So do you think making multiple applications is always helpful?  

An instant answer to this is of course – yes! But remember as you are waiting to get your best option, all your loan applications are tracked by the credit bureau. 

Each time you make a loan application, the lending institution obtains your credit report to judge your credit worthiness. This is reported on your credit report as an ‘Enquiry’.  

Let us understand how these enquiries impact you? 

Firstly, 10% of your credit score is calculated based on your enquiries and hence it has the potential to bring your credit score down.  

Secondly, high number of enquiries indicate a “credit hungry” behaviour which is viewed negatively by lending institutions. 

Thirdly, these enquiries would reflect on your credit report for a minimum of 7 years! 

So what is the solution to avoid a high number of enquiries? 

In this age of technology, there are various loan comparison platforms which would help you to compare the terms offered by various lending institutions. You can filter your choice and then apply to one that suits your need.  

Whilst each time a lending institution obtains your credit report it is reported as an “enquiry”, there is no harm if you check your own credit report. Instead, it is vital to monitor your credit report frequently (i.e. at least twice in a year) to avoid identity theft and keep a check on your score.  

Also if you have obtained your credit report and have found an enquiry which is not a result of an application made by you then you should raise a dispute with the credit bureau.  

Having a credit report which is true and factual to your credit history is always advisable. 

The trick is to apply selectively and wisely!  

Let’s say you already have taken a home loan. Home loans are loans with longer repayment terms which may be 15-20 years or more. While servicing your EMIs for that long duration there may be other priorities that may require your attention such as medical emergencies, education, home renovation or other necessary expenses. 

Does this make you feel like you are walking a tight rope? Remember – hang on!

What do you do next? Apply for another loan? Personal loan? All over again!!!

You do have more choices than one in this case at least!

For instance, if you have already taken a home loan and need additional cash inflow you can opt for a top up loan rather than apply for a consumer loan or personal loan. A top up loan allows you to avail an additional loan over your current home loan.

 Here are 5 factors on why top up loan is a winner when compared to personal loan or a consumer loan.

• Quicker processing: Loan facilitation process is quicker compared to applying for a fresh loan as it does not require a fresh loan application. 
• Lower interest rates: The interest rates offered on top up loans are lower compared to personal loans. 
• No mortgage requirement: A top up loan does not need an asset as security. This is an additional loan being given to the already existing home loan you are serving. 
• Tax benefits: If a top up loan is being used for the purpose of renovation or buying a house only, then you will be eligible for tax benefit too.
• No restriction on usage:  The money can be used for renovation work in the home, for personal needs, for medical expenses or any other expenses. But the final decision is always with the loan provider, regarding the purpose of taking the top up loan.

At times our lack of information comes at a higher price and some limitations come with opportunities. Hope the next time when you are cash stretched due to already existing liabilities, think of a top up loan! Only if you can service the loan!!

Let’s talk about “transfers” today. What has been a regular happening in European football and other international team events has now come home in a big way – courtesy the IPL. Players are transferred between teams and they get some serious money as teams bid for individuals and suddenly, as the season starts, you see a player playing against his “erstwhile” team from last season.  

Closer home, and in the world of housing finance, “transfers” take on a different meaning.  “Balance transfers” as they are commonly called, is in simple layman terms, the switch of a loan from one lender to another one. 

So, let’s try and illustrate this with an example. Ms. Shah has taken a loan of Rs. 50 lacs from her bank. The loan is at a fixed rate, repayable over 15 years in monthly installments. She has been paying these installments regularly over the last 3 years. With the general reduction in interest rates, she now hears that another bank is offering to facilitate a balance transfer of the loan at an interest rate that is 0.75% lower than the rate she is currently paying her bank. When she did her “maths” she found she would save approximately 1 lac Rs. over the 12 years left to maturity.  

Should she transfer, and what are the various considerations she must run thru in her mind, before arriving at a decision? 

There are two ways to come to an answer: 

1. The quick and easy method – she has more than 5 years of the loan repayment left and has an interest rate drop of 0.75 %. She is saving over Rs 1 lac – just go for it and switch to the lower rate.  

OR 

2. Consider the following aspects before taking a decision: 
3. Is the new loan at a fixed rate or a variable rate? Does she have the appetite to absorb interest rate changes if the new loan is at a variable rate? 
4. Does she propose to “run” the loan thru to its balance 12 year life or prepay earlier? Will she get the benefit of the monthly reduction over a reasonable period or will the benefit be only for a short period? 
5. Are there any fees, costs and penalties, both from the current lender and from the new proposed lender and will those costs offset the reduction in EMI benefit? 
6. Are there any “hidden” costs with the new lender?  

Depending on the answers to these points, Ms. Shah must then decide on whether she should switch the loan or not.  

There was a time when you would take a fixed rate loan, pay your EMI’S regularly and sleep safe and well. Life was simpler and less complicated and decision making was easier and there were fewer variables to consider.