loan?

Part payment on a home loan refers to the act of repaying a significant portion of the outstanding principal amount of a home loan before its scheduled tenure. This is usually done to reduce the overall interest burden on the loan and/or to reduce the tenure of the loan. The borrower can make a partial repayment of the loan through various methods, such as making a lump sum payment or increasing the regular EMI payments. The specific terms and conditions for making a part payment may vary depending on the financial institution, and borrowers should contact their lender to understand the options available to them.

Difference between part payment and pre payment

Although both part payment and prepayment involve paying off a portion of a home loan before the end of its scheduled tenure, they are not the same thing. It involves paying back a significant portion of the outstanding principal amount, while prepayment involves paying off the entire loan amount, including the interest.

Part payment is often made to reduce the overall interest burden on the loan and lower the monthly EMIs, while prepayment results in the complete closure of the loan. It’s important to note that prepayment may be subject to prepayment charges, which is a fee levied by the lender for paying off the loan early. On the other hand, part payment may or may not attract any additional charges, depending on the criteria of the loan agreement.

Advantages of part payment

Part payment on a home loan can be a smart financial move for borrowers, offering several advantages that can help reduce the overall cost of the loan and improve their financial situation. These advantages include:

●      Reduces interest burden

By making a part payment on a home loan, borrowers can reduce the outstanding principal amount, which leads to a reduction in the interest burden. This results in lower EMIs, which can provide significant financial relief.

●      Saves money

With lower EMIs, borrowers can save money each month, which can be used for other purposes or invested elsewhere to earn returns.

●      Shortens loan tenure

By reducing the outstanding principal amount, borrowers have the option to maintain the same tenure and reduce their EMIs or maintain the same EMI and shorten the loan tenure. By opting for the latter, borrowers can pay off the loan sooner, which can result in significant cost savings in the long run.

●      Improved credit score

Making a part payment on a home loan can help improve a borrower’s credit score by reducing their overall credit burden. A higher credit score can help borrowers secure future credit and provide a sense of financial security.

●      Helps with financial planning

By reducing the loan burden, borrowers can plan their finances more effectively, and it can provide them with more flexibility in their monthly budget.

When should you opt for part payment?

Opting for a part payment on your home loan may turn out to be a smart financial move, especially during the initial phase of the loan. This is because during the initial stage, a significant portion of the EMIs goes towards paying off the interest, while only a small portion goes towards the principal amount. By making a part payment during this stage, borrowers can reduce the outstanding principal amount and reduce the interest burden substantially. This can result in significant cost savings over the entire loan tenure.

On the other hand, making a part payment during the later stages of the loan may not have as much of an impact on the interest burden. It’s important to carefully evaluate your financial situation and consult with your lender to determine the best time to make a part payment on your home loan. In this way, borrowers can take advantage of the benefits of part payment and save money in the long run.

Conclusion

Part payment on a home loan is an effective way for borrowers to reduce their debt burden, save money on interest payments, and achieve financial freedom faster. By making a lump sum payment towards the principal amount, borrowers can lower their EMIs or shorten their loan tenure, providing them with greater financial flexibility and control. However, before opting for part payment, it is crucial to assess your financial situation and understand the criteria of your home loan, as well as any associated fees or penalties.

If you’re in the process of purchasing a home, HomeCapital can provide assistance with your home down payment and stamp duty and registration costs. With interest-free credit of up to 50% of the down payment amount, HomeCapital can make homeownership more accessible, helping you achieve your dream of owning a home.

What is Prime Lending Rate in home loan?

Posted on by HomeCapital Team

Home loans are a popular way for people to purchase their dream home without putting a significant financial burden on themselves. However, understanding the intricacies of a home loan can be daunting, particularly when it comes to the Prime Lending Rate (PLR). The PLR plays a critical role in determining the interest rate on a home loan, and as a borrower, it is essential to have a good understanding of it.

In this blog, we will delve into what the Prime Lending Rate is, how it affects home loan interest rates, and what factors influence it.

What is Prime Lending Rate?

It is the interest rate that is used as a benchmark by commercial banks when charging loans to their most creditworthy clients. It was introduced by the Reserve Bank of India in 2003 as a reference rate for commercial banks to determine lending rates. The PLR is determined by individual banks based on various factors such as their cost of funds, market conditions, and the borrower’s creditworthiness. The rate is decided by the bank’s board of directors after careful consideration and is subject to periodic revisions based on changes in economic and market conditions.

The PLR is closely linked to the central bank’s policy rates, such as the Repo Rate in India, which is the lending rate of the central bank for commercial banks. Changes in the central bank’s policy rates often lead to corresponding changes in the PLR, which in turn affects the interest rates that borrowers pay on various loans. The PLR plays a critical role in the banking system and has a significant impact on the overall economy, as it affects the cost of borrowing for businesses and individuals.

What is Prime Lending Rate in home loan?

It plays a crucial role in determining the interest rate that lenders charge on home loans. When there is a rise in the PLR, there is also an increase in the rate of interest on home loans; this results in the borrower having to make more payments each month. Conversely, when the PLR decreases, the interest rate on home loans decreases, which lowers the borrower’s monthly payments. Therefore, it’s essential to keep track of the PLR movement to understand the potential impact on home loan interest rates.

In addition to the PLR, lenders also assess the borrower’s creditworthiness before deciding on the final interest rate to be offered on a home loan. This is done by checking the borrower’s credit report, including their credit score. If the credit report is good, with a credit score above 750, the borrower is likely to receive the lowest rate that the lender must offer. However, if the lender considers the borrower a credit risk due to an unreliable credit score or a history of bad repayment behaviour, the borrower may receive the loan on unfavourable terms and conditions, even if the PLR is low.

Prime Lending Rate Vs. Variable Interest Rate

The Prime Lending Rate and Variable Interest Rates are two concepts that are often confused with each other. While both are crucial for those with variable interest rate debt, there are some significant differences between the two.

The Prime Lending Rate refers to the interest rate that a lender offers to its best customers On the other hand, variable interest rates are the interest rates that lenders charge on debt with variable interest rates, such as credit cards, variable-rate mortgages, personal loans, etc.

It is decided by the lender’s internal board and remains the same across all branches of the lender throughout the country. However, variable interest rates fluctuate based on changes in the market and the lender’s decision to adjust the rate.

If the Prime Lending Rate rises, it affects the variable interest rate on debt as the lender may charge a higher interest rate, resulting in an increase in the monthly payment on the variable debt. Similarly, if it decreases, the borrower may see a reduction in their monthly payment on a variable debt.

Factors affecting prime lending rate

When lenders decide their Prime Lending Rate, they take into account various factors. These factors are crucial for determining the interest rate that borrowers will have to pay on their loans. The key factors that affect it include:

●      Internal factors

Lenders take various internal factors into consideration before setting the Prime Lending Rate. Some of these factors include the lender’s cost of funds, administrative expenses, risk premium, and desired profit margin. Any change in these factors can result in a change in the Prime Lending Rate.

●      External factors

Lenders also take external factors into account while deciding on the Prime Lending Rate. These factors include prevailing market conditions, inflation rate, economic growth, and the monetary policy set by the Reserve Bank of India (RBI). Changes in any of these external factors can impact the Prime Lending Rate.

●      Base rate

It is the minimum interest rate at which a lender can lend money. Lenders have the freedom to decide their Base Rate, but it cannot be lower than the rate prescribed by the RBI. Any change in the Base Rate directly impacts the Prime Lending Rate.

●      Borrower’s credit profile

Lenders also consider the creditworthiness of a borrower before offering them a home loan. A borrower’s credit score, credit history, income, and employment status can all influence the Prime Lending Rate offered to them. Borrowers with a good credit profile may be offered a lower PLR compared to those with a poor credit history.

Conclusion

Understanding the Prime Lending Rate and how it impacts your home loan interest rate is crucial for any borrower. Keeping an eye on changes in the PLR can help you make wise decisions when it comes to your home loan repayments. Moreover, if you are a first-time homebuyer struggling with arranging for the down payment and other property-related payments, HomeCapital can be your solution.

HomeCapital provides interest-free assistance to home buyers for various requirements, helping them achieve their dream of owning a home without financial stress. So, take advantage of the HomeCapital program and make your home-buying experience hassle-free.

Why you should opt for home repair loan

Posted on by HomeCapital Team

A home is not just a place to live, it is a sanctuary that provides comfort and security to you and your family. However, over time, wear and tear can take a toll on your dream home, leaving it in need of repairs and renovations. While it may seem daunting to finance these expenses, a home repair loan can be a practical solution.

In this blog, we will discuss why opting for a home repair loan is a smart decision and how it can help transform your house into a beautiful home.

What is a home repair loan?

A home repair loan is a loan designed to help homeowners cover the costs of repairing, renovating, or improving their existing home. Unlike a home loan, it is meant to be used for the upkeep and improvement of your current home, with similar interest rates. By borrowing money at a relatively low cost, you can make repairs or renovations that increase the value of your home.

Why should you choose a home repair loan?

While there are various financing options available, a home repair loan can be a smart choice for many homeowners. Here are the main reasons why you should choose a home repair loan over other financing options:

1.    Lower interest rates

A home repair loan comes with lower interest rates than other types of loans because it is secured against your home ownership. This means that the lender has an asset to recover their loan in case of default. As a result, the interest rates are usually the same as those of a home loan. This can make a huge difference in the total amount of interest that you have to pay over the course of the loan, making it a more cost-effective way to finance your home renovation.

2.    Tax benefit

A home repair loan can provide you with a tax deduction on the interest part of the loan. You can submit a claim to the government for a deduction of up to ₹ 30,000 per year (in accordance with section 24) for the interest that you pay on these loans. This deduction is permissible up to the total maximum of ₹ 2 lakh, which applies to the payment of loan interest on self-occupied residences. The deduction is available in the case of a self-occupied property. You should obtain an interest certificate from the bank certifying the amount of interest paid for the financial year.

3.    Minimal documentation

Getting other loans approved can often involve a lot of documentation, which can be time-consuming and frustrating. However, a home repair loan involves relatively simple documentation. All you need is basic documentation like identity/income proof, photographs, and property title deed. If you are an existing customer of the housing finance company, the documentation becomes even simpler. The procedure for applying for a loan is sped up and simplified as a result, and it is also made more convenient.

4.    Quick processing

A home repair loan is usually processed quickly because the documentation is minimal and hassle-free. This means that you can get your renovation work started as soon as possible without having to wait for your loan application to be approved. In some cases, the loan can be approved within 24 hours, which can be particularly beneficial if you need to start the renovation work urgently.

Important facets of a home repair loan

Here are some important facets of a home repair loan that you should consider before applying.

●      Flexibility in usage

One of the significant benefits of a home renovation loan is that you have the flexibility to use the funds for a variety of activities, including repairs, renovation, extension, flooring, painting, and more. However, it’s essential to note that you cannot use the loan for movable items like furniture, fixtures, and furnishings.   

●      Eligibility

You may apply for a home renovation loan individually or jointly, depending on the ownership of your property. Joint owners of the property must apply for the loan, and family members can also become joint applicants for the loan, even if they don’t own the house.

●      Features

The loan tenure for a home repair loan can extend up to 15 years, based on factors like your age, income, age of the property, and more. The interest rate on home repair loan is typically the same as a home loan interest rate, and it can be adjustable or fixed for a specified period. Lenders may grant up to 100% of the renovation estimate to existing customers, subject to a specified ceiling on the market price of the property. New customers may get a lower percentage of their estimate, depending on the limitations on the property value.

Conclusion

A home repair loan is an excellent option for homeowners who want to renovate or repair their homes without facing the burden of high-interest rates. With the ability to use the loan for a variety of purposes, eligibility for joint applications, and flexible repayment options, a home repair loan can be a convenient and cost-effective solution. Additionally, the tax benefits associated with this loan can help to reduce the overall cost of borrowing.

If you are looking for a reliable lender for your home renovation needs, consider HomeCapital which also offers Personal loans up to ₹15 lakhs among its bouquet of personal loan products for all your home-related needs. With HomeCapital’s quick processing, minimal documentation, and attractive interest rates, you can get started on your home renovation project with ease. So, go ahead and give your home a new lease of life!

How to finance your home renovation

Posted on by HomeCapital Team

Home renovation is an exciting but expensive process. From changing a few things in your living room to giving your entire home a new look, renovation requires a good budget. After finalising the details of your renovation project, the most important aspect is setting a budget and finding the right financing option. While using your savings may be an easy choice, it may not always be feasible. Luckily, there are several ways to finance your home renovation, such as personal loans, home equity loans, and more.

In this blog, we’ll explore these financing options and provide you with the information you need to bring your dream home to life.

5 ways to finance your home renovation.

From using your savings to applying for a home improvement loan, there are several ways to finance your home renovation. Here are five ways to finance your home renovation that you can consider:

1.    Dip into your savings

One of the easiest ways to finance your home renovation is by using your savings. If you have accumulated some savings over the years, you can use them to fund your renovation project. So, you will not be concerned with interest rates or repayment terms. However, keep in mind that using your savings for a renovation project means that you won’t have those funds available for emergencies or other investments.

2.    Apply for a home renovation loan

If you’re not comfortable using your savings or don’t have enough saved up, you can consider applying for a home improvement loan. While all banks don’t offer home renovation loans like home loans, you may still go for a personal loan through an NBFC. Financial institutions offer home furnishing loans of up to ₹ 10 lakhs, which can help cover your home renovation costs. Personal loans have fixed interest rates, repayment terms, and the funds can be used for any purpose.

3.    Consider a home equity line of credit.

A home equity line of credit is actually a home equity loan that allows you to borrow funds based on the equity you have in your home. It’s similar to an overdraft facility or line of credit facility. The term is generally decided by the lender and at the end of the term, the borrower must repay the amount borrowed with the affixed interest rate. This option is suitable for those who are planning a long-term renovation project as it allows for flexible borrowing.

4.    Take out a home equity loan

This type of loan is secured against your property, and you can borrow funds based on the equity you have in your home. The amount from a home equity loan can be used for any purpose, and there are no restrictions on the end-use. Keep in mind that you’ll need to mortgage your property against the loan amount you wish to avail, and failure to repay the loan may result in the lender seizing your property.

5.    Use credit cards for minor renovations.

Credit cards are a convenient way to finance small home renovation projects, such as buying new appliances or materials. However, using your credit card for larger projects may not be a good idea. Firstly, credit cards have a set limit, and you may not be able to finance the entire project with just one card. Secondly, credit card interest rates can be high, which can result in additional expenses in the long run. If you choose your credit card, make sure to pay your bills on time and stay within your credit limit to avoid penalties and additional charges.

Things to consider for a home renovation loan

When considering a home renovation project, it’s important to take certain factors into account when applying for a home renovation loan.

  • Firstly, weigh the pros and cons of renovating your home to determine if it’s worth the time, effort, and money.
  • Determine your monthly budget and affordability by getting quotes from contractors and using a loan EMI calculator to know how much you can borrow and if you can afford to repay the loan.
  • Consider the type of loan you want to avail, whether secured or unsecured.
  • Prepare the necessary documents, such as your PAN and Aadhar cards, salary slips, and bank statements. Be aware of the interest rate and repayment options, such as fixed EMI or step-up EMI payments.
  • Lastly, check for any hidden fees associated with the loan, such as processing fees, documentation fees, pre-payment charges, or penalties for missed payments.

Conclusion

Financing your home renovation is a big decision that requires careful evaluation of several factors, including affordability, type of loan, interest rate, and repayment options. With the availability of interior loans and personal loans, it is easier than ever to finance your home improvement projects. However, it is essential to find a trustworthy lender and understand all the terms and conditions of the loan before signing up.