The
tenure
A
longer repayment tenure would mean more interest payments
on your loan. Before you set out to complete the paperwork
for a loan calculate the Equated Monthly Installments
(EMI) to know how much you are expected to pay and whether
you have the capacity to pay that in time.
The
Loan Costs
Never
forget the fee charged for disbursing a loan to you.
Some banks have a higher fees than others. You need
to take care of this important component of loan disbursements.
The
Prepayment Dilemma
Many
public sector banks do not charge you a penalty for
prepayment of loans whereas many private banks ask for
a penalty payment. Check this out upfront.
The
Fixed Interest Rate
You
need to know well in advance that interest rates do
not fluctuate. If they fluctuate the choice is yours.
There are quite a few fixed interest rate loans and
if you are worried about variable interest rates then
the best option is to go for a fixed interest rate to
avoid suprises.
Monthly or Annual Repayments?
You
need to check out the repayment burden on yourself and
see if an annual payment suits you. If not then go for
the monthly plan.
Taxes
on loans
One
can claim a deduction of up to Rs. 40,000 on the amount
paid out of the taxable income in the previous year.
This is a comprehensive limit, and includes principal
and interest, if any.
One
can claim the deduction if you've taken a loan from
a financial institution or an approved charitable institution
to pursue full-time courses for graduate or post-graduate
level studies in engineering (including architecture),
medicine and management or a post-graduate course in
applied sciences or pure sciences, including mathematics
and statistics.
The
deduction is allowed for the first assessment year relevant
to the previous year when the assessee starts repaying
the loan and for seven assessment years immediately
following thereafter. In other words, the deduction
is available for a maximum period of eight years from
the first year of repayment. The deduction shall be
allowed for the period of loan and interest repayment,
if it is repaid in full before the end of the above
period.
Note:
This deduction cannot be claimed by parents who have
taken loans for the higher education of their children.
The
Relevant section/rule is Section 80E of the Income Tax
Act.
Typically
the following are the basic minimum documentation to
be provided to the bank while availing of loans from
them:
Mark sheet of last qualifying examination for school
and graduate studies in India
Proof of admission to the course
Schedule of expenses for the course
Statement of Bank account for the last six months
of borrower
Income tax assessment order not more than 2 years
old
Brief statement of assets and liabilities of borrower
Identity and give proof of residence.
Copies of letter confirming scholarship, etc.
Copies of foreign exchange permit, if applicable.
Most
bank claim to disburse the loan money within one to
two days after the required papers are submitted to
them. A checklist is provided to the person seeking
loan giving the details of the required documents
like proof of age, address, admission expenses, assets
and liabilities of co-obligants, details of collateral
security, certificate of last qualifying examination
etc.
However
experienced loan-seekers say getting loan from banks
is an uphill task. There are students who could get
the loan, but after the deadline for fee deposit had
expired!
Adjustable Rate Loan
Adjustable rate loan is one where the rate of interest is linked to the Prime Lending Rate. It is also known as "Floating Rate Loan". If you have opted for adjustable rate loan, then you stand to gain if interest rates drop. Likewise you need to be prepared to take the risk when interest rate increase. Therefore, in this case the gain/ loss of interest rates fluctuation is borne by the borrower. The rate on loan is generally revised on regular intervals.
Adjustable rate loan is one where the rate of interest is linked to the Prime Lending Rate. It is also known as "Floating Rate Loan". If you have opted for adjustable rate loan, then you stand to gain if interest rates drop. Likewise you need to be prepared to take the risk when interest rate increase. Therefore, in this case the gain/ loss of interest rates fluctuation is borne by the borrower. The rate on loan is generally revised on regular intervals.
Application
A form used to apply for a loan, on which you'll put relevant information about yourself. Also refers to the whole process of applying for a loan.
A form used to apply for a loan, on which you'll put relevant information about yourself. Also refers to the whole process of applying for a loan.
Appreciation
An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.
An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.
Asset
Anything with a rupee value that you own. Your assets are tallied up when the bank is trying to figure out what it can afford to lend you. You don't have to own something "free and clear" for it to be considered an asset. Say you have a house, on which you owe money to a bank or mortgage company. The amount you owe is considered a liability; the amount you've already paid off is an asset.
Anything with a rupee value that you own. Your assets are tallied up when the bank is trying to figure out what it can afford to lend you. You don't have to own something "free and clear" for it to be considered an asset. Say you have a house, on which you owe money to a bank or mortgage company. The amount you owe is considered a liability; the amount you've already paid off is an asset.
Bonafide
In good faith, real, not fraudulent.
In good faith, real, not fraudulent.
Borrower Classification
Lenders classify borrower based on their personal and professional profile. Most common borrower classifications are:
Lenders classify borrower based on their personal and professional profile. Most common borrower classifications are:
Salaried Individuals
Self Employed professionals
Self Employed Individuals.
Breach
A violation of any legal obligation.
Check-off Facility
This is a facility by which the employer of the borrower agrees to deduct the installment amount from his salary and pay the same directly of the lender. In some cases the lender imposes special lien on payment of borrower's provident fund. This facility offer's a kind of security of the lender towards repayment of loan.
Breach
A violation of any legal obligation.
Check-off Facility
This is a facility by which the employer of the borrower agrees to deduct the installment amount from his salary and pay the same directly of the lender. In some cases the lender imposes special lien on payment of borrower's provident fund. This facility offer's a kind of security of the lender towards repayment of loan.
Co-applicant
A person who applies to the lender along with the applicant to avail a personal loan. The income of the co-applicant is clubbed with that of the applicant to arrive at the maximum loan amount. Some lenders insist on a co-applicant when the amount of loan sought is more than certain pre-specified limit.
A person who applies to the lender along with the applicant to avail a personal loan. The income of the co-applicant is clubbed with that of the applicant to arrive at the maximum loan amount. Some lenders insist on a co-applicant when the amount of loan sought is more than certain pre-specified limit.
Collateral
Assets that can be used to back up a loan which you obtain with a finance company. If you fail to pay the loan as agreed, the finance company can take these assets.
Assets that can be used to back up a loan which you obtain with a finance company. If you fail to pay the loan as agreed, the finance company can take these assets.
Collection
The process of forcing a borrower to pay what he owes on a loan and, if it comes to that, to proceed with foreclosure.
The process of forcing a borrower to pay what he owes on a loan and, if it comes to that, to proceed with foreclosure.
Compound Interest
The interest calculated on the principal balance as well as the accumulated interest is called compound interest. It is usually higher than the simple interest.
The interest calculated on the principal balance as well as the accumulated interest is called compound interest. It is usually higher than the simple interest.
Credit
History
The record of how you've borrowed and repaid debts.
The record of how you've borrowed and repaid debts.
Credit
Limit
The maximum amount that you can borrow. Your credit limit is calculated based on a lot of factors such as your personal profile, credit history, net income, etc. More commonly it is a multiple of your net income.
The maximum amount that you can borrow. Your credit limit is calculated based on a lot of factors such as your personal profile, credit history, net income, etc. More commonly it is a multiple of your net income.
Credit
Report
Credit report is a documentation of the credit history containing information about your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.
Credit report is a documentation of the credit history containing information about your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.
Credit
Scoring System
A Statistical system used by creditors to compare your credit history with the credit performance of other consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points- a credit score-helps predict your creditworthiness.
A Statistical system used by creditors to compare your credit history with the credit performance of other consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points- a credit score-helps predict your creditworthiness.
Debt
An amount of money owed by one person, company, organization or other entity to another.
An amount of money owed by one person, company, organization or other entity to another.
Default
Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage. IF this happens, you can end up losing the house.
Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage. IF this happens, you can end up losing the house.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Failure to make payments on time. This can lead to foreclosure.
Depreciation
A Decline in the value of property or asset over time.
A Decline in the value of property or asset over time.
EMI
Equated Monthly Installments (EMI) are installments towards repayment of a loan, lease or hire purchase agreement. As banks and finance companies conduct very high volumes of retail business it becomes easier for them to monitor and manage installments that are constant in amount.
Equated Monthly Installments (EMI) are installments towards repayment of a loan, lease or hire purchase agreement. As banks and finance companies conduct very high volumes of retail business it becomes easier for them to monitor and manage installments that are constant in amount.
Guarantor
The person who promises to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
The person who promises to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Guarantee
A promise made by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
A promise made by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Fixed
Rate lending
When in a contract of loan the rate of interest is fixed and there is no clause as to the change in the rate of the interest with some other rate as the benchmark it is called Fixed Rate Lending. In this type of lending the rate of Interest does not changes during the period of the contract.
When in a contract of loan the rate of interest is fixed and there is no clause as to the change in the rate of the interest with some other rate as the benchmark it is called Fixed Rate Lending. In this type of lending the rate of Interest does not changes during the period of the contract.
Flat
Rate of Interest
A method of calculating the interest rate based on the total outflow of money. The method does not take into consideration the time value of money and is thus a crude measure. Flat rate of interest is the % paid in excess of the finance amount, and is calculated on per year basis.
A method of calculating the interest rate based on the total outflow of money. The method does not take into consideration the time value of money and is thus a crude measure. Flat rate of interest is the % paid in excess of the finance amount, and is calculated on per year basis.
Hypothecation
A hypothecation is an equitable charge on the goods without possession, but not amounting to a mortgage. The contract is done to secure a debt.
A hypothecation is an equitable charge on the goods without possession, but not amounting to a mortgage. The contract is done to secure a debt.
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