What is EMI?

EMI is an acronym for Equated Monthly Installment. It is the amount payable every month to the bank or any other lender until the loan amount is fully paid off. It consists of the interest on the outstanding balance as well part of the principal amount to be repaid. The sum of principal amount and interest is divided by the tenure, i.e., number of months, in which the loan has to be repaid. The interest component of the EMI would be larger in the initial months and gradually reduce when compared to the principal amount. This is because interest is charged only on the balance outstanding. This is known as reducing balance method. Although the monthly payment amount remains the same throughout the loan tenure, with each successive payment you’ll pay more toward the principal and less in interest.

What is amortization?

Amortization in general is the depreciation of intangible assets. In the context of loan, amortization means an arrangement where equal monthly installments are made to pay the loan along with the interest. Each equal payment paid goes towards principal as well as interest. Amortization table shows the amount paid towards these two components over the time. Therefore learning how amortization schedule works is important to understand how your loan is repaid.

What is personal loan? How is it different from other loans?

Personal loan is a short term loan – on an average 3 years – extended to an individual irrespective of what need it is being used for. In banking parlance, it’s an unsecured loan where a consumer doesn’t have to provide any collateral to avail this loan. This loan is purely given on the basis of consumer’s credit profile and the financials he/she provides. The interest rate of personal loans are generally higher when compared to secured loans such as home loans and car loans.

What is CIBIL?

CIBIL – acronym for Credit Information Bureau (India) Limited – is India’s first credit information bureau. It acts as a database of credit history of borrowers. CIBIL provides this information to its members (lenders) in the form of credit information reports (CIR). The borrower should have a good CIBIL score to be able to get his loan approved.

What is Repo Rate?

When banks have any shortage of funds they can borrow it from RBI or any other bank. The rate at which RBI lend money to commercial banks is called repo rate. When the repo rate increases the borrowing from RBI becomes more expensive; in the same way, reduction in the repo rate makes borrowing cheaper for commercial banks.

What is Reverse Repo Rate?

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI increase reverse repo rate when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI.

What is a car loan?

Its a loan taken to purchase a car (new or used) – it may be a small car or a sedan or a sports utility vehicle (SUV) or a multi utility vehicle (MUV). Its also called auto loan.

How do I get a car loan?

You can apply for car loan online here and get instant quotes from different banks.

How long could my car loan tenure be?

Your car loan tenure can be anywhere from 12 to 60 months. Some banks offer car loans with a tenure of up to 7 years for new cars.

What is the maximum amount of loan that I can avail?

Banks usually provide loan of 80% to 90% of car price (considering the ‘on road price’). Banks consider your net annual income too before financing.

The amount of car loan you will get depends on following factors:

  • Your income – Maximum amount of car loan you will get is X times of your monthly income. For example, maximum loan amount that SBI offers is 48 times of the net monthly income for a salaried person; and up to 4 times net profit or gross taxable income for self employed and professionals. You can club your spouse’s income to enhance your eligible loan amount.
  • Your car – i.e., the price and type (standard / premium) of the car you are going to purchase.
  • The percentage of finance offered by the bank – Banks usually offer 80% to 90% of ex-showroom price. This percentage differs from one bank to another bank.

How should I pay the EMI?

You can pay your installments through:

  • auto debit facility if you have a savings account with the bank where your EMI will get debited automatically at the end of every cycle OR
  • you can give post dated cheques (PDC) to the bank. Make sure your account has sufficient funds to avoid check bounce.

Is there any collateral required to get a car loan?

No. The car itself is the security for your loan. But your car will be hypothecated with the bank and it involves some paper work.

How can I increase the loan amount?

You can increase the loan amount by clubbing your income with your spouse / son / father etc.. In that case he/she will be the co-applicant for your loan.

Fixed rate of interest or floating rate of interest?

Different banks offer different type of loans and each one of them has its own merits and demerits. Research thoroughly and do your math before taking the loan.

What is EMI in advance and EMI in arrears?

Can I make prepayment?

Banks usually allow you to make prepayments after certain period of time, say, 3 months or 6 months. Prepayment charges may apply on the outstanding loan amount if its a fixed rate loan.

Can I take car loan to purchase a pre-owned car?

Yes, few banks offer the loans to purchase used cars. But for the used cars, the amount of finance, loan tenure and rate of interest and such other terms and conditions will be different. All of these depend on the model and the resale value of the car you are planning to purchase. Moreover, banks typically finance the purchase from an authorised used car dealer only.

Can I use car loan to purchase car accessories?

Some banks (for example SBI) will finance car accessories other than factory fitted features.

Can I get finance for insurance and registration?

No. Banks consider only the ex-showroom price, which does not cover insurance and registration. However, some banks may finance these items under special schemes.

What happens if the car is stolen or meets with an accident?

In that case, contact your car insurer. The insurance company will assess the extent of damage and pay the claim proceeds to the bank.

Can I sell the car before repaying the loan amount fully?

No. You can not sell your car until you pay off your loan. You should get NOC from the bank to sell your car.

What should I do after paying the last EMI?

After the last EMI has been paid, the bank will issue Form 35 & NOC to RTO and their name will get removed from the RC book. In the same way, get an NOC from the bank issued to the insurer to get their name deleted from their records.

Is it OK if I delay some of my installments?

If you delay your payments, banks may charge you delayed payment charges which compounds monthly. But more than that, such delay in payments will definitely and severely dent your credit score.

What happens in case of default?

If you do not pay the instalments for several months, then the bank will issue a notice and ask you to surrender the vehicle. If you fail to do so, the bank may seize your vehicle after appropriate notice period.

Are there any tax benefits on a car loan?

No. There aren’t any tax benefits on a car loan.

Is overdraft facility available with car loan account?

Yes. SBI offers one such loan under a scheme named Car Advantage Loan which works very much like SBI MaxGain. As it is an overdraft loan account, you can park your surplus money in this account; thereby you can reduce the interest outgo on your loan and at the same time have some money for your emergency needs.

Can I negotiate with the bank to get lower interest rates?

Yes, you can. If you have a good credit score and satisfy certain conditions set forth by the banks, then they may reduce the interest rates. So do check with the banks thoroughly about all these possibilities before taking the loan. Check here to compare and get lowest interest rates on car loans.

Where can I apply for car loan online?

What is home loan?

Its a loan taken to purchase a home (may be an under construction property), or to purchase a piece of land, or to renovate/ extend an existing home.

How long could my home loan tenure be?

Home loan tenure can be up to 30 years. Longer the tenure, lower your EMI will be. However if you stretch your loan tenure, you will end up paying more in interest amount and your loan will be costly.

How much loan amount can I avail?

Usually the banks provide 80% to 85% of your property value as loan and rest you will have to provide as down payment. Moreover, the banks decide the amount of loan by taking into account your income, age, number of dependents, your spouse’s income (if any), your credit history and your repayment capacity. Use the loan affordability calculator to determine how much you should really borrow based on the monthly payment you can make.

How much should my monthly EMI be?

It depends on your monthly income and expenses. Usually, the banks advise you to restrict your EMI to 35% to 45% of your monthly income so that you can pay this debt without feeling a pinch in your wallet. Before borrowing, determine how much EMI you can afford and understand the circumstances that can impact your EMI.

How can I enhance my home loan eligibility?

By clubbing your income with your spouse or with your earning parents / children, you can stretch the loan available to you. Different banks have different rules and restrictions regarding with whom and how you can do this. Loan available to you depends on the value of your property also, as the banks give only 80 to 85% of the value of the property. Further, if monthly EMI is the limiting factor in expanding your loan then you can stretch your loan tenure to bring down the EMI.

What is the eligibility criteria for home loan?

Mostly it is your repayment capacity which is depending upon other factors such as your age, your monthly income and expenditure, your credit history, value of the property etc.

What is refinancing?

Refinancing means taking loan from a bank to pay off the loan taken from another bank. You may opt for this if you are not happy with the service of your existing bank or if there is a chance of getting lower rate of interest from another bank. Banks and HFCs may reduce (or completely waive off) the prepayment penalty if you pay the loan from your own source of funds and may charge a penalty if you pay it by taking a loan from another lender depending on the current loan scheme (i.e, floating or fixed interest loans).

Do I need an insurance for my home?

Yes, you need to insure your house from various vulnerabilities such as fire and any natural hazards as per the requirements of the bank. The bank will be the beneficiary of the insurance during your home loan tenure.

What are the tax benefits on home loan?

The borrower will get tax benefits on principal as well as interest component. You can claim deductions on Rs. 1,50,000 (or actually paid whichever is less) paid towards interest and Rs. 1,00,000 (or actually paid whichever is less) paid towards principal amount in a fiscal year. and exemptions.

Where can I apply for home loan online?

What is a personal loan?

A personal loan is an unsecured and general purpose loan taken by individuals to meet their own personal needs. Unlike a home loan or car loan, its not secured against any asset. It is comparatively expensive, can be taken without security, collateral or guarantor and does not require lengthy paperwork.

For what purposes can I use personal loan?

Personal loan can be used for any personal financial need and the bank will not monitor the use of this fund. It can be utilized for any and all of your personal needs such as renovating your home, marriage related expenses, a family vacation, your child’s education, purchasing latest electronic gadgets or home appliances. It can be used to meet unexpected medical expenses or any other emergencies.

What are the eligibility criteria for personal loan?

The exact criteria vary from bank to bank. General criteria for personal loan are your age, your income / capacity to repay the loan, your occupation and place of residence.

What is the maximum loan duration allowed?

Typically, 60 months.

How soon is the loan amount disbursed?

Typically, within 7 working days of the loan application.

How much personal loan can I borrow?

Loan amount usually depends on your income and varies based on whether you are salaried or self-employed. Usually, the banks restrict the loan amount such that your EMI does not exceed 40-50% of your monthly income.

Can I apply jointly with my spouse?

Yes, you can take personal loan jointly with your spouse or parents and thereby you can also increase your loan eligibility amount by combining the income. The rules and conditions vary from bank to bank.

What is default interest rate for a personal loan?

Default rate is the rate of interest per annum that applies to overdue payments. Any overdue payment incurs interest at the default rate (which is higher than the usual interest rate).

Can I prepay my personal loan?

Yes, you can. However, some banks allow borrowers to prepay the loan only after certain number of repayments have been made on the loan. Some lenders do not allow partial prepayment. Prepayment charges may be levied on the outstanding loan amount.

Where can I apply for personal loan online?