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Tata Capital > Blog

Monsoon Can Harm Your House. Here’s How to Deal With its Side-Effects

It’s been a while since monsoon has hit the cities. And while you did enjoy soaking up to initial showers which gave respite from the sweltering heat, the moisture in the air may have done a lot of harm to your houses. This may include leakages and seepages that can spoil your home interiors. Hence, it is essential to take measures right away rather than rush to fix the issues later when the damage is already done.

Here’s what you need to do to protect your home when it is raining cats and dogs outside:

Waterproof the walls

Enable waterproofing of the walls, both from inside and the outside. If you stay in an area where the rains are heavy and incessant, waterproof treatment and painting are a must. Thus, it is still not too late to waterproof your walls, that will save on repair cost and hassle.

Damp-proof cupboards

Rains create dampness, which can spoil your clothes and other things kept in cupboards. Keep camphor or neem leaves in your wooden almirah to get rid of the smell. You can also leave some cloves in the folds of your clothes to keep bugs away.

Overhaul the drains

If your drainage system is blocked, it can spell trouble. Excess rainwater might clog it further and cause foul smell and backflow. To make sure that the drainage system is working fine and the drain is clean, check it every week. Clogged water may also become a breeding ground for insects, causing diseases.

Check electrical wiring

Do not leave electrical wires unattended and unguarded. Short-circuits often happen in the heavy rains, which can be very dangerous. It also causes power failure. Look for faulty wires in the house, and make sure you promptly attend to anything that needs fixing.

Fix the cracks and gaps

If you have a crack in one of your walls or on the ceiling, it’s high time to seek professional help. Every gap must be filled and sealed with waterproof mortar even in the mid-monsoon. If you have noticed any seepage or leaks in the joints of rainwater pipes or other household plumbing, do the same treatment.

Take a home renovation loan

Ensure that any leaks, or any new cracks, etc are fixed; it will help you rest easy. If you are bothered about the renovation cost affecting your budget, don’t worry. Tata Capital offers a home renovation loan that’s tailor-made for your needs.

The loan offers relaxed eligibility criteria and low-interest rates. The tenure can be as long as 30 years, and disbursal is quick. You can opt for either fixed or flexible EMIs. Such a loan can come in handy for a number of jobs, such as:

  • External renovation
  • Internal repair
  • New flooring
  • Maintenance
  • Remodelling and painting

You can take a loan amount starting from Rs 2 lakh and also avail of tax deduction up to Rs 30000 under section 24(B) of the Income Tax Act, 1961, on the interest payment.

So what are you waiting for? Make your comfy residence even more liveable with a home improvement loan from Tata Capital!

What does the Ombudsman Scheme for NBFCs Mean?

India’s banking industry changed dramatically in the year 1969 when the government nationalized 14 largest commercial banks. The next development took place in the 1990s when private banks began operations as a result of the liberalization of the economy. The next stage of development expanded the banking system by the entry of Non-Banking Finance Companies (NBFC). NBFCs such as housing finance, chit fund, leasing, and insurance serve the needs of customers providing a variety of financial services. With the advent of technology, a new breed of financial services companies took root known as Fintech companies. These offer financial services leveraging the power of new technologies operating in the financial services industry.

The regulator of the banking industry is the Reserve Bank of India (RBI). It regulates as per the provisions of the RBI Act, 1934. One of the main features of the Act is the protection of the rights of bank customers through the Banking Ombudsman Scheme (BOS). As of today, the Banking Ombudsman Scheme 2006 (as amended up to July 1, 2017) is in vogue.

A similar scheme is now extended to the operations of NBFCs to protect the rights of NBFC customers. In line with this objective, and in recognition of the growing influence of NBFCs in offering financial services to a wide cross section of people, the RBI has brought the NBFCs under the BOS through a notification issued on 23 February, 2018 (https://rbidocs.rbi.org.in/rdocs/Content/PDFs/NBFC23022018.pdf).
The salient points articulated in the BOS (Banking Ombudsman Scheme) for NBFCs include

  • Establishment of office of ombudsman – presently 4 offices in Chennai, Mumbai, New Delhi and Kolkata operate with specific jurisdictions covering the whole of India
  • Procedure for redressal of grievance – grounds of complaint, procedure for filing complaint, power not to entertain a complaint, power to call for information, settlement of complaint by agreement, award by the ombudsman, rejection of the complaint and appeal before appellate authority

In essence, the ombudsman scheme receive customer complaints such as delay in collection of cheques to delay in providing certain services such as issue of demand drafts to non-adherence to prescribed working hours to levy of charges without due notice. The ombudsman is a form of appellate body as the customer can approach the ombudsman only in the event of unsatisfactory reply from the concerned NBFC.

Tata Capital is a premier NBFC offering a variety of financial services to customers to acquire homes, cars and two wheelers, and consumer durables. It provides loans for higher education and businesses. It offers personal loan for all other purposes. Its use of technology to process and disburse loans ensures transparency and minimizes disputes. The company welcomes the introduction of BOS to NBFCs, which will strengthen the ethical practices prevailing in the company and build upon the already high trustworthy nature of its business.

How Owning a House Can Give you the Freedom to Live

For any average Indian, having a roof of one’s own is an aspiration, but achieving it can be a mammoth task. Scraping for a down payment, ensuring a decent credit score, figuring out the mortgage specifics, getting paperwork in order, doing up the place once you get possession, dealing with taxes, bills, and other sundry expenses, the tasks on the list are endless. However, the indefatigable Indian will pursue and persist through all trials and tribulations because the benefits of owning a home outweighs the hardships.

If you too have been contemplating to take the big leap here are eight reasons that will aspire you to become a home owner

1. Capital appreciation

Limited real estate available to service a huge housing requirement ensures that the value of your home will only appreciate over the long term. Conversely, money spent on renting a place is a dead expense.

Over a 30-year period the value of a property is usually expected to double. If you are in a metro such as Mumbai, Delhi or Bangalore, that period could be as short as 10 to 15 years.

2. Asset building

Very few asset classes can give the kind of returns that real estate does. Owning a house gives you an opportunity to create further wealth or it can help you in times of crises.

You have the option of earning by renting out space in future, or selling it at a profit and reutilising the funds to move to a bigger or better place, or reallocating funds to other investments.

In times of crisis, you can always take a loan against your property to tide you over a situation and repay it over a period of time.

Additional Read: Home Loan in Delhi

3. Certainty of expenses and investment

For most of us, investment planning tends to be ad hoc. Look at EMIs as a monthly investment rather than an expense. The fixed sum every month that goes towards building your roof ensures that you prepare and stick to a well-thought-out budget.

4. Freedom to make it your own

If you’ve lived in a rented place, you know that even driving a single nail in the wall requires the landlord’s permission. You can forget about ‘doing it up’ to your taste.

With your own home, you have the liberty of making changes as you please, whenever you please. Not just cosmetic changes, but even the option to redesign the space as long as you don’t compromise the structural integrity.

5. Privacy and surety of space

With a rented place, the equation is always lopsided in favour of the owner. You would have to entertain queries and visits as per their whim.
You may have to pay increasing rentals year-on-year. You may even be asked to vacate at short notice if the homeowner needs the space or finds better prospects.

All of these factors are eliminated when you step over to the other side and become a homeowner.

6. Tax benefits

The Income Tax Act provides for various deductions for homeowners to reduce their tax outflow on buying a home, especially if a first-time homeowner.

7. Retirement security

At the end of the day, you want to live on your own terms, without being dependant on anyone. Your home provides an income generating possibility with which you could easily enjoy your golden years with your loved ones.

Owning a home is not only a great milestone, but also considered a yardstick for success within the Indian community. Tata Capital understands and values the struggles you undergo on a daily basis and aims to provide the best support it can through flexible payment options, instant approvals, lower EMIs and doing away with prepayment penalties.

Tata Capital is just the partner that help you create more freedom in life and support you to realise your dreams of becoming a proud homeowner!

The Indian Loan Scenario – Things You Must Consider Before Taking a Loan

Eyeing a new sedan? Or pining for a vacation in Bali? Or planning a big fat Indian wedding for your one and only offspring? No matter if you’re short of funds; if you crave something that needs to be paid for, there’s always a financial solution for it – a loan.

There’s a wide range of loan schemes on offer in the market from multiple lenders; all you need to do is choose one that’s right for you. But before you apply for a loan, you need to consider the following points:

  • Loan purpose
  • Your eligibility
  • Lender/interest rates
  • Associated fees
  • Loan tenure
  • Repayment plan

Loan purpose

If the loan is to fund your travel to a foreign destination or to conduct a wedding, an unsecured personal loan can be the answer. These are given without the lender demanding any collateral as security. If the loan is to invest in a house or apartment, banks usually sanction up to 80% of the property value, but do bear in mind that this is by no means set in stone.

If you are considering buying a new car, or even a used one, an auto loan is a convenient way to acquire it without having to dip into your savings. Car loans have a lower rate of interest than unsecured loans since the vehicle is used as collateral – unless of course it has been in use for a certain period, usually seven years.

Loan eligibility

The amount sanctioned by the lender hinges on your past repayment record and credit card dues. Lenders also look at your income to ascertain if you are in a position to pay the EMIs from your stated income. Before taking the loan route, you must be clear on the EMI you are willing (or able) to pay each month. This can be a good starting point to check your EMI repayment capacity.

Also keep in mind that the lender will be checking your CIBIL credit score, a figure that could range from 300 and 900. This number is arrived at after considering your credit card bill payment, bank account statements, existing loans or liabilities, loan repayments, and how many times you have applied for a loan till date.

Tip: If you have been checking your maximum loan limit with multiple banks and do not mind paying the processing fee to each of them, you may be seen as ‘credit hungry’ by CIBIL – this could lower your chance of getting a loan.

Lender/interest rates

When it comes to choosing the lender – whether it’s a bank or a non-banking financial company (NBFC) – do not rush in without prior research. If it is a home loan you are looking for, banks usually lend up to 80% of the property cost, so that’s a huge burden off your shoulders.

This does not mean NBFCs cannot be considered; Tata Capital, for instance, offers home loans ranging from Rs 2 lakh to Rs 10 crore on residential properties. It would be a good idea to visit an online financial services provider such as Credit Nation to compare rates, instead of physically visiting several banks to know their terms and conditions.

Point to remember: institutions offer two types of interest rates on loans – fixed and floating. In case of a home loan with a fixed rate of interest, the EMI amount does not change during the tenure of repayment. In the floating option, interest rates change according to market conditions; it has its risks but can prove to be a blessing if rates fall in the near future.

Associated fees

There can be several fees and charges associated with the loan: administrative fee, service charge, early exit charge, prepayment charge, and insurance and withdrawal fees. Get the complete lowdown on the charges you will have to pay once you get the loan; these charges are a percentage of the loan amount actually sanctioned to you, and not on what you actually take home. Make sure you consider these fees to avoid unnecessary and unexpected expenses.

Loan tenure

The length of your loan term or tenure will determine the repayment amount and the amount of interest you will have to pay; please note that the EMI amount is inversely proportional to loan tenure. If you repay your loan over a long period the EMI amount will be low, and vice versa. Most personal loans span 1-7 years, so think it through before you finalise anything.

Repayment plan

This is an obvious point but crucial in deciding your EMI amount; a lot of people decide to pay off the loan before the term ends – if the early exit fee suits them – to get out of debt sooner. In that case one needs to decide on the right loan plan and lender to avoid unnecessary costs.

Advantage NBFC

An NBFC operating in both the public and private sector is similar to a bank in the sense that it is also a key financial intermediary, and offers its customers services similar to that of a bank. However, it does not hold a banking licence and therefore, unlike a bank, it cannot issue self-drawn cheques and demand drafts.

One may then ask, what is the reason to have NBFCs at all? It is simply this: banks alone cannot cater to all sections of society; someone has to fill in, given that finance is a basic requirement for individuals and businesses. This is where NBFCs are relevant; they complement banks in providing finance to people. So if you are thinking of taking a loan from a financial institution, you may consider an NBFC as well.

A point to note is the cost of funding, an area where banks score over NBFCs. This is because banks are flush with funds through current accounts and savings accounts on which they offer a low rate of interest, which by extension allows them to lend cheaply. NBFCs find it difficult to offer matching rates, and charge interest rates that are generally higher than that of banks. To stay competitive, NBFCs have to score elsewhere. Let us consider these factors:

  • Flexibility: One way for NBFCs to compete with banks is by being more flexible in their lending. You may be considered for a loan amount higher than what a bank might agree to, even if you fail to produce one or two minor documents. Banks may charge a lower rate of interest, but they can be very particular.
  • Quick processing: Which brings us to speed of processing – NBFCs take less time than banks to process a loan application, and it is transparent as well. Processing time at banks can range from a few weeks to a few months.
  • Unsecured loans: Based on your creditworthiness, many NBFC credit products may waive collateral, but you must check with them first.
  • Better services: As part of being flexible, NBFCs have become very customer-friendly; they are highly approachable and they communicate regularly with their customers – not only before the loan is taken but during the loan tenure as well. They also collect repayment in cash or cheque from the customer’s location.
  • Wide network: NBFCs have a well-established network across the country, and their services are available in tier II and tier III cities as well.
  • Less fussy: It may have happened that you missed a few credit card payments due to an exigency at home, which could affect your CIBIL score. Banks may look askance at this but NBFCs are less fussy.

The Tata advantage

One negative with NBFCs is that this sector is unregulated. Because of this, it is essential that you must look for a renowned name if you decide to take the NBFC route. In India’s business landscape, no name is more credible than the House of Tata. It is synonymous with trust and integrity, and something you can repose your faith in blindly.

Valuing this market perception, Tata Capital – the finance arm of the Tata Group – seeks to bring the trust and expertise of the Group to financial services. With 100 branches and more on the way, the company operates across various areas of business, including consumer loans (home loans, personal loans, used car loans) and business loans.

So if you’re looking for a loan to finance a dream, your search can end with Tata Capital.

5 Cool Habits for Gaining a Good Credit Score

32-year old sales professional Heena is sad these days. Her loan application has just been rejected due to bad credit score. A bad credit score means she is not fit for the loan risk that the financial institution wants to take. The worst part is that old accounts that she forgot about have come to haunt her back. There are hundreds of Heenas and Hirens amongst us. There is a solution to their problems. Read on to find the different ways you can gain a high credit score.

1. Keep a close watch on credit card balance –

One major factor in your credit score is how much revolving credit you have versus how much you’re actually utilizing. The smaller that percentage is, the better it is for your credit score. The optimum levels are 30-40 per cent. To boost your score, pay down your balances first and then work towards keeping those balances low. In case you have small balances on different credit cards, pay them off and close those cards for good. Keep just 1-2 credit cards and use them actively.

2. Pay bills on time, every time –

One of the biggest ingredients in a good credit score is month after month on-time payments of dues. Bills can be anything. For example something as simple as the bill for your mobile phone connection. If you delay them, credit score gets hurt. Any prospective lender actually looks at your history to determine whether you have good credit habits. This is why credit scores incorporate elements like timely payments.

3. Clean social media and digital footprint –

Behaviour on social media and other digital footprints become a treasure trove of information for lenders. Did you know posting a drunk picture on social media can back-fire on you years later during a loan application process? Believe us when we say this, such behaviour affects your credit score. At the other end of the spectrum, acceptable behaviour on social media is also a plus. Data from professional networks can be accessed to find about a person’s employment history, how stable is the job, and how frequently does a person switch jobs etc. Your social and professional circle can actually be taken into account go assess id you as an individual are a responsible borrower or not.

4. Diversify Credit –

Debt that you have handled well and paid for is good for your credit score. Consider diversifying your credit under various aspects of your needs. Like a small car loan that you can handle, a personal loan for a vacation. These things are something that you can pay for in a shorter run of time along with your regular credit card bills will add up to improving your score.

5. Discipline and Consistency –

Closing old accounts, be it trading accounts, bank accounts that one doesn’t use, credit card bills will go a long way. Consistency in paying bills on time, not defaulting on payments, maintaining a good digital footprint all will help in improving credit scores.

Things that Dream Homes have in Common

Everyone dreams of owning a house that is unique. It is fact that each home has its own quirks and corners. Now, as yourself what do you think of your dream home? The answer will vary from individual to individual. While we tend to furnish our home to make it more personal, however, there are some underlying common themes running across all homes. After all, you have to match up to your neighbour or stay near your relatives or you want to be close to the shopping areas or close to the airport or a metro station.

Let’s see what are common among dream homes that people aspire for:

Locality

In today’s traffic-filled roads commuting is an arduous task that you can avoid if you can help it. So, you tend to find a home in a locality that is in close proximity to all your daily needs – schools, shopping, religious places, entertainment centres, metro station and the like. Perhaps, if you are a young couple with growing kids, then schooling becomes an important factor and you tend to locate your home nearer the school you want your children to go.

Thus, good location satisfying several requirements is a common theme for many dream homes. Besides, homes in a good locality rise in value and can give you handsome returns if and when you want to sell it in the distant future.

Sometimes, the locality you want may cost you more. If you really like the place and are open to borrowing the extra fund, a home loan can be the answer.

Additional Read: What are the Top Ideal Locations to Buy A Home in India?

Spaciousness

Everyone has a concept of what spaciousness means for them. A space for you and your children, for some it may be a home office, for others a guest room or two for visiting family and friends. There are also those who want a backyard for gardening or a clubhouse. Whatever your needs are space is a common theme and you will decide on a home based on the space you and your family would need.

While for many, these tend to be pre-requisites, some incorporate these changes during renovation as well. If you are planning on creating a special space for yourself, talk to financial institutions like Tata Capital that provide housing loans for renovation as well.

Quality of construction

Many times you tend to get carried away by some innovative streak to build a home that is unconventional and futuristic. However, you have to remember that your home is for the future and you want the home to last longer and so you have to ensure a high quality of construction. Of course, you can be innovatively provided you maintain the basic quality of construction. You can include quality of fittings here too. Your bathrooms fittings, flooring, façade, kitchen cabinets and wardrobes must all be of the best quality of materials to last longer.

Thus, quality of construction of the home that you build or the built home that you buy is a common factor and you will do well to go with the common flow.

Additional Read: Who Are The Top Realtors in India To Buy Your Dream Home?

Smart Homes

In today’s Internet age, smart homes are very convenient and useful to possess. The Internet of Things (IoT) is a network that connects a variety of physical devices including home appliances, vehicles and other devices hosting electronics in them. Smart homes are a part of IoT.

They can help to conserve energy by controlling lighting, heating and air-conditioning. They increase factor of safety and security exponentially. They are more comfortable to live in. They can cater to the requirements of individual family members in the home as well.

If you are keen on making your home a Smart Home, you will have to be ready to bear the cost as well. While these electronics come with a much higher price tag, you need not compromise on quality. While availing a home loan, do budget for this aspect as well. Your housing loan can help you find the best things in the market that can make your home a dream home.

Due Diligence and Smart Contracts

The legal process related to owning homes in India will undergo changes due to the introduction of blockchain technology which will ensure more transparency in the due diligence process. However, until this technology reaches an acceptable threshold you have to ensure the authenticity of the purchase of your home using the available means today. If you don’t, then you will face unwanted complications in setting your land and home records straight.

Thus, due diligence is a common feature of any home buying process.

Additional Read: Buying a House? Make Sure to Follow this Home Buying Guide!

Choice of Lender

Buying a home is a huge investment for you. You have to ensure the availability of funds to buy a home of your choosing. Most of you would often find a resource crunch and you would opt for availing a housing loan. You would want to choose a reliable lender such as Tata Capital to finance your homes, fully or partially, based on your creditworthiness.

Before you apply, check your eligibility for availing a home loan. You will need a CIBIL score while applying as this gives financial institutions more confidence on your repayment as well. Once you understand your eligibility, with a home loan calculator, you can check your EMI with the interest rate for your home loan.

These financial institutions like Tata Capital offer a home loan with various features including a simple application process, higher loan eligibility, competitive home loan interest rates, balance transfer, home loan EMI calculator and choice of EMIs and tenures.

These are the common things that most of us look for while buying a house. However, in the end, your house becomes your home because of you and your family. Finding the right place, with the right space and amenities is just the start and with the right home loan, you can get to building your dream home.

Important Things to Consider Before Buying Second Home

Samir’s New Investment Option

Samir is a 40-year old businessman leading a reasonably well planned life. He is doing well in his business and earning well. He has achieved the goals he considers important like a good marriage, bringing up a nice kid, owning a spacious apartment, having sound investments and owning two mid-size cars. He takes three vacations each year. He is expecting a good income this year and for some years into the future too, and wants to look at other options to invest his hard earned money.

From among the alternatives he looked at, he feels he should invest in a second home so as to provide for his child’s future. He goes about researching the pros and cons of owning a second home.

Advantages of Owning a Second Home

Samir’s research (https://www.ibef.org/industry/real-estate-india.aspx) indicates that the real estate market in India is growing at a fair clip – 11.2 percent CAGR. He feels that traditionally, Indians never lose money by owning homes.

His research indicated

  • The government giving a big push to the housing sector
  • Great tax benefits on owning homes including multiple homes
  • NBFCs such as Tata Capital offer home loans at attractive interest rates
  • He can take home loan for multiple properties

What to consider while buying a second home

During his research, Samir found out that he should examine all angles of buying a second home carefully before he committed himself to go for the second home. More specifically he found that

  • It is advantageous to take a home loan for buying the second home as the tax benefits are substantial
  • Even though he can afford to buy the second home from his own funds he finds that a loan is more advantageous and he can deploy his own funds in his other investments which can earn him more than the interest he would pay for the loan
  • He should buy a home in a locality which is well known for its convenient location to nearby shopping areas, schools, transportation, reputation and availability of basic infrastructure
  • Since he is planning to let out the home, he should choose a location which can fetch him good rent
  • He should buy from reputed builders and check their offerings for the latest in construction technologies, amenities provided, approvals received, sanctioned plans, property documents and title deeds
  • He should do due diligence on the builder’s reputation for delivering on time
  • He should thoroughly examine all associated costs to arrive at the total cost – cost of home, amenities, registration costs, car parking, deposits, statutory levies and any other cost
  • It is advantageous to buy a completed house as the tax benefits apply from the date of purchase whereas for a under construction house, there are limitations
  • Since the IT Act attaches a notional rental income for the second home if it is not rented, it is advantageous to rent the second home
  • There is a 30 percent standard deduction available for rental income
  • Long term capital gains benefit on the second home is also available
  • Tax benefits on principal repayment up to Rs 1.5 lakh (Rs 2 lakh for senior citizens) is available only for one house and not for the second house under Section 80C
  • Tax benefits on interest payment for the second home loan is available under Section 24(b) – limited to Rs 2 lakh or actual interest paid, whichever is lower
  • It is advisable to take a home loan insurance so as to cover the repayment if any unfortunate incident happens to him without troubling his family

After considering the pros and cons Samir decides that he should go for the second home ready built and let out to take advantage of all the benefits available under the IT Act.

Tata Capital is an NBFC extending various loans including home loans to help borrowers take advantage of tax benefits. With Tata Capital, obtaining a home loan is very simple and effortless. You can even refer to our home loan guide. The home loan guide helps you to understand the home loan process and make considered decisions regarding the home you want to buy with our home loan product.

Why NBFCs are Expanding their Lending base to MSMEs

Micro, Small, and Medium Enterprises (MSMEs) have contributed hugely to India’s GDP. MSMEs are enterprises that are defined by the size of their investment, as follows:

  • Micro – Rs 25 lakh
  • Small – Exceeds Rs 25 lakh but is less than Rs 5 crore
  • Medium – Exceeds Rs 5 crore but is less than Rs 10 crore

Unlike large firms, MSMEs are typically smaller-sized businesses. This makes it difficult for them to get large sums as funding. However, many MSMEs have recently been placing their trust in Non-Banking Financial Companies (NBFCs) and availing loans from them. The popularity of NBFCs is no secret as they, along with housing finance companies, cumulatively lent Rs 2.59 lakh crore to commercial enterprises helping all of them meet 18% of their financial needs in the financial year 2017.

NBFCs are financial institutions that offer certain types of banking services such as loans, credit facilities, money markets, merger activities, retirement planning etc. but they do not have a banking licence. Hence, they do not accept deposits or issue drafts/cheques, etc.

Here are some reasons why NBFCs are a preferred source of borrowing among MSMEs.

1. Competitive interest rates

The interest rate is a prime factor that any businessman would consider while applying for a loan. Interest rates offered by banks fluctuate on the basis of the Marginal Cost of funds-based Lending Rate (MCLR), which in turn depends on lending rates set by the Reserve Bank of India (RBI). On the other hand, NBFCs’ interest rates aren’t regulated by the RBI. They lend based on the Prime Lending Rate (PLR). Hence, they can increase or decrease interest rates basis their discretion.

MSMEs looking for lower interest rates or even higher interest rates (in case they don’t meet a bank’s eligibility criteria) can benefit from availing loans from NBFCs. Based on factors like turnover, credit score, etc., NBFCs offer competitive interest rates.

2. Quick processing

Banks rely heavily on paperwork and have stringent rules regarding the same. Hence, their procedures can be very time-consuming. On the other hand, NBFCs require minimum documentation and are known for their quick loan disbursements. The nature of a loan is such that a business needs it on an immediate basis. NBFCs capture this demand, and process loans swiftly.

3. Less stringent eligibility criteria

In most cases, banks don’t sanction a loan to fulfil the entire amount – a certain part has to be borne by the borrower ( NBFC?? THERE IS NO CONNECT HERE)

A bank may offer its best interest rate to someone who has a credit score of 750. Banks pay a lot of importance to credit scores and might even reject a loan application if the person does not meet the criteria. Those with low credit scores have better chances of getting a loan from NBFCs. As you see, eligibility criteria to avail loans from NBFCs are more flexible.

Capital is a vital part of every business. Whether it’s big or small, without sufficient funds a business cannot tap into opportunities, take risks, or plan for expansion.

If you’re looking for a business loan, keep in mind factors like the type of loan, the rate of interest, your credit score, disbursal timelines, etc. You can choose to borrow funds for your growing business from TATA Capital. Its loan schemes are easy to apply for, come with flexible options at affordable costs, have convenient repayment options, and help sustain and grow your business.

RBI’s New Guidelines for P2P Lending Platforms

Lending Business

Traditionally, financial institutions such as banks control the lending business where they offer loans to borrowers to meet various funding requirements. Banks come under RBI regulation. Over the years, RBI is increasingly regulating financial institutions other than banks such as NBFCs which include stand-alone housing finance companies.

Increasingly borrowers are shifting preference to NBFC’s over banks, who are flexible in giving loans and have quicker turnaround times over banks. This rising influence of NBFCs on the lending business, has made RBI bring NBFCs under its regulatory codes.

P2P Lending Platforms

Following in the footsteps of NBFCs, new organizations mushroomed that disrupted the lending industry positively using the latest advances in technology to match lenders with borrowers through online and other resources. These organizations used peer-to-peer (P2P) platforms to operate in a lending marketplace for loans. P2P platforms perform as alternatives to normal financial systems such as banks and NBFCs. The P2P platforms are gaining currency among both lenders and borrowers as they offer to link up people with surplus funds to people requiring funds. P2P platforms are becoming very attractive to individual borrowers and small businesses as they offer quick linking and better terms without too much of hassles. The P2P platforms offer advantages such as

  • Providing higher returns to lenders
  • Loans without collateral at lower rates of interest than banks and NBFCs
  • Reverse auction process – lenders can bid on proposals from borrowers
  • Quicker processing
  • Credit assessment
  • Facilitating loan process
  • Assisting in recovery

Notwithstanding the many advantages, P2P lending offers, small borrowers still would need to repay the loans. Unfortunately, if there is a delay in repayment it is possible that small borrowers could face hardships from either the P2P platforms or the lenders.

P2P platforms use existing systems, procedures and policies of the banking industry such as credit scores, KYC norms and normal banking channels to conduct business.

RBI Intervention

The RBI decided to regulate the business of P2P lending because financial transactions involving individual borrowers and small business borrowers with P2P platforms are increasing with possibility of coercion by some unscrupulous elements in the system. The vulnerability of small borrowers to accept loans with harsh terms and conditions including higher interest rates is high especially when these borrowers are unable to get funding from traditional channels for whatever reason. At the same time, lenders using the platform could face difficulties in recovering the monies advanced. Thus, RBI stepped in to regulate the operations of P2P lending business.

With the RBI issuing notification on P2P lending platforms, these platforms now come under the umbrella of NBFCs, which the RBI is regulating on lines similar to banks.

Main Provisions of Master Directions – Non-Banking Financial Company – Peer to Peer Lending Platform (NBFC-P2P) (Reserve Bank) Directions, 2017

The RBI issued its directions regulating the operations of NBFC-P2P lending platforms in October 2017 and key provisions are

  • The directions apply to a separate class of NBFCs known as Non-Banking Financial Company- Peer to Peer Lending Platform (NBFC-P2P)
  • Directions regulate registration and operation of NBFC-P2Ps
  • Eligibility criteria – only companies (not any other type of ownership) to operate, new platforms to operate only after registration, existing platforms to register within 3 months, to have net owned fund of not less than rupees twenty million
  • Prudential norms – maintenance of leverage ratio not exceeding 2, caps on exposure and lending and borrowing and maturity periods
  • Fund transfer mechanism through escrow and operated by the trustee
  • Only bank transactions allowed – no cash transactions
  • Submission of information to credit information bureaus mandatory
  • Transparency and disclosure requirements – details on identity, interest rate, loan amount, credit score, terms and conditions of loan, fees and taxes
  • Grievance redress system – company board approved system

The RBI’s directions are exhaustive and may undergo changes as the P2P lending business grows in size and reach. The regulations are a welcome measure to protect the interests of both lenders and borrowers and P2P lending platforms.

Prepaying Your Home Loan? Think Again

An important element of any loan is the repayment. Repayment is an obligation that borrowers need to meet to ensure they keep their loan accounts squeaky clean. If not, they run the risk of lowering their credit score which will have a bearing on their future loans. Most lenders will not extend loans to borrowers whose credit score is low. Even if they extend loans the borrowers will have terms that are not favourable to them including higher home loan interest rate, lower tenures and lower loan amounts.

One aspect of repayment is the prepayment factor. Prepayment is the process of repaying the loan amount in full well before the loan tenure. Lenders offer partial prepayment or full prepayment with certain terms and conditions that the borrowers have to meet. While prepayment may be beneficial to borrowers it may not be so for lenders as their plans get affected. In the case of borrowers, prepayment could also be detrimental as they may lose tax benefits.

Importance of Home Loan

A home loan is a long-term commitment and typically runs for anywhere from 15 to 30 years. It has the lowest interest rate because a home loan is a secured loan. A home is a treasured asset with emotional overtones and in Indian circumstances a solid investment that serves generations of families. Thus, borrowers need to carefully evaluate the pros and cons of prepayment before opting one way or the other.

Factors to consider for prepayment

The factors that matter when considering prepayment include

  • The point at which the loan tenure stands
  • Prepayment charges, if any
  • The type of home loan – floating rate or fixed rate
  • The movement of interest rates in the future
  • The loss of tax benefits, if any
  • Prepaying other higher cost loans first
  • Any compulsive reason for prepayment
  • Availability of surplus funds for prepayment

Additional Read: 5 Things To Keeping in Mind Before Prepaying Home Loan

Factors to consider for non-prepayment

Conversely, there are factors that matter when considering non-prepayment such as

  • Continuation of tax benefits
  • Non-availability of funds for prepayment
  • Disposal of property
  • Deployment of surplus funds into other investment avenues rather than prepayment
  • Rise in interest rates

Thus, a careful evaluation of the pros and cons of prepayment will go a long way in making the right decision.

Evaluation of prepayment option

The evaluation process should include among other things, the following

  • Evaluate the costs of prepayment considering all factors that would affect the home loan – it makes sense to use parameters considered for investment decisions
  • Borrowers could consider partial prepayment and decide on either reducing the tenure or the home loan EMI amount
  • One major factor to consider is the amount of interest payable on the balance principal amount when making partial prepayment decision – the total outflow on interest payment will reduce substantially
  • Most lenders charge up to 2 % of the prepayment amount as prepayment charges when the home loan is under fixed rate option – include this cost when making prepayment decision
  • Most lenders limit the amount of prepayment and the number of times a borrower can make repayment during the loan tenure – consider this factor while making prepayment decision

Additional Read: 5 Tips to Boost Your Home Loan Prepayment Process

Prepayment is an option that borrowers should exercise only after evaluating all the advantages and disadvantages of doing so. If borrowers make prepayment decisions impulsively just because they have surplus funds, they may be making an inappropriate decision and lose out on the many benefits that a home loan brings to them.