Case Study : Repayment of default amount is not enough

(Disclosure: This blog post is sponsored by Credit Sudhaar)

Ashish is a 30 year old and he has been working for five years; he wanted to buy a house and for that he decided to apply for a housing loan. After carefully researching online and talking to a few of his friends and colleagues he decided to apply for a loan with SBI. Despite fulfilling the eligibility criteria and submitting the required documents his loan application was rejected. He could not understand the reason for it.

The SBI Home Loans representative told him that his credit score was low (for the bank) which led to the rejection of his loan application. Ashish was surprised as he had two credit cards which he used responsibly and always paid his dues on time. He decided to get his Credit Information Report so that he could figure out the reason for his low rating.

The CIR revealed that he had missed on repaying the last two installments of his education loan; he had moved cities and had failed to inform the bank. So any notices sent to him would not have reached him and now due to those defaults the asset has been classified as a “SUB” which denoted a sub-standard asset. Any asset which remains a NPA (Non Performing Asset) for more than a year is classified as a Sub Standard Loan. 

Now that Ashish knew what the problem was he decided to solve it. He contacted the bank from where he had taken the loan, checked what the total dues were (the pending EMIs plus the accumulated interest and fines. He paid the dues, got a NOC from the bank after a little follow and was relieved at having taken care of the problem. He waited for a few weeks to check his credit report.

He was disappointed, though the loan was no longer reflected as a “Sub” asset and his score did improve marginally but it still was not at a level at which the bank would sanction him a loan. Though he knew that there were lenders that offered loans for bad credit scorers too but he did not want to take that route as these loans were generally available at very steep rates.

Why Repaying the Dues is Not Enough?

Are you also confused like Ashish and wondering why the score did not improve drastically and why is it still difficult for him to get a home loan sanctioned? Well we have an explanation for you.

Repaying the loan meant that the overdue status of the loan was taken care of but the missed EMIs will continue to reflect in the CIR. The CIR carries the repayment record of last 36 months and two missed EMIs are sure to be cause concern for any prospective lender and lower the credit score. Repayment history is the most crucial factor in credit score and it has a 35% weightage in the score calculation. In Ashish’s case there were no other loans; his credit trail was not too deep so even a single missed payment would have a great impact on the overall credit rating.

If someone were to have multiple loans which have been running for a while and they default on a single payment then there would be an impact but it would be lesser than what was faced by Ashish. The education loan being the first loan does set a kind of tone for the credit trail so one needs to be very careful in repaying it. Two missed payments for a the first and only loan in the CIR does not present a healthy credit picture.

What Should Ashish do Now?

The older the default the lesser its importance is in the eyes of the future lenders. Ashish should continue to be a responsible credit card user, keep his credit utilization ratio less than 30%, he should remember to pay dues on time and should not make any further loan applications till he is sure about his credit score acceptance. Improving the score takes time and with time the score will become better.

There is no quick fix the credit score improvement, he has taken the step in the right direction by paying the complete dues and the results are sure to follow in time!

Is Financing a Used Car worth it?

(Disclosure: This blog post is sponsored by Credit Sudhaar)

Getting a car loan, irrespective of whether used or new, is often said to be a bad idea. This is because cars depreciate quickly over time. In other words, cars lose their worth over time faster than other kinds of assets.

In fact, some assets, such as real estate, increase in their worth over time. On the other hand, even a new car can lose 50% of its market worth in 5 years.

So, if you are planning to buy a used car with a loan, make sure you understand the advantages and disadvantages of the same.

Advantages

  • Easy on the Pocket

People buy a used car because they don’t to stress themselves financially, and that’s perfectly alright.

With a used car loan, not only you get to buy your favorite “hot wheels” at an affordable price, but you also don’t have to pay the entire amount in one go.

With a used car loan, you can easily pay off the full amount (which is already quite low) in small installments on a monthly basis.

  • Builds Credit

The best bad credit fix method is to build score through loans and credit card payments. This is where a used car loan can come handy. Since the loan amount is likely to be quite affordable you can easily pay off the installments on a timely basis and improve your score quickly.

  • Saves Money

A used IDBI, SBI or HDFC car loan may add another expense to your current list of expenses but it can also save you a lot of money. By having your own car, you can reduce your transportation costs to a great extent. Plus, your spouse can commute to the work too and save even more money.

Disadvantages

  • High Interest Rates

The interest rates on used car loans are usually higher than those on new cars, and there are multiple reasons why. First, since the duration of a used car loan is shorter (with the loan amount being smaller) banks try to make up for it through high interest rate. Second, it’s difficult to predict the depreciation rate of used cars. So, if you default on the loan and the lender has to possess the car and sell it, they won’t be able to get a fair price. Some also believe that lenders put high interest rates on used car loans to deter the customers in the interest of selling new cars.

  • High Depreciation Rate

Financing a used car is especially a bad idea because it will depreciate fast. So, you will be paying money on a monthly basis on something that’s losing its value. If you decide to sell your car in the future you won’t get a quarter of the price you paid for it in total (principal amount+ interest).

  • Additional Costs

Although there are many dealers that sell used cars that are in excellent condition, they still are more likely to malfunction more often than new cars. So, while you will have a monthly EMI to deal with already, when there are repair costs, etc. it can put more financial burden on your shoulders.

Conclusion

Now that we have discussed both the advantages and disadvantages of financing a used car, the question remains- is it worth it? Unfortunately, there is no right answer to this question.

While it’s certainly better to get a loan for a new car, not everyone can afford that. In that situation getting a used car loan is not a bad idea.

However, there are ways you can make it work better. For instance, working on bad credit fix can improve your chances of getting better interest rates.

You can also compare the features offered by several dealers or wait for the best timing to submit a loan application.

Just don’t forget to pay your EMIs on time, as even a single late payment can affect your CIBIL score and make it even more difficult to get loans in the future.

 

IPOs in 2017 and ahead

An analysis of initial public offering (IPO) activity in the fourth quarter of the 2017 fiscal year signals a healthy year ahead in terms of equity markets, according to observers.

Despite uncertainty about how the landmark goods and services tax (GST) will pan out, India is still considered a promising destination for global investors, an EY report states.

The firm said there were 14 IPOs on the BSE and BSE SME indices in the January-March quarter, the biggest being Avenue Supermarts Ltd., operator of the D-Mart retail chain. Its Rs 1,870 crore IPO coincided with the BSE Sensex hitting a two-year high.

 

What new listings can I expect in the coming financial year?

Several state-run companies are expected to float shares on public markets, in line with the government’s divestment target of Rs 72,500 crore for the 2017-18 fiscal year. Numbers from PRIME Database show than 23 companies at different stages of SEBI approval are vying for at least Rs 25,000 crore worth of shares in the next financial year.

Cochin Shipyard Ltd. (CSL), Housing and Urban Development Corporation Ltd. (HUDCO), Central Depository Services Ltd. (CDSL) and National Stock Exchange of India Ltd. (NSE) are some of the companies looking to float shares soon.

CSL has proposed to issue 3,39,84,000 equity shares at Rs 10 each in its long-delayed IPO, for an equity capital totalling Rs 33.984 crore. The government is also looking to offload a 10% stake in HUDCO at roughly Rs 1,000 crore, a sale that would value the company at Rs 10,000 crore.

There’s speculation that the IPO of the NSE may raise more than Rs 10,000 crore by existing shareholders dumping 20%-25% of shares through the offer for sale option.

In the financial services space, UTI Mutual Fund, India’s oldest asset management company with 1.37 lakh crore assets under management, could raise Rs 6,800 crore in an IPO this year. If so, it would be the first domestic mutual fund to list its shares on the bourse.

SBI Life is another upcoming IPO that followers of market news are keenly watching. State Bank of India (SBI), which owns 74% of the insurer, wants to dilute an 8% stake, while its joint venture partner, BNP Paribas Cardif, would offer 2%.

A stake sale in SBI Life would make it the second Indian insurance company to be listed, after ICICI Prudential Life Insurance floated its shares in September.

Taking a cue from the US, where Warren Buffett has invested USD 9.3 billion in four airlines, GoAir’s promoters have also expressed an interest in an IPO this year.

Sounds exciting. How can I get a piece of the action?

Analysts expect the momentum of Indian equity markets to continue over the year, so you may want to prepare as bulls are already lining up.

You’ll need a demat account. Most banks have made it very easy to participate in IPOs online through a facility called Application Supported by Blocked Amount (ASBA). This enables prospective shareholders to block the money needed to subscribe to an issue. Only if the requested shares are allotted to you is the money withdrawn from your bank account. Of course, the traditional method of bidding for an IPO through a stockbroker still works.

You can then track the performance of these newly-listed companies – and therefore your returns – on the benchmark BSE IPO index. It lists the value of companies for two years after they go public.

For more business news, visit BloombergQuint.

 

The New Generation Of Traders

 

(Disclosure:This post has been sponsored by VBA Finance)

Before the introduction of technology,  getting a job in financial markets required absolutely no technical knowledge. At that time, operations of all kinds and any analytical task were done manually.

However, entering my first trading job made me realized that the technological revolution has brought us to a new era where the challenge now is to automate processes as much as possible, this with the help of computers.

The new generation of traders, which I used to belong, is now competing with more and more talented and skilled candidates that want to join this very lucrative industry. Traders that don’t know how to code still operate, but they belong to the old generation, and will not last for long.

When I joined Goldman Sachs for a trading position, I had to learn Excel VBA , which is the programming language embedded into Microsoft Excel. This is something I was not aware of, but VBA is a tool that traders and front office employees commonly use to develop automated programs in order to analyze, format and present raw financial data or even to develop charts.These automated tasks can range from extracting and formatting data from Bloomberg to creating a pricing tool for a particular product.

With VBA, an automated process of these kinds can be implemented in a few hours. Some other language can be better at the job, but it will require more resources and more time.

The beauty of VBA is that it can be used not only in Excel but in most of Microsoft applications such as Microsoft Access, Word and Powerpoint. Any computer that has one of these software can run VBA.

There are several options to get a trading position, the most common path is to come from an Ivy league school, which I feel blessed to have attend.

But that was seven years ago, and trends have changed. Just keep in mind that with the constant need of technical people in banks , you might be able to go to the top if you have the right technical skills, regardless of your academic background.

How is a Super Top-Up policy different from Mediclaim?

The health of an individual is one of the most important aspects of a long and fulfilling life. But there is no guarantee that eating right and exercising will ensure a healthy life. Apart from healthy living, one should also ensure that there is a comprehensive health insurance to cover any sudden expenses that arise due to illness or an accident. Life is unpredictable, and it can take any turn.

The rise in medical costs has made it necessary for every individual to have a health or mediclaim insurance plan. A health insurance plan provides a cover in times of medical illness and accidents. Most of the times we make a mistake of ignoring a personal health cover. The health insurance provided by the employer is not sufficient to provide for the medical and health expenses of an individual.

A personal health insurance provides for an individual based on the policy and premium opted. A mediclaim will reimburse the hospitalisation and medical expenses due to an illness or a sudden accident. Further, a mediclaim and a super top-up policy can work along with one another. That is, if you have a mediclaim, you can also purchase a super top-up policy to get a complete cover. 

A super top-up policy comes into play when you have utilised the threshold amount in your policy. The super top-up mediclaim policy will give you a cover after you have exceeded the limit on your mediclaim. This means you get an additional cover without having to spend a huge sum on the same. This particular amount is known as a deductible amount and the insurance company that will reimburse your claim is liable to do so only after you have utilised the existing limit of your policy.

Thus, a reimbursement in the case of a super top-up plan will only occur once the entire threshold limit is crossed. There is a difference between a top-up and a super top-up policy. In the case of a top-up plan, the claim amount is considered individually. Whereas in the case of a super top-up plan, the claim amount is aggregated. This simply means that a total of all your medical claims will be considered before the claim is accepted. It helps to bridge the gap between the top-up plans and a mediclaim.

The biggest advantage of a super top-up plan is the additional cover it provides at no huge expenses. It provides a high end health cover without having to spend a huge sum over it. It is an independent policy that helps you cover all the additional expenseswhen the mediclaim cover is exhausted. Once you exhaust your specific limit of the policy, the super top-up will come into play.

It is an ideal move to purchase a super top-up for yourself, to ensure a complete risk cover and also gain reimbursement of your medical expenses. Depending on your age and medical history, you can make your choice for the type of policy you require. And based on the policy you choose, you can buy a super top-up plan. Like the name suggests, a super top-up plan will be an added benefit for your health and will work as a top-up once your existing limit has been utilised.

It is not mandatory to have a regular insurance plan to be eligible for  asuper top-up plan. You can purchase a super top-up independently from any insurance company. It is important to learn the terms and conditions of the super top-up plans and also learn about the deductible amount offered by the companies. Higher the deductible amount, lower is the premium for your plan.

Super top-up plans are also available for an individual as well as a family floater plan. Further, one can also purchase super top-up plans for senior citizen individuals. It provides a vast coverage on health and ensures that the claim amount is easily reimbursed.

It makes sense to purchase a super top-up plan when the existing limit on your policy islow. The reimbursement of hospitalization expenses ensures that you can get the best treatment from the best hospitals and do not have to spend all your savings on the same. A top-up plan will provide you with the best medical facility and reimburse the amount with ease. Super top-up plans are best suited for senior citizens because of the frequency of health issues and illnesses. It is a smart move to purchase a super top-up plan independently on all policies so that one can get a reimbursement for the amount spent over and above the threshold limit of your policy.