How do loans work?

Loans are short-term and long-term sources of funding for individuals and businesses alike. The loans are typically designed for specific needs such as buying a house or car, or for meeting business expenses. The types of loans available for individuals include personal loans, loans against property (LAP), housing loans (mortgage), and car loans. Business loans can include working capital loans and business term loans.
The amount of loan you are eligible for will be determined by
Your credit score and credit report
Purpose of the loan
Secured versus unsecured loans – In a secured loan, the risk for the lending bank or financial institution is minimized by the collateral you offer in exchange. Car loans and mortgages and loans against shares or fixed deposits are examples of secured loans, and personal loan is an unsecured loan.
The tenor of the loan
The financial institutions lending policies.
To obtain a loan from a bank, you must apply with the necessary documents. When the bank is satisfied with the documents and the address verification report, you are communicated an approved loan amount. At this point your financial liability is nil. If you agree to take the loan at the proposed rate of interest, you sign a loan agreement with the bank and submit a verified payment instruction for the bank to claim future equated monthly instalments or EMIs.
Once you sign the agreement, the loan amount is either credited to your bank account or you are given a cheque for the total loan amount. Please note that in case of a car loan or a housing loan, the cheque is issued in favour of the car dealer or the person selling the property. Your loan account starts to accumulate interest charges from the day the funds are released.

What is the cost of a loan?

How does the tenure of a loan affect its cost?

A longer loan tenor is seen as a higher risk for the lending institution. Higher the perceived risk, the higher the rate of interest on the loan. Therefore, a higher tenure loan will most likely come with a higher rate of interest.

Even if the lending institution does not charge a higher rate of interest for a longer loan tenor, the fact that you will be paying the EMI over a longer duration means that you pay more in total interest payments.

How much time does it take to take a loan?

Again we refer to the element of risk associated with a loan. When the risk is higher, banks and financial institutions perform a greater degree of scrutiny on your loan application, which means that getting the loan will take more time. Personal loansare usually approved within a few days of completion of documents. With a good credit score, you may even get a personal loan within two working days.
Business loans, which involve the scrutiny of detailed business documents, can take anywhere between seven to fifteen days. Home loans and loans against property can take even longer becausesuch loans tend to be of higher value; therefore banks and financial institutions adopt a more cautious approach to approving such loans. Issuance of a home loan involves valuing the property and scrutinizing the property papers, which is a time-consuming process.

What is the best way to apply for a loan?

To get a loan, most people prefer to contact the bank where they have theirmainsavings or business account. However, even though your existing bank seems familiar, it may not be in a position to offer you the best loan. We strongly advise that you shop for loansoffered by different banks and financial institutions.
That can be a tedious process, which is why we are here. On understanding your loan requirements, an NDF advisor will share the best loan options with you. All you need to do is decide which bank meets your requirements. We will help you complete the loan application and loan disbursement formalities.

I want to review my active and completed loans. How can I do that?

sIn case the loan was taken via NDF, we will have a record of the loan. Once you give us the authorization, we can check with the concerned bank on the current status of the loan. If you would like to view the status of all loans you have taken, we suggest that you download yourcredit report via the NDF website.

Is there a maximum limit on the amount of loan that I can get?

The maximum loan amount that you can avail from a bank or financial institution depends on various factors, some of which are listed below–
• Type of loan
• Loan tenor
• Your last three years financials as on the date of application
• Credit score and history
• The loan policies of the bank/ financial institution from which you have applied for a loan
For more information on loan eligibility, please contact us with your details.

What is a pre-payment of loan?

Most banks and financial institutions permit borrowers to pre-pay loans. You canpre-pay the entire loan,or you can pre-pay a percentage of the principal amount outstanding each year. The amount you can pre-pay, and when you can prepay, depends on the age of the loan,and the policy of the lending financial institution. For instance, some banks do not permit pre-payment within the first year of the loan.
Youmust check the terms and conditions on pre-payment before you agree to take the loan. That’s because you never know how your finances may improve in the future. If you are able to save adequate funds you can pay the loan entirely before the due date. The advantage in a full-prepayment is the interest you save, which you would have otherwise paidif you had continued to make EMI payments for the duration of the loan.Even making a partial prepayment will lower the interest burden by reducing the outstanding principal loan amount.
When you make a part prepayment, the EMI value remains the same. To account for the prepayment, the lending bank or financial institution will reduce the number of EMI’s it collects.Also, some banks charge a prepayment fee of 5 percent or more on the amount of prepayment.

Is it mandatory to provide a PAN card to obtain a loan? Is it mandatory to provide an Aadhar Card?

Yes, a copy of your PAN card will be taken as part of the loan application documents. Most banks and financial institutions will ask for an Aadhar as an alternative proof of identity and address. Even if it’s not mandatory, attaching a self-attested copy of your Aadhar will boost the merit of your loan application.

Do I get any tax benefits with my loan?

>The Government of India has instituted tax benefits for loans depending on the nature and purpose of loans. Most people are aware of the tax benefits of a home loan. However, even other forms of loans including personal loans, education loans, business loans, and car loans can be used to offset some tax liability depending on the purpose for which the loans have been taken. Please do check with your tax consultant for apossible tax rebate foryour current business and personal loans.

What is a pre-approved loan?

A pre-approved loan is a loan that has been approved basis your financial track record with a financial institution. For example, if you take a car loan and pay it on time, then the bank may pre-approve a personal loan based on your history with the car loan. For a customer with a genuine need, it becomes a ready source of funds. The main difference between a fresh loan application and a pre-approved loan application is that in the latter you know the amount of loan before you even fill the application form. The other facets are the same as any other loan you may take. You will still need to fill a new loan agreement for the pre-approved loan. The bank may also ask for your recent financial documents. A pre-approved loan is sometimes marketed as a loan at (marginally) cheaper rate of interest, but that is more from a promotional stand-point rather than any real benefit for the customer.Please do read the terms and conditions carefully before taking any new loan.

How many loans can I get from a bank at any time?

A good credit score and credit report give you at a good chance of getting an additional loan. You can get multiple loans as long as banks assess that you have the disposable income, or repayment capacity, to meet the responsibility of an additional EMI. Your disposable incomewill be estimated by two factors -
(a) Your monthly income and
(b) Your recurring liabilities.
Say your monthly income is one lac, and you have an existing EMI of Rs.30000 and a monthly expense of Rs.45000;that leaves you with a monthly disposable income of Rs.25000. A lending bank will reference the figure of Rs.25000 to assessthe additional EMI responsibility you can bear and therefore how much fresh loan should they give.

How do I ensure that my loan application is approved?

Loan applications that meet the lending bank’s basic criterion are more likely to get approved. The key factors that influence your chances of getting a loan are –
•Your credit score and credit history
•Stability of personal income or business profits
• Your existing loan liabilities
• Address and employment verification conducted independently by the lending bank
• Completion of personal documents
As your financial consultant, it is our job to assess which bank or financial institution is the best bet for your loan requirement. We will recommend that you apply for a loan only when we know that your applicationmeets the basic eligibility criteria set by that institution.

If I do not have a particular document with me, will it affect my loan approval process?

Banks require several documents to process a loan. In the absence of any document, the bank may ask for an alternative document to verify the information. As your loan consultant, it will be our job to ensure that the application submitted to the bank is complete in the very first go, so you get the loan in the shortest possible time.

What is a credit score? Should I be worried about it?

Your credit score has a significant bearing on your chances of getting any type of personal or business loan. For more information, please read “Credit Score – The All Important Metric to Boost Your Loan Application.”

How can I calculate the amount of my EMI?

You can get an estimation on EMI via the NDF EMI calculator. The exact EMIwill be communicated to you once the loan is approved and before you sign the loan agreement with the lending financial institution.

How do I make payment of my EMI?

As part of the loan agreement, you will have to submit signed instructions for collection of the EMI by the lending bank or financial institution. You can agree to pay the EMI via an auto-debit to your bank account, or via physical cheques

What should I do if I am unable to repay the loan?

If the EMI payment fails for the reason ‘insufficient funds’ in your bank account, then we recommend that you visit a branch of the lending financial institution to pay the overdue EMI. Preferably, pay the EMI by cash, or via NEFT/ RTGS, so the payment is credited against the overdue EMI the same day.

Is it possible to negotiate the approved loan amount? What if I want to increase or reduce the loan amount?

Negotiations on the loan amount are largely dependent on the policies of the lending bank. You can seek the help of our skilled loan experts to conduct the negotiation with the bank on your behalf.

How does a bank decide the rate of interest, processing fee, and other charges?Is itpossible to negotiate these charges?

It’s difficult to answer this question with a yes or no.The charges levied by banks on loans are based on various market factors, including the rate and feelevied by other lenders in the market. Also, the charges applicable on your loan are printed in the loan agreement formand are to be taken as-is.
However, you may have some leeway in negotiating these charges –
you are a regular borrower from the bank
• If you have multiple relationships with the bank (for example, you have a salary and investment account with the same bank), or
• If you are taking a high-value loan with an impeccable track record on repayment. As your loan consultant, we may be able to help you negotiate better terms for a loan. Contact us for more information.

Can I get a waiver in foreclosure charges/ prepayment charges?

The rules on foreclosure charges vary depending on the type of lending institution and the type of loan. For instance, in 2019 the RBI banned NBFC’s from charging foreclosure
in 2019 the RBI banned NBFC’s from charging foreclosure penalties. A similar directive was issued in May 2014, which barred commercial banks from charging such fees from individual mortgage borrowers. To know the prepayment charges applicable for your loan, please check the loan agreement document.

Is getting a loan insurance cover mandatory?

No, the law and the directives of RBI do not make it mandatory for a person to seek loan protection from the bank or financial institution at the time of taking a loan. However, it is still advisable to get loan insurance to safeguard yourself from unforeseen circumstances.

What is a balloon repayment option?

When a lump-sum payment is made tohwards a mortgage, or commercial loan, it is called a balloon repayment. Usually, the balloon instalment are scheduled towards the end of the loan. A balloon repayment lowers the initial payment burden for the borrower, which can be ideal if the borrower is facing a cash crunch but expects their repayment capacity to improve in the future.

How much loan can I get for a property?

Typically, banks and financial institutions in India give home loans for 75 to 80 percent of the property valuation. Therefore,the question you should ask is – how will banks value the property for which you want a loan?

How do banks determine property valuation?

Upfront the one thing you need to know is that the market value and the bank valuation of your property will not be the same. The bank valuation tends to be lower because banks are conservative in valuation. The property valuation by a bank or a lending institution is determined by many factors, some of which are as follows –
• Type of property - Residential, industrial, commercial,and agricultural properties are valued differently.
• Location – Is the property located in an area that is part of the approved areas of loan service for the bank? Is the area accessible? What is the market demand for properties in that area?
• Property age – The value of existing properties are valued at a depreciated price, even though market values may be higher
• The construction company –Banks are conservative in approving loans for properties under construction by relatively unknown builders. Please check your eligibility for a home loan before you pay a token booking amount or before you sign a purchase agreement. If the property valuation by the banks is significantly lower than your expectations, then you can find yourself in a bind over trying to arrange funds from other sources.

Do banks scrutinize the chain of property documents?

Yes, banks scrutinize the chain of property ownership when you buy a resale property. The ‘title search report’ summarises the history of the property in terms of -
• Names of titleholders
• Joint tenancy
• Tax rates
• Encumbrances
• Liens / mortgages
• Property tax
The amount of documentation required as part of the application process is significantly more when you apply for a loan for a resale property. Here is a list of additional documents that a bank may ask you for:
• Agreement to sell
• NOC from society to certify that there is no objection to the sale.
• Occupancy certificate to prove that the property complies with the plans approved by authorities.
• Encumbrance certificate to confirm there are no dues on the property.
• Agreement to sell
•NOC from society to certify that there is no objection to the sale.
• Occupancy certificate to prove that the property complies with the plans approved by authorities.
• Encumbrance certificate to confirm there are no dues on the property.

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