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The Importance of Credit Score in Personal Loan Eligibility 

Posted on by HomeCapital Team

Personal loans are a prevalent form of borrowing that people utilise for various objectives like debt consolidation and home renovation. Despite the seemingly straightforward process of applying for a personal loan, many variables affect your eligibility for the loan. One of the most significant factors that lenders take into account is your credit score, which indicates your creditworthiness and capacity to repay the loan on schedule.  

In this blog, we will discuss the importance of credit score in personal loan eligibility and how it impacts your loan application process. 

What is a credit score? 

An individual’s creditworthiness is quantified through a numerical rating called a credit score, which is determined by their credit history. It is calculated by analysing various factors such as the number of credit accounts, total debt, repayment history, and credit inquiries made (such as applications for loans or credit cards). The score is an important metric used by lenders to assess the likelihood of a borrower repaying debt on time. 

A high credit score indicates that the borrower is probable to make timely debt repayments, increasing their chances of being approved for loans and credit cards. While as a low credit score can deter lenders from offering credit to the borrower. In addition to being used as a risk grading mechanism for evaluating loans, these scores can also impact interest rates, potentially saving borrowers money when availing loans from financial institutions. 

How important is a credit score for personal loan eligibility? 

A good credit score is important for obtaining a personal loan, as it plays a significant role in determining your eligibility and the terms and conditions of the loan. Let’s take a closer look at why having a good score is important for personal loan eligibility: 

●      Minimum Credit Score 

Financial institutions generally regard a score of 700 or higher as satisfactory, with a score of 750 or more being considered good. The likelihood of obtaining loan approval improves with a higher score. 

●      Application Approval 

Your financial reliability is evidenced by a high score, allowing lenders to process loan applications promptly. With a strong score, you can anticipate faster approval of your personal loan application, leading to speedy funds disbursal into your account. 

●      Interest Rate 

Obtaining a personal loan with a lower interest rate is one of the most notable benefits of having a good credit score. A reduced interest rate can result in a lower EMI, facilitating faster loan repayment and long-term cost savings. Additionally, timely loan repayments can enhance your score, creating more opportunities for future loan options. 

●      Loan Amount 

Individuals with a positive credit history and a good credit score have a higher chance of securing larger loan amounts, as they are perceived as less risky borrowers by lenders. 

Factors affecting the credit score 

Several factors impact your score, and understanding them can help you take steps to improve it. Let us examine the primary factors that impact your score in more detail: 

●      Repayment History 

Your repayment history is one of the most significant factors that lenders consider while evaluating your creditworthiness. It reflects your consistency in making timely repayments of borrowed credit. Having a good history of making repayments can have a favourable effect on it. 

●      Credit Utilisation 

Credit utilisation refers to the proportion of your accessible credit limit that you are presently utilising. Keeping your credit utilisation rate at or below 30% can enhance your score. 

●      Credit Mix 

Having a mix of secured and unsecured loans can have a healthy impact on your score. A healthy credit mix, which includes a long-tenured secured loan like a home loan, and an unsecured loan like a personal loan can help improve your it. 

●      Credit Age 

The length of your credit history, known as your credit age, is an important factor in determining your score. A lengthy credit age with a positive credit history can potentially enhance it. 

How to enhance your credit score? 

Improving your score may seem like a daunting task, but it is not impossible. The following are some tips that might assist you in enhancing it: 

●      Make timely repayments 

Making prompt repayments is crucial for sustaining a positive score. It is vital to ensure that you consistently make loan repayments on time. Late payments or defaults may have an adverse impact on it. 

●      Check your credit score regularly 

Regularly checking your credit score can help you identify any errors or discrepancies in your credit report. You can visit websites such as CreditMantri to check your credit score and other information on your credit report. 

●      Use autopay for EMI payments 

Opt for the autopay option for EMI payments to avoid any chances of missing out on repayments. 

●      Split your EMI payments 

Try to split your EMI or repayment amount into 2-3 parts and distribute the payment throughout the month. This can help you manage your finances better and reduce the burden of a large payment at one go. 

●      Avoid multiple credit card applications 

Requesting numerous credit cards within a brief timeframe can have an adverse effect on your score. Hence, it is recommended to refrain from making multiple credit card applications. 

●      Maintain a low credit utilisation ratio 

Maintaining a low credit utilisation ratio (the amount of credit you use from the available credit limit) is essential for a good score. It is ideal to maintain a credit utilisation ratio within 30%. 

●      Retain your old credit accounts 

Holding on to your existing credit accounts can extend your credit history and potentially improve your credit score. 

●      Use unsecured loans judiciously 

Unsecured loans should be used only when necessary. Taking unnecessary loans can increase your debt burden and negatively impact your score. 

Conclusion  

Having a good credit score is crucial when it comes to personal loan eligibility. Not only does it boost your chances of getting a loan approved, but it can also affect your interest rate, loan amount, and repayment tenure. By keeping your credit utilisation low, maintaining a healthy credit mix and paying your bills on time, you can boost your credit score and secure better loan options. 

If you’re planning to purchase your first home, consider checking out HomeCapital’s downpayment assistance program. With interest-free credit up to 50% of the home down payment amount, you can take the first step towards your dream home. You can also avail of the program to finance your stamp duty, registration, home renovation, and interior projects. Do not allow financial constraints to impede your path towards achieving your dream of owning a home. Visit HomeCapital’s website now to learn more. 

Why you should know about cap rates in residential real estate?

Posted on by HomeCapital Team

What is the Cap rate in real estate?

Cap Rate stands for Capitalization Rate, which is a key metric used in real estate investment. It is used to evaluate the potential return on investment (ROI) of a property and determine its value. Here’s a concise overview of cap rate and its significance in the Indian market:

Cap rate definition

The cap rate is a percentage that represents the relationship between the Net Operating Income (NOI) and the value of a property. It indicates the rate at which an investment property is expected to generate income relative to its purchase price.

Importance in real estate investment

It helps investors assess the profitability and risk associated with a property. It allows them to compare different investment opportunities and make informed decisions. Higher cap rates indicate higher potential returns, but they may also indicate higher risk.

Calculation of cap rate

To calculate the cap rate, divide the property’s Net Operating Income (NOI) by its value.

The formula is:

Cap Rate = NOI / Property Value.

NOI is the income generated by the property after deducting operating expenses but before deducting mortgage payments and income taxes.

Factors affecting cap rate

Cap rates can vary based on several factors, including location, property type, market conditions, and the investor’s risk appetite. Desirable locations and property types may command lower cap rates due to higher demand and potential appreciation.

Interpretation of cap rate

A lower cap rate indicates a higher property value relative to the income it generates, while a higher cap rate suggests a lower value. Investors should consider their investment goals, market trends, and property-specific factors when interpreting cap rates.

Benefits of calculating the capitalization rate of a residential real estate property

The following are the benefits of the capitalization rate of residential property:

  • Helps in evaluating the potential return on investment (ROI) of a property.
  • Facilitates comparison of different investment opportunities.
  • Assists in determining the value of a property.
  • Provides insights into the profitability and risk associated with a property.
  • Enables informed decision-making in real estate investment.
  • Allows investors to assess the income generation relative to the property’s purchase price.
  • Helps identify properties with higher potential returns.
  • Assists in understanding market trends and dynamics.
  • Provides a standardized metric for property valuation.
  • Enables investors to gauge the financial performance of a property.

Cap rate as an indicator of investment returns on a residential real estate property

Cap rate serves as a valuable indicator of investment returns on residential real estate properties in the Indian market. Here are some key points to consider:

1.    Measure of potential ROI

Cap rate provides a measure of the potential return on investment for residential properties. It helps investors assess the income-generating capability of a property relative to its value.

2.    Relationship between cap rate and property value

The cap rate is inversely related to property value. A higher cap rate suggests a lower property value compared to the income it generates, while a lower cap rate indicates a higher property value.

3.    Guiding investment decisions

Cap rate plays a crucial role in guiding investment decisions in the Indian residential property market. Investors can use cap rates to evaluate the profitability and risk associated with different properties, helping them make informed choices.

4.    Comparing investment opportunities

By considering the cap rates of multiple residential properties, investors can compare investment opportunities and identify those with higher potential returns. Properties with higher cap rates may indicate better investment prospects.

5.    Market-specific considerations

Investors need to consider market-specific factors while interpreting cap rates in the Indian residential property market. Factors such as location, demand-supply dynamics, rental trends, and local regulations can influence cap rates.

6.    Risk and income potential

Cap rate assists in assessing the risk and income potential of residential properties. Higher cap rates may imply higher risks but also the potential for higher returns. Lower cap rates may indicate more stable but potentially lower returns.

7.    Evaluating financial performance

This rate helps investors gauge the financial performance of a residential property by analyzing its Net Operating Income (NOI) relative to its value. It enables comparisons between properties of varying sizes, locations, and rental incomes.

Factors influencing cap rates in the Indian residential real estate market

The cap rates in residential real estate in India are influenced by various factors. Understanding these factors is crucial for investors to make informed decisions. Here are the key factors:

1.    Location and neighbourhood dynamics

Desirable locations with good infrastructure, amenities, and proximity to key areas may command lower cap rates due to higher demand and potential appreciation.

2.    Rental market trends and potential rental income

Higher rental income potential can lead to lower cap rates, while areas with lower rental demand may have higher cap rates. Investors should consider the prevailing rental rates and rental market conditions.

3.    Property condition and maintenance costs

Well-maintained properties with lower maintenance costs may attract lower cap rates, as they are perceived to be less risky. Older or poorly maintained properties may have higher cap rates due to potential repair and maintenance expenses.

4.    Local regulations and legal framework

Factors such as property taxes, stamp duty, rent control laws, and zoning regulations can affect the profitability of residential properties and, consequently, their cap rates.

5.    Market supply and demand dynamics

Areas with high demand and limited supply may have lower cap rates due to higher competition among investors. Conversely, areas with oversupply may have higher rates.

6.    Economic factors

Lower interest rates can lead to lower cap rates, as borrowing becomes more affordable and may increase property demand.

7.    Investor risk appetite

Investors seeking higher returns or willing to take on more risk may accept higher cap rates, while those prioritizing stability may accept lower cap rates.

Conclusion

It serves as an essential indicator of investment returns on residential real estate properties in the Indian market. By understanding the relationship between cap rate and property value, investors can utilize it to guide their investment decisions and evaluate the potential ROI of residential properties.

Home Loan Balance Transfer vs. Refinancing: Which One is Right for You?

Posted on by HomeCapital Team

What is a home loan balance transfer?

Home loan balance transfer refers to the process of transferring an existing home loan from one lender to another. It is a popular option for borrowers who want to take advantage of better interest rates, improved loan terms, or enhanced customer service offered by another lender.

By transferring their home loan balance, borrowers can potentially reduce their monthly mortgage payments or shorten their loan tenure.

Home loan balance transfer involves the new lender paying off the outstanding balance of the existing loan to the original lender and issuing a new loan agreement to the borrower.

The process typically requires documentation, including loan statements, property documents, and identity proofs, and may involve payment of processing fees and other charges.

Key points about home loan balance transfer in the Indian real estate market:

  • Home loan balance transfer allows borrowers to switch their home loans from one lender to another for better terms.
  • It can help borrowers secure a lower interest rate, resulting in potential savings over loan tenure.
  • Transferring the home loan balance may also provide borrowers with an opportunity to avail of additional features or benefits offered by the new lender.
  • The process involves completing documentation and paying processing fees to initiate the balance transfer.
  • Borrowers should carefully consider the costs and benefits associated with the transfer before making a decision.
  • It is advisable to compare loan offers from different lenders and assess the long-term impact of the balance transfer on overall loan repayment.

What is home loan refinancing?

Home loan refinancing refers to the process of replacing an existing home loan with a new loan from a different lender. It is typically done to obtain better loan terms, such as lower interest rates, reduced monthly payments, or revised loan tenure.

Refinancing allows borrowers to take advantage of favorable market conditions or changes in their financial circumstances.

The process involves paying off the existing loan with the funds obtained from the new lender and entering into a fresh loan agreement.

Home loan refinancing can be a viable option for borrowers looking to improve their loan terms and save money over the long term.

Key points about home loan refinancing:

  • Home loan refinancing enables borrowers to replace their existing loan with a new loan from a different lender.
  • It is done to secure better loan terms, such as lower interest rates or reduced monthly payments.
  • Refinancing can provide an opportunity to avail of improved customer service or additional benefits offered by the new lender.
  • The process involves settling the existing loan with the funds obtained from the new lender and entering into a new loan agreement.
  • Borrowers should carefully evaluate the costs associated with refinancing, such as processing fees and other charges, to ensure it is financially beneficial.
  • It is advisable to compare loan offers from different lenders and consider the long-term impact on overall loan repayment before refinancing.

What are the key differences between home loan balance transfer and home loan refinancing?

The key differences between home loan balance transfer and home loan refinancing are as follows:

  1. Purpose: Balance transfer aims to switch the home loan from one lender to another, while refinancing involves replacing the existing loan with a new loan from a different lender.
  2. Lender Change: Balance transfer involves changing the lender and refinancing also includes a change in the lender.
  3. Interest Rate: Balance transfer focuses on obtaining better interest rates while refinancing aims to secure improved loan terms overall.
  4. Loan Terms: Balance transfer primarily targets modifying the loan terms, such as reducing the interest rate or changing the loan tenure, while refinancing involves a more comprehensive modification of the loan terms.
  5. Documentation: Balance transfer requires providing documents related to the existing loan, while refinancing necessitates documentation for both the existing and new loans.
  6. Processing Fees: Balance transfer involves payment of processing fees to the new lender, whereas refinancing includes processing fees for both the existing and new loans.
  7. Cost Consideration: Balance transfer primarily considers the cost savings by obtaining a better interest rate, while refinancing also evaluates the overall cost and savings of the new loan.
  8. Market Conditions: Balance transfer takes advantage of better market conditions while refinancing considers a broader range of factors such as financial circumstances and market conditions.
  9. Loan Agreement: Balance transfer involves settling the existing loan and entering into a new loan agreement while refinancing replaces the existing loan with a completely new loan agreement.

How to choose between home loan balance transfer and home loan refinancing? Which is a better option?

Choosing between a home loan balance transfer and home loan refinancing requires careful consideration of individual circumstances and goals. There is no definitive “better” option as it depends on various factors. To make an informed decision:

  • Evaluate the current loan: Assess the existing loan terms, including the interest rate, loan tenure, and monthly payments, to identify any shortcomings or areas for improvement.
  • Research and compare: Research different lenders and their offerings for balance transfer and refinancing options. Compare interest rates, loan terms, processing fees, and other charges.
  • Calculate cost savings: Determine the potential cost savings by analyzing the difference in interest rates, loan tenure, and monthly payments between the existing loan and the new loan options.
  • Consider long-term benefits: Look beyond immediate savings and consider long-term benefits. Evaluate the overall impact on the loan repayment journey, including the total interest paid and the loan tenure.
  • Assess the financial situation: Consider personal financial stability and goals. Determine if a lower monthly payment, reduced interest burden, or faster repayment aligns better with financial objectives.
  • Understand loan terms: Review the terms and conditions of the new loan options. Consider factors such as prepayment penalties, lock-in periods, and any other restrictions that may affect future flexibility.
  • Seek professional advice: Consult with a financial advisor or home loan expert who can provide personalized guidance based on individual circumstances and financial goals.

Conclusion

Ultimately, the choice between balance transfer and refinancing depends on individual preferences and financial objectives. Consider the potential cost savings, long-term benefits, and overall loan terms to make an informed decision that aligns with your specific needs.

Things to know before signing a home loan agreement

Posted on by HomeCapital Team

A successful home loan agreement enables you to purchase the home you have always desired without having to wait for years before you can save up enough money to make the complete payment. You can get a home loan equivalent to, sometimes, even 90% of the market value of the property under consideration. Before you can get your home loan, you need to sign a home loan agreement.

This document contains terms and conditions under which you are agreeing to get the loan and the creditor is agreeing to pay. The contract is to be signed by all the involved stakeholders. A home loan agreement may contain directions to follow in case the borrower defaults. It also tells you how much interest you are going to have to pay for the home loan you are taking. If there are certain conditions involved in giving you the loan, these conditions are mentioned in the home loan agreement.

It is important that you read the home loan agreement word by word. If you think you cannot understand the legalese included in the home loan agreement, it is advised that you sit with someone who knows what your home loan agreement means and then explain it to you the way you can understand. Never sign a home loan agreement that you don’t comprehend or you don’t agree to.

Important clauses to know about before signing a home loan agreement

Most of the borrowers consider simple aspects of taking a home loan such as the down payment or how much is the equated monthly installment (EMI), the tenure, and the interest rate being charged by the creditor. Although they are the primary aspects of taking a home loan, there are many clauses, terms, and conditions that may impact how much money you eventually pay, for how long you pay it, and what you gain or lose through the home loan agreement. Make sure you read the fine print as well.

1. How they define “default” in the home loan agreement

A borrower defaults when they miss paying an EMI or multiple EMIs. Sometimes a borrower is unable to pay the EMI due to a pending case of litigation. What happens in the case of the borrower’s death? Sometimes both husband and wife apply for a home loan and then they get divorced. How will that be handled by all the involved parties? Make sure you know and understand how “default” is defined within your home loan agreement.

2. Prepayment and foreclosure clauses

Sometimes you want to pay more than your EMI (in addition to the down payment that you made) because you have some spare cash. You would like to reduce your tenure or the EMIs you’re paying. Some creditors have no problem with prepayment, but some may impose a fine and this may be included in the home loan agreement terms and conditions. The same goes for home loan foreclosure. What if you want to pay off the entire debt in one lump sum amount? If you envisage such a possibility, make sure that the provision is there in your home loan agreement.

3. Notification clause

Lots of clauses in the home loan agreement are drawn based on how much salary you’re receiving, where you live, and what type of job you’re doing. These factors may change in the future. You may earn more (or less). You may move to another city or You may get promoted (or demoted). Some home loan agreements specify that you notify your creditor when these developments happen. If you don’t notify them, it can attract penalties. Therefore, in case such clauses are present in your home loan agreement, pay attention to them so that you can decide whether you want to comply with them or not.

4. The clause about fixed or floating interest rate

When you get the loan, you can decide whether you want to pay a fixed interest rate or a floating interest rate. In a fixed interest rate, you pay the same EMI through the tenure. In a floating interest rate, the amount of EMI you pay depends on market conditions and the interest rate set by the RBI. Whatever type of interest rate you want to pay, you should be privy to that. There may be some clauses in your home loan agreement that allow your creditor to change the nature of the interest rate you are paying based on certain conditions and this can impact not just your EMIs, but also how much you pay back. If you don’t want this close to appearing in your home loan agreement, take it up with the representative.

5. Handling unpredictable circumstances

Although in India this term is not used much, many are familiar with “force majeure”, which means circumstances that can be neither anticipated nor controlled. The term especially became popular during the pandemic because nobody could have predicted it. All markets and sectors had come to a standstill. Businesses closed. Many lost their sources of income. Similarly, there can be a natural catastrophe. There can be an unanticipated political or social upheaval. Again, in Indian law “force majeure” isn’t clearly defined, in case the home loan agreement is contingent upon the happening of an event that has suddenly become impossible to manifest, the agreement may be considered void. Carefully go through the provisions for such a scope in the home loan agreement.

Conclusion

Going through multiple home loan agreements may seem like an arduous undertaking but remember this: once you have signed the agreement and taken the loan, you will be paying EMIs and making other known and unknown payments to the creditor for years to come, even multiple decades. Therefore spending a few days scouring through the documents and completely understanding them can save you from unpleasant surprises, penalties, and extra payments.

How the rental deposit loan works

Posted on by HomeCapital Team

The rental deposit is the security deposit that the tenant pays to the landlord when they rent an apartment or a house. It is a safety net for the landlord and once they have received the rental deposit amount from the tenant, they can stop looking for alternative tenants. How much rent deposit the tenant pays depends on the lease agreement. It can be one month, six months, or even 11 months.

Paying 11 months of loans in one payment can be financially taxing for many. When tenants pay a very high rental deposit, they often opt for a rental deposit loan.

What is a rental deposit loan?

As introduced above, sometimes the advance rent that the renter needs to pay before they can rent a house or an apartment can be quite high. In most cases, the advance payment is for a couple of months. Some landlords insist on getting an advance payment for a longer stretch and consequently, it can become difficult to pay. To meet such a big expense in one go, you can get a rental deposit loan.

Rental deposit loans are provided by creditors specifically to meet the financial requirements of a rental security deposit.

Why do people take a rental deposit loan?

People rent a home for different reasons. Maybe right now they cannot invest in a house of their own or they need a temporary residence for a few years. Maybe they have just moved to a new city after getting a job and they need a house for the family. The reasons can be different.

A rental deposit provides monetary security to the landlord. They no longer need to look for a new tenant. The deposit also acts as a safety net in case the tenant damages the apartment or violates the lease agreement. For example, if the tenant moves before the lease expires, the landlord is assured of the complete amount accrued through the lease.

When the lease expires and the tenant chooses to vacate the property, the rental deposit is reimbursed after deducting charges for repairs and restoration. Also, in case the tenant defaults on paying the monthly rent, the landlord can deduct the same amount from the security deposit on a pro-rated basis.

What are the benefits of taking a rental deposit loan?

People don’t take a rental deposit loan just to meet the requirements. Suppose, your monthly rent is ₹ 15000 and you need to pay rent for 11 months, that is, ₹ 165000. You don’t need to take a loan for the exact amount of ₹ 165000. You can take a loan of ₹ 200000 or even ₹ 250000. Why?

There are many expenses to be met when you move to a new place.  You will need to pay to movers and packers, and it can be a bit expensive especially when you are moving from another city. You may need to buy new kitchen utensils or electronic appliances. New fittings and furnishing may be required. A new gas connection. A new kitchen chimney. New faucets in the bathroom. There can be many more unforeseen expenses. All these expenses can be clubbed together when you are taking a loan. Taking the loan ensures that your move to a new rented house is comfortable, convenient, and financially not taxing.

How much rental deposit loan can you get?

The quantum of the loan depends on the requirement of the tenant, the borrower’s eligibility, the lease agreement’s terms and conditions, and also on the lender’s policy. It mostly ranges between ₹ 1,00,000 to ₹ 10,00,000, based on the lender. Why such a wide range for a rental deposit loan?

As mentioned above, some landlords demand an advance payment for a period ranging from 8 – 11 months based on the state the property is located in and the tenure of the tenancy.

Nonetheless, how much rental deposit loan the tenant can get depends on the lender the tenant approaches.

Since the tenant will be paying interest, it is advised that one shouldn’t go overboard while getting the loan. The tenant should get enough loan that covers the deposit for the agreed-upon period, and some associated expenses. In most cases, the full amount is reimbursed by the landlord.

What is the process of getting a rental deposit loan?

The rental deposit loan falls in the category of an unsecured loan. Unsecured loans don’t require collateral. This means a tenant doesn’t need a property or a vehicle to get a loan. Though, the lender must have an acceptable credit rating.

The process of getting these types of loans is quite simple. Since its primary benefit lies in the fact that it can be obtained conveniently, the process is purposely kept as simple as possible. The lender can log onto the creditor’s website and submit an online application. Necessary documents will be required such as:

  • Photo ID proof
  • Permanent residence proof
  • ID proof such as an Aadhaar card
  • Recent bank statement
  • Salary slip
  • Employment proof

Once the documents are processed and validated, the loan amount is transferred to the borrower’s or landlord’s bank account(based on the lender’s policy) within 24 hours.

Conclusion

Getting a rental deposit loan is a convenient way of arranging money without putting much burden on one’s finances. Paying it in a lump sum can be a lot of money, especially for professionals who have just started earning or have just landed a new job. In most cases, these loans are quite affordable and one should certainly avail one to meet not just the rental deposit-related expenses, but also to meet moving-related expenses.

Understanding the personal loan application process

Posted on by HomeCapital Team

In today’s fast-paced world, financial flexibility and independence is essential for pursuing personal aspirations and meeting unexpected expenses. Personal loans have emerged as a popular solution to bridge the gap between financial needs and available resources. However, navigating the loan application process can sometimes be overwhelming. 

That’s where HomeCapital comes in. With a commitment to simplicity and accessibility, HomeCapital has streamlined the personal loan application journey, making it easier than ever for individuals to access the funds they need. In this blog, we will provide you with a concise and user-friendly step-by-step guide to applying for a personal loan with HomeCapital. 

What is the personal loan application process?

A personal loan application process is a step-by-step procedure to identify you as a reliable candidate. Whichever bank or NBFC gives you the loan, they intend to get it back. A personal loan, often, doesn’t have collateral tied to it. Although an unsecured personal loan is an enticing offering, it is a risky investment. Through their verification process, they want to make sure that the customer’s profile is such that they would repay the sum back to the creditor.

The personal loan application process enables banks and other financial institutions to weed out candidates who may not be fit for approval.

Personal loan application process – step-by-step

Here are the 5 easy steps to obtain your personal loan with HomeCapital:

Step 1: Personal Loan Application

  • Create Your Account:

Visit the HomeCapital website and sign up by entering your phone number. You will receive a one-time password (OTP) to verify your mobile number. Once verified, click on the “Apply Now” button to begin your personal loan application.

Step 2: Select Your Plan

  • Select the loan offering that suits your requirements:

Home Down Payment Assistance

Stamp Duty and Registration Assistance

Home Interiors Loan

Rental Deposit Loan

  • Choose Your EMI Plan:

Based on the loan amount you need, you will have the flexibility to choose a repayment tenure of 3, 6, or 12 months. Pick the option that best fits your budget and financial goals.

Step 3: Fill In Your Details

  • In Principle Credit Assessment:

Provide your personal information to receive an in-principle approval letter. This step helps us to evaluate your eligibility and determine the loan amount you qualify for based on the details filled in by you.

  • Complete KYC:

Complete the digital KYC process using your Aadhaar card. This ensures compliance with regulatory requirements and helps verify your identity.

  • Enter Personal and Financial Details:

Share your current and permanent residential details as per your PAN card. Create your employment and financial profile, and specify the bank account details where you want the loan amount to be transferred.

Step 4: Upload Documents

You can submit these documents digitally by uploading them to the portal. However, you need to ensure that they are clear and easy to read. 

Here’s the list of documents required:

  • Identity proof: PAN card, Aadhaar card, voter ID card, or even a copy of your passport.
  • Address proof: Landline phone bill, electricity bill, lease document in case of a rented residence, or Aadhaar card.
  • Employment proof: Appointment letter, office ID card, and some written document from your employer describing the nature of your employment.
  • Income proof: Salary slip, form 61, bank statement, and, in case you are a salaried customer. For self-employed, you may require income tax returns, business ownership certificate, a partnership deed, a profit and loss statement, or an audited balance sheet.
  • Photograph : You can upload a clear passport size picture of yourself in jpg or png format.

Step 5: Complete Disbursement Process

  • Review and Sign:

Finalize the process by carefully reviewing the loan agreement and proceeding with the e-Signature and e-Mandate procedures to provide your consent and authorization.

  • Receive Funds:

Once your application is approved and all the formalities are completed, the loan amount will be transferred to your designated bank account within 24 hours.

Conclusion

The entire personal loan application process may seem tedious in the beginning, but it is a necessary collection of steps. Some NBFCs like Singularity Creditworld offer complete digital solutions to their borrowers, making it hassle-free for them. The personal loan process benefits both the borrower and the lender. Every individual should take the personal loan application process seriously as the main screening of applications is done at this stage. The end to end digital journey offered by HomeCapital and Singularity make the process of applying for a personal loan very swift and easy.

Difference between loan restructuring and loan refinancing

Posted on by HomeCapital Team

When getting a home loan, you will certainly come across terms like “loan restructuring” and “loan refinancing”. Are they more or less the same? No, there is a difference between loan restructuring and loan refinancing.

These terms don’t concern you if you’re still in the process of getting a home loan. These options become available to you when you have taken the loan and you are either finding it difficult to pay your EMIs or you’re looking for a better EMI option with another creditor. Let’s learn what’s the difference between loan restructuring and loan refinancing.

What is home loan restructuring?

Loan restructuring means altering an existing loan contract. It is also called debt restructuring. In most cases, the borrower opts for home loan restructuring when they are on the verge of defaulting. This may involve increasing the tenure of the loan repayment or reducing the EMI so that it becomes easier to pay.

A borrower may opt for home loan restructuring for the following reasons:

  • Unexpected financial difficulties: The borrower lost their job. There was a medical emergency. There was an unexpected reduction in income.
  • Higher interest rate: The borrower is finding the interest rates quite high, and they would like to restructure the tenure or the principal amount to lower the interest rate.
  • The ability to pay the loan earlier: The borrower may want to shorten the tenure by raising the EMIs.
  • Lump sum payment: The borrower has access to extra cash that they can use to make a big payment to lower the interest rate, decrease the EMI or shrink the tenure.

What is home loan refinancing?

Home loan refinancing is an option for those who are getting a better bargain from another lender. This shifts the debt to a lender or a bank that provides a better interest rate or friendlier terms and conditions.

Let’s understand with an example.

You take a home loan from Bank A and you’re paying an interest rate of 7.38% per annum. Then you find out that another bank, Bank B, offers an interest rate of 6.90% per annum. Suppose a principal amount of Rs. 30,00,000 remains with Bank A. You take a loan of Rs. 30,00,000 from Bank B, and use it to pay back to Bank A.

Now you owe nothing to Bank A. You have taken your loan from Bank B at an annual interest rate of 6.90%. It’s the same thing. You still have a home loan to pay. The principal amount hasn’t increased. Only the interest rate has come down.

As another option, in case you need some more cash, you can take Rs. 40,00,000 from Bank B, and pay Rs. 30,00,000 to Bank A, and use the extra Rs. 10,00,000 for other requirements.

Why do creditors accommodate home loan restructuring?

Every creditor gives loans to earn a certain interest. If the borrower gets into a financial crunch, they may start defaulting on the EMIs. This is in nobody’s interest.

Even if the creditor possesses the collateral (for example, the home purchased from the loan), lots of hassle is required to retrieve the actual loaned amount.

Hence, many creditors go out of their way to help their borrowers pay as much money as possible and even if that means restructuring the loan in terms of stretching the tenure or readjusting the interest rate.

Why do borrowers go for home loan refinancing?

Home loan borrowers go for refinancing to get a better deal. Different lenders and banks are constantly coming up with better home loan schemes to attract new borrowers. Therefore, the terms and conditions for which you borrowed money 5-10 years ago may have been altered in recent years due to new economic conditions. Rates are also changed because of new government policies and RBI decisions.

Most of the borrowers go for home loan refinancing for the following reasons:

  • A lower rate of interest is available.
  • A higher loan amount is available with another lender.
  • There is a greater facility for changing a fixed loan to a floating or flexible interest rate.
  • There is a possibility for a reduced tenure.
  • Terms and conditions are better and more accommodating.
  • The borrower is more comfortable with a particular bank or lender.

What’s the biggest difference between loan restructuring and loan refinancing?

The biggest difference is that when a borrower restructures their loan, the money remains in the same bank or with the same lender. It is mostly done when there is a financial problem with the borrower. The lender or the bank wants to make some accommodations so that it becomes easier for the borrower to return the money with interest.

When a borrower restructures the loan, they are looking for a better bargain. Maybe another bank or another lender is providing a better interest rate, or the terms and conditions are better. So, they take the loan from the other bank, pay the entire principal amount to the present bank and then enjoy the benefits of their new lending partner.

Conclusion

Is it always profitable or convenient to restructure or refinance a home loan? Depends.

Calculate long-term and short-term costs when going for restructuring or refinancing. There will be different types of processing fees. Some banks charge a penalty if you pay the entire principal amount way before the tenure ends. Make sure that the money that you lose due to the penalty is not more than the money you intend to save due to refinancing.

Other than that, most of the banks want to make it as much convenient for you as possible to not only pay the money back but pay it with interest.

How to get mortgage pre-approval

Posted on by HomeCapital Team

Mortgage pre-approval in India is also called home loan pre-approval or pre-approval of the home loan. How is it different from mortgage approval?

Mortgage pre-approval means the sanctioning of the home loan before the property has been finalized.

Here is what normally happens: a borrower comes across a property they want to buy.  They approach the bank (or any other financial institution that gives home loans or mortgages). The representative from the bank inspects the value of the house, the neighborhood, and the feasibility of the mortgage vis-à-vis the property and then approves the loan.

In the case of mortgage pre-approval, you don’t need to finalize a property. You can get the loan before finalizing the property, and then start looking for properties according to the money you have in the bank.

Mortgage pre-approval doesn’t mean the money comes to your bank account. It means the bank is ready to give you the in-principle sanction letter that you can then show to the various developers or property owners to make your offer more convincing.

The benefits of mortgage pre-approval

A pre-approved mortgage is not an enticement from a bank or a lending institution. It is just a way to empower you so that you can find the right property without financial constraints and without uncertainty.

The pre-approved mortgage also depends on your financial background. You need to fulfill certain criteria before your mortgage can be pre-approved.  In most of the cases, even before the bank makes an offer to you, they have assessed your financial track record including creditworthiness. They know how much your monthly income is. They are aware of your cash flow. So, most of the job is done. You are highly likely to get your final mortgage approved.

Listed below are a few benefits of mortgage pre-approval:

1.    Your property search can be more targeted

With the mortgage pre-approval sanction letter in your hand, you know exactly how much finance is available to you. There is no uncertainty. You are aware of your budget. For example, if you know that you can get ₹ 80-90 lakhs from the bank, you can look for a property around this much amount with provisions for some extra expenses.

2.    You can negotiate better

One bird in the hand is better than two birds in the bush, as the saying goes, the property owner is more likely to negotiate with you rather than someone who hasn’t had their loan approved yet. Your landowner, looking at the sanction letter, knows that when it comes to buying the property, you have the needed wherewithal. Being more able to buy the property, you can even ask the property owner to bring the price down because you are ready to pay compared to the other interested party that is in their exploration phase.

3.    You can plan your finances better

You know how much money you’re going to spend. Based on your pre-approved mortgage, you know that by the time you buy the property, how much cash will be available to you and what you can do in case you have some spare cash, or in case, you need to arrange some extra cash.

4.    You save time when finalizing the property

Mortgage pre-approval is faster than the actual loan. The application is processed faster. Even at the time of the final approval, all your documents have already been processed.  The only process left before your loan is dispersed is the property documents. Once they are verified, the loan is transferred to the developer’s account.

Highlights of a pre-approved mortgage

Mortgage pre-approval comes with multiple caveats. They include:

  • Mortgage pre-approval doesn’t guarantee final approval. This can get you in a fix especially when you have completed the deal with the property owner based on your pre-approved mortgage sanction letter.
  • The pre-approved mortgage comes with an expiry date. It is valid for 3-6 months (based on the lender and the date mentioned in the in principal sanction letter) and after that, you may have to apply for a pre-approved mortgage again.
  • You are stuck with the same interest rate at the time of mortgage pre-approval. It means, even if the interest rates have gone down at the time of the final approval, you will need to pay the interest rate you agreed upon during your mortgage pre-approval process.

The process of getting mortgage pre-approval

The process of getting a mortgage pre-approval is the same as getting the final mortgage. The only difference is that at the time of mortgage pre-approval, you don’t have the property documents with you because you haven’t yet decided on the right property. You would also need to submit your income proofs as the final sanction would be based on that. Other than that, the process is the same, such as:

  • Income proof: You will need to upload your income proof either from the job that you have or the business that you’re doing.
  • Employment proof: This may include the appointment letter or a letter of recommendation from your employer.
  • Bank statement: Your bank statement for the past 6-12 months is needed.
  • Photo ID proof: You will need to upload your recent photographs
  • ID proof: You will need to upload your Aadhaar card or passport for verification.
  • Proof of residence: This may include the property documents of your current residence (in case you own the property), or your lease document or utility bills carrying your residential address.
  • Credit score: This will be checked by the bank on its own.

Once these documents are submitted and verified, your mortgage will be pre-approved, and you will get the sanction letter.

Conclusion

Mortgage pre-approval can speed up your home search process. It makes the search more convenient and gives you greater bargaining power. It helps you plan your finances better because you know how much cash will be available to you once you find the right property. In fact, there are many property owners who negotiate with only those people who have gotten their mortgage pre-approved.

Although mortgage pre-approval is not a guarantee that you will finally get the loan, it is like the proverbial elephant’s tail. By the time you need the cash, most of the work is already done and you just need to share the legal property and income documents. Once you do that, you get the money that you need to buy the home you always desired.

The impact of interest rates on your home loan repayment tenure

Posted on by HomeCapital Team

Are your home loan interest rate and repayment tenure connected? Yes, they are. In this post, you will learn how your interest rate impacts your tenure, and even, vice-versa. Let’s first clearly understand a few terms.

You may have a fair idea of what the interest on your home loan is. When you take a home loan from a bank or n NBFC, they don’t just simply give you the amount and then expect it back as it is. They need to make the transaction financially viable and for that, they charge you an interest rate for the amount you are borrowing.

When you pay them back, you pay the principal amount (the money you have borrowed to purchase your home) plus interest. This interest maybe 8.5% per annum or 9% per annum, or whatever rate is acceptable to your bank.

Based on the amount you’ve borrowed and the quantum of interest you’ve agreed to pay, your tenure is computed. Tenure is, how many years it’s going to take for you to return the principal and the interest amount.

As many months as there are in those years, you pay those many EMIs. Suppose, your tenure is for 30 years. Since every year has 12 months, in 30 years, there will be 360 months, which means, there will be 360 EMIs to pay. The entire stretch of time through which you make monthly installments is called your tenure.

With the explanation of these essential terms out of the way, let’s now proceed toward understanding how your home loan interest rate impacts your repayment tenure.

How does your home loan interest rate affect your tenure?

When you research multiple banks, you find they all have distinct interest rates. Some offer a higher interest rate and some, a lower interest rate. Your interest rate decides eventually how much money you are going to have to pay. For example, if you have taken a loan of Rs. 20 lakhs and one bank asks for an interest rate of 8.5% and another bank asks for 9.5%, then obviously, you will pay the bank asking for 9.5%, more.

You have to stretch the amount of money you have to pay across your tenure. The longer the tenure the lower your EMI. The shorter your tenure, the more money you need to shell out every month.

Your home loan interest rate can affect your tenure whether you’re paying a fixed interest rate or a floating interest rate. If you’re paying a fixed interest rate, then your tenure will be decided at the beginning itself. This is a more predictable arrangement. You can plan your budget accordingly. Usually, banks offer a fixed interest rate for a pre-defined period, post which the floating interest rate kicks in.

Suppose the total of the principal and the interest amount comes out to be ₹ 60 lakhs which are divided over 360 months – ₹ 16,667 per month, approximately.

What if, due to a higher interest rate being charged by your bank, the final amount comes to be ₹ 65 lakhs? If you want the same tenure, every month you will need to pay ₹ 18,056 per month, approximately. But what if you want to pay ₹ 16,667 per month? You will have to agree on a longer tenure.

In the case of a floating interest rate, how much EMI you pay may change after in the set period in your home loan tenure. If the EMI is higher, you can either continue with the same tenure but pay a higher EMI every month, or pay the same EMI, but for a higher number of months.

Can you stop your home loan interest rate from affecting your tenure?

What if you don’t want to pay a higher EMI every month but at the same time don’t want to expand your tenure? Is there another way?

Yes, prepayment.

This especially comes in handy when you’re paying a floating interest rate. Suddenly if your interest rate increases you may have to pay back more money to the bank. Conventional options are that you either raise your EMI or expand your tenure.

The third option is, to pay a lump sum amount as prepayment. As in the above example, the initial amount was ₹ 60 lakhs, but the new amount was ₹ 65 lakhs. If you have some spare cash, you can make a prepayment after talking to the bank representative assigned to your case so that neither your EMI rises, nor your tenure expands.

Conclusion

Your home loan interest rate may directly affect your repayment tenure as the amount that you need to pay to your bank increases or decreases accordingly. You have some options to keep your tenure the same: increase your EMI or repay a portion of your outstanding amount.

The role of CIBIL score in loan approval: what lenders look for

Posted on by HomeCapital Team

CIBIL stands for Credit Information Bureau (India) Limited. Among the four credit information companies licensed by the Reserve Bank of India, it is the most popular. The other three companies are Experian, Equifax and Highmark. If you plan on taking a loan and if you want your loan to be processed & approved on time, you need to maintain a good CIBIL score as it can also help you get your loan at a lower interest rate.

Currently, the company maintains credit files of over 600 million individuals and 32 million businesses.

The meaning of the CIBIL score

Your CIBIL score is a three-digit number ranging between 300-900. It denotes your creditworthiness. You need to maintain a higher one to be able to get a home loan approval. All banks and non-banking financial institutions require you to have a CIBIL score of 685 or higher to consider you for a loan. You should endeavour to bring it as close to 900 as possible.

Having a CIBIL score of 750+ is considered an excellent score. It conveys to your lenders that you are a dependable borrower, and you will return the money they are lending you, with interest, on time.

Why is it important to maintain a good CIBIL score?

When you approach a lender for a home loan, it is basically your word they need to trust if they cannot refer to a credible agency to gauge your creditworthiness.

For the lenders, giving you a home loan is an investment. Profitable, but a risky investment. Every business wants to invest in a safe bet. Therefore, when they are giving you money, they want to make sure that you will be able to return not just the principal, but also the interest. Your CIBIL score reassures them. It is like your track record. Since it is maintained by a third party, it is more credible than your own word.

How to maintain a good CIBIL score

Your CIBIL score is normally updated automatically when you interact with your lending agency on a regular basis. For example, if you’re using a credit card, you’re taking credit from your bank. You make credit card payments. You may make your payments on time, and your payments may be delayed sometimes. When you make your payments on time, it adds to your CIBIL score automatically because this information is shared by the banks with the credit scoring company. Your score increases. Inversely, if you don’t make payments on time, this information is shared too. Your score decreases.

Here are a few things you can do to maintain a good CIBIL score.

1. Avoid late payments

This is an obvious piece of advice but you will be surprised to know how many people don’t take making timely payments seriously. They don’t even realize that a delay of a few days or a few weeks is having an adverse effect on their CIBIL score.

Whether you have taken a business loan, or you regularly use your credit card, it has a direct relationship with your CIBIL score. If you want to take a home loan in the future, make sure that you make your credit card payments and loan payments on time. In fact, you can set them on auto-payment mode so that you never make late payments even by mistake.

2. Keep a tab on your CIBIL score

There may be some errors in your CIBIL score.  Due to no fault of yours, you may have a lower score. Some entries go missing. Some figures are entered wrongly. Whatever the case, there may be a chance that if you have a lower score, the fault does not lie with how you handle your credit.

But, if you find this out at the time of taking a home loan, you will be in trouble while getting loan approval. Lots of time will be wasted sorting things out. Therefore, make it a habit to regularly check it.

What if you think there is an error in your CIBIL score? You can go to their website and fill out an online dispute form. Once they receive your application, they will contact your lender and make the necessary changes.

3. Avail credit for the sake of maintaining your CIBIL score

Some people are not comfortable with using credit cards. Nonetheless, if you want to maintain a good credit score, it is better to use your credit card occasionally and then make timely payments so that you have a healthy record in the CIBIL database. You can also take a small loan and then return it with interest, on time. This way, favourable entries will be made in the CIBIL database.

4. Be mindful of your credit card limit

Don’t spend your entire credit card limit frequently. A good ratio is 30%. That is, if your credit card limit is Rs. 100,000, try not to go beyond Rs. 30,000. This will also encourage you to limit your spending.

What do the lenders look for in your CIBIL score?

1. Payment history

Mostly, your payment history. Although there are many factors that impact your overall CIBIL score, ultimately, they want to be reassured that you are a safe investment. Usually, your payment history is one of the most significant factors your lenders look for in your score.

2. Outstanding debt

They also look at how much outstanding debt you have. This is because, the more money you need to pay to other lenders, the harder it will be for you to pay back the amount you are asking for now. So, make sure that you don’t have a significant existing debt. Ideally, try to pay all your debts before applying for a new home loan.

3. Credit card usage pattern

Have you been using your credit card responsibly? What is your spending pattern? Are you constantly exhausting the limit of your credit card? Do you make timely credit card payments? Do your lenders need to constantly call you to remind you that you need to pay? If yes, it will be harder for you to get your home loan approval.

4. A written-off loan

Has some existing loan been written off? This means you couldn’t pay back the loan and your bank or the creditor had to cut its losses. This is not an impressive sign in your CIBIL report.

5. EMI-to-income ratio

They also look for the EMI-to-income ratio. The chances of your home loan approval are slim if your prospective EMI may exceed 50% of your monthly salary.

Conclusion

Almost 80% of the loans that are approved are given to individuals who have a credit score of more than 750. It may take years to build a healthy CIBIL score. Therefore, whenever you’re making a transaction through your credit card, or whenever you’re taking a loan and then making the payments, always keep this in mind.

With a healthy CIBIL score, it is cheaper to borrow money. You enjoy a greater bargaining position. It is easier to rent an apartment because sometimes even landowners track your CIBIL score. You can also get better credit cards with enhanced options. Of course, getting a home loan can be smooth sailing on the waves of a good CIBIL score.