Business Finance

Taking personal loans is becoming a norm for the middle class Indian today. With expenses sky rocketing and salaries moving at a slower pace, there is little one can do to avoid the debt of personal loans. Be it for the further education of one’s child, purchasing domestic appliances, renovating and repairing one’s house, meeting the expenses of special occasions and weddings; the need to borrow a considerable sum of money is being felt amongst almost all strata of the society. It is thus important to understand the repayment options and to know how the interest rates on personal loans are calculated.

Personal loans for salaried and self-employed individuals

Individuals who are salaried or self-employed and can show a considerable flow of income, suggesting the high possibility of repayment over time, can apply for a loan. The status of the company where one is working, credit history of the person applying for the loan and his/her relationship with the bank issuing the loan are the few other considerations for getting a loan grant. Based on the status on each of these, the individual can negotiate for lower interest rates and in waiving off processing fee etc. The best part of a loan is that it can be obtained without the need for any kind of security or collateral, and has a simple process of application and documentation.

Loan rates are varied

Personal loan rates vary across different banks. The range of interest rates on loans is between 12% and 15%. There are different methods of calculating interest on loans. Depending on what the bank has put on offer, and what mode of calculation is suitable for the person taking the loan, a method of interest rate calculation is decided upon.

The different ways of calculating interest rates on personal loan are:

Flat rates – Getting a loan on a flat interest rate is paying back much more than one otherwise would. As in a flat rate calculation, the interest is calculated on initial principal amount throughout the tenure of the loan, the outstanding loan amount is never reduced. Thus, one ends up repaying much more than one would through different kinds of interest rates used for calculation

Reducing balance interest - Reducing balance interest is advisable to go for, as it works out cheaper than the flat rates. In this method, the interest on the loan amount keeps on reducing as it gets calculated on the regularly reduced principal amount.

Floating rate – The floating rate of interest changes as per the market dynamics. It is a high risk repayment method – one can end up paying much more or much less than the amount budgeted for. However, floating rates are offered at lower rates than fixed rates. Thus, a borrower of loan at a floating interest would highly benefit if the market dynamics make the interest rates go lower.

There are other charges on the loans as well. Processing fees and prepayment charges are a part of every loan.

Depending on the bank one deals with, one’s requirement and the relationship one shares with the bank, the best personal loan interest rates can be established.

Financial emergencies are almost an inseparable part of human life. This is especially true for people who live on their monthly wages. Any urgent need of cash can lead to a financial disaster in their lives. In such difficult situations, instant payday loans can be resorted to and the situation can be overcome easily. These loans are called so because the processing takes place almost instantly within a few hours. Given to the high demand of these loans in the market, the number of companies offering such loans has increased tremendously over the last few years. So, finding a provider is not a daunting task at all, however, finding the right lender definitely is.

Instant payday loans are different from traditional loans. First of all, companies that offer these loans are not necessarily similar to normal banking institutions that offer traditional loans. Processing of a traditional loan takes a lot of time due to which such loans are not ideal for your emergency cash needs. Moreover, you must undergo an array of formalities to be eligible for traditional loans. Payday cash loans are applied online and the borrower need not visit the premises of a lender whereas in case of traditional loans, you may be required to personally visit the lender’s office to answer a string of questions and to answer them all to the best you may even need expert advice.

The biggest benefit of instant payday loans over traditional loans is that the former do not require a good credit rating as an eligibility criterion where as in case of the latter, bad credit history is bound to lead to rejection of loan application or resulting very high interest rate.

Usually, the rate of interest charged in payday cash loans is much higher than traditional loans, but considering these act as best tools to rescue you from financial worries when other sources seem bleek, you can use them often. Many financial advisors oppose instant payday loans due to high interest rates, but the persistently increasing number of people who have benefited from these loans serves as a recommendation for people who are in dire need of money to see themselves through a few weeks.

The process of applying for a payday cash loan is very smooth and quick at the same time. All you need to provide the lender is a few basic details. In terms of personal details, you only need to mention your name, date of birth and address. You must be employed to be eligible to apply for instant payday loans and provide your employment details including name of the company and employment type. You are also required to give the details of the debit card that is associated with your main bank account. Details of bank account are also required by lenders to be able to credit the loan money into it. You must compare the interest rate charged by at least three different lenders and choose the one that seems affordable and genuine.

“What information do I need for a home loan?” is a common question that is asked at the beginning of the home purchase cycle. The first home I purchased, I made the mistake of looking for properties in my area without figuring out what I could afford. The first step I should have taken is figuring out my financial situation. I had to determine what loan amount I would qualify for and how that would play into my monthly payments.

You can approach any qualified lender in your area or online to apply for a loan pre-qualification, or loan pre-approval. Your potential lender will supply you with a list of information that is needed for a home loan. I collected the following information, although it was not all relevant for a pre-qualification. I knew I would need it down the line, so I figured I would only collect the information once.

The following documents were:

• 2 most recent tax returns
• 2 most recent pay stubs (an employee)
• 2 most recent bank statements (include all accounts)
• CPA letter and/or business license if self-employed stating 2 plus years employment
• 401k, IRA statements
• Stock account statement
• Other liquid assets
• Other sources of income that do not come from W2s

Other additional information you will need:

• A divorce decree
• Spousal support documentation
• Bankruptcy documents

A pre-qualification is subject to review of your final documentation, i.e. tax returns, verifiable income, and expenses. The pre-approval process actually gets your loan underwritten by your lender after they review the necessary financial records. It may seem like a lot of information at first, but your loan officer will help you throughout this process. A Pre-approved lender letter is a great negotiating tool for you. This will prove to the seller that you are fully qualified to purchase their home.

The items above are the same information you need for a home loan if you decide to go with an online banking company. Just remember that if you deal with a bank that is outside the area you plan to purchase in, you will be dealing with a lot of non-face time. This would include faxing, PDFing, emailing, and talking over the phone. If that does not sway your decision, you might find some good rates online.

There are other online tools that can assist your decision to purchase a home. These tools range from mortgage choosers, borrow calculators and my favorite a basic repayment calculator. Simply type in your search engine “mortgage tools.”