Hidden costs disclosed!

While availing the home loan, most of us forget to factor in the hidden costs involved. Customers normally notice these fees or charges once the deal is done and by then, it is too late. These costs can influence the total cost of the product. The benefit of knowing about hidden costs involved is that these vary from one financial entity in the market to another and some institutions may wave these completely, if you negotiate. Let’s take a sneak peek at some of the additional costs that is borne by the borrower but not mentioned to him clearly at the sanctioning of the loan.

Processing Fee: A valid amount of money is charged by all housing finance companies which comprises a processing fee and other administrative charges. The specific amount for this fee differs from one bank to another however, is less for public sector institutions in comparison to private lenders.

Legal Valuation Fee: Before sanctioning the home loan, all housing finance companies carry out a thorough legal verification of the property. The borrower has to bear the charges as legal fees of the lawyer undertaking this kind of verification.

Interest on term before EMI initiate: There lies a certain division between the disbursement of the first loan installment and start of the EMI. During this period, definite interest is imposed by a financier which is termed as the broken period interest.

Prepayment Penalty: If the borrower chooses to prepay the home loan before the tenure gets completed, the bank will charge a prepayment penalty from the borrower. Plus, a service tax is also imposed on the prepayment penalty. But, as per RBI, this clause has been abandoned for floating interest rate home loans

Rescheduling fee: When the interest rate gets altered by the bank or in case the borrower determines to prepay certain portion of the outstanding loan amount. The home loan tenure and EMI structure has to be rescheduled to match the prevailing conditions, the borrower has to borne a rescheduling charge assessed by the bank.

Conversion Charges: The bank charges a certain amount, when a borrower decides to convert the home loan from a fixed rate type to a floating rate type or vice versa. Additionally, a service tax is levied as applicable.

Miscellaneous Fees: The banks may charge the customer several types of miscellaneous fees that are not mentioned earlier. Such fees incorporate charges for obtaining a copy statement of account and copy of original documents that have been submitted by the borrower while availing the loan.

So, ask the financial institution to give you details on the fees and charges involved, read these carefully and then take your decision accordingly.

Visit www.cibilconsultants.com
Source- Secondary

Paying Debts Early : Good or Bad

If you have extra money, it’s always a question for people whether to use this money in paying off your debts or rather investing somewhere. Would paying off the debt early affect our credit score? Would it help us go ahead with our finances? Check these points before deciding on where to use your extra money.

Dangerous debts: 
Some debts are very dangerous for your financial health as they can result in jail time or monetary penalties. Such debts should be prioritized and paid off first. Examples of such debts are delinquent taxes, debts given to collection agencies etc.

Check the terms of the debt:
Check and see if there are penalties for paying off a loan early. Some creditors put a fee for the early repayment of the debt. Go back to your paperwork and check your fine print for prepayment fees.

Enough Cash:
After you strike through the dangerous debts checkpoint, next is the cash on hand. You want to have enough savings to cope during a financial crisis. Having cash militia helps you to go through a rough financial patch without having to rely on more debt.

Invest:
Do the maths! If you are earning more from the after cutting taxes rate of the investment than what is piling up due to the debt interest rate, then it is better to go for the investment. Paying off a debt early may not give you a benefit- that is why you are better off using your extra money for investing. In fact, use the money earned on the investment to pay off your debt in future. 

Act smart! Visit: www.cibilconsultants.com

Source: Secondary

How banks can goof-up with your credit report?

The prudent see danger and take refuge, but the simple keep going and pay the penalty, goes an axiom. This applies to everything in your life, but more so in your money life because here you should learn from others’ mistakes.

For example, take the goof-ups banks make on your credit cards, bank lockers, ESC and the like. If you are wise, you would learn from others’ experiences and ensure that you don’t face a similar situation. Tracking your finances, especially loans regularly is imperative, especially since nowadays credit reports and credit score matter more than ever before. So, what can go wrong between a loan and a credit report? To know more read on.

Picture this: Suppose you have a loan with bank A. You repay regularly until it is completely paid off. A few years later, you approach bank B for another loan. But to your shock, you are denied one on the basis of your credit report that shows your earlier loan is still outstanding. If you thought this is just an imagination, it is not.

According to an RBI document, the customer in question investigated further and found out that even though he had repaid his loan to Bank A, the bank had not cleared his credit report for several years. Hence, he was unable to get a better deal with the new bank. He then requested bank A to update his CIBIL credit report. However, the bank said it had already done the needful. After several requests, he still saw that his credit report did not show the latest update. Finally, he approached the banking ombudsman’s office of the RBI.

The banking ombudsman found that the bank had failed to get the CIBIL database updated for the customer even after four years after the complainant had repaid the loan. “When the bank finally got his CIBIL credit report rectified it did so without compensating the customer. The banking ombudsman observed that by not updating CIBIL database in time, the bank had violated RBI/Banking Codes and Standards Board of India guidelines and therefore passed an award directing the bank to pay an amount of  Rs 5,000 as token compensation towards cost of pursuing the complaint,” said the RBI document.
What we can learn: There are a few things we can learn from this example. For one, do not think that your bank will automatically update your CIBIL credit score, though technical they have too, above example shows, they might just miss doing so. Ensure that you review your credit report a few months after you close the loan to check if the bank has updated the latest information about your loan account to the credit bureau or not.

Another important thing to keep in mind is that the loan is not closed with just paying your last EMI. You need to tie a few loose ends to close the loan properly, for example get a no-dues-pending letter once the loan is paid off. Tracking your credit report once a year, is a good idea.

Track your credit score and obtain credit report from www.cibilconsultants.com

Source: Secondary