with a deep concern on the standard of advertisements being shown by financial institutions like banks and insurance companiesit feels like they have no actual products or services to be sold left that can be publicised about in the adverts, but the superficial claims on their personal relations and stuff, like icici states that chhotti baatein hamesha chhoti nahin hoti and they show a women whoi discusses her sons reasoning for hours even after office hours, this is somethign that noone is ever gonna do for any client but yet they want to make a claim about how they would want it to be rather than how it is.

so these over claiming of adverts should be taken into consideration and not be linked to actual performance ability of the service provider, so with these forms of ads it only one thing for the buyer that u be aware as the companies are only trying to play with the clients emotions and nothign else as an actual service offering

Your best friend is getting his house furnished at a total cost of Rs. 10,00,000. The work is likely to take around six months to complete. His interior decorator proposed that he (your friend) could get a discount of 1% (Rs. 10,000/-) if he pays the full amount upfront rather than the normal practise of paying for the work as per the work’s progress. Your friend has approached you for advice.

In this scenario most of us would correctly advise him to forget about the discount. It is not a sound practise commercially to pay in advance for a promise of delivery that is so far in the future. By paying in advance you are completely under the power of the supplier and run the risk of loosing your advance amount completely or being forced to accept delays in delivery or accepting lower than acceptable quality. There is no leverage at all that you have on the supplier unlike a case where you pay on progress where at least the incentive of future progress payment can make the supplier toe the line.

Would your advice be any different if your friend was taking a loan to pay for the cost of furnishing? In fact that will make the advice even stronger because the risk that you are taking is now not your own money but money borrowed that you have to repay.

Given this I am constantly amazed at the number of people who will swallow a similar bait of a discount in price in lieu of full payment for an under construction property that may be delivered after a couple of years. Given the maze of local and state and central regulations and the number of permissions required at every stage even the most well intentioned builder cannot really promise a firm delivery date. In the opinion of most consumers, builders (of course like all classes there are exceptions) are not exactly known for keeping all their promises. So one would expect that hardly any consumer would opt for the “Pay in full now and get attractive discount with delivery after 3 years” scheme.

Not really! Consumers opt of this because one - these schemes are attractively packaged and many times builders have tie-up with specific Bank under which you pay your down payment (say 15-20% of the total cost) and the balance amount is disbursed by the bank immediately to the builder as your home loan.

The options are:

• The EMIs can begin immediately. The consumer may be led to believe that he will get tax benefits on the EMI but he does not know that you cannot get tax benefits on such EMIs. Tax benefit on repayment of principal and interest on a loan taken to buy a house is eligible for tax benefit only from the year in which the construction is complete. For any year if the house remains under construction as on March 31, no tax benefit is available in that year notwithstanding the fact that you might have begun repayment of the loan through an EMI.

• The builder promises to fully or partially pay the EMIs till the construction is complete. But remember this is an arrangement between you and the builder only and it does not involve the bank. The liability to pay the EMI to the bank remains yours and if for any reason the builder stops paying the EMI, your liability to pay the bank remain as it is. If you refuse to pay the EMIs to the bank if the builder stops paying his share, your credit history will be damaged in the Credit bureau.

In both the cases effectively, you are taking a loan to pay off the builder in advance. In my opinion no amount of discount can justify your taking such an open-ended risk.

So should you not buy an under construction property?

It is always preferable to buy ready to move in property but that is not always possible. You may not have good properties with all the facilities that you require available on a ready to move basis. Or a delayed delivery schedule may actually suit your requirements in many cases.

You can minimise the risk while buying under construction property by doing the following:

1. Look at the full cost of under-construction property by figuring out the Value added Tax, Service tax and works contract tax liability, if any.
2. Always opt for construction linked payment scheme.
3. Choose only under construction projects pre-approved by at least couple of banks as this indicates that the legal title of the property including building plans has been vetted by these banks and found to be satisfactory. Also choosing one of those banks will smoothen your disbursement formalities. However, even in these cases, the risk of delayed construction remains yours in spite of the project being approved by the bank. Your liability to pay Pre-EMI interest and/or EMI on the disbursed loan amount remains even if there is delay in construction in this bank “pre-approved” project.

Incidentally an innovative scheme needs mention here under which Nahar Builders in Mumbai have tied-up with HDFC Ltd. wherein the customers pay 20% of the property value upfront and the balance 80% is disbursed by HDFC to the builder only on possession being handed over to the consumer. So here by paying 20%, the customer is able to book the property and the liability for the balance 80% commences only on possession. Unfortunately I am not aware of such a scheme being replicated anywhere else.

Many of my friends have disagreed with my opinion in this matter and I would be eager to receive feedback from readers on this issue.

It’s that time of the year again when wishes are horses (well almost). Imagination (and hope) runs high . Well here is my wishlist for Mr. Mukherjee.

http://www.apnaloan.com/prebudget-wishlist.html

Credit counseling in India is not such a big business, though it is increasingly gaining a foot-hold in the common man’s consciousness. Sudden loss of jobs, stop on increments, over-spending on credit cards, multiple loans- a few or any of these combinations can bring you to a dead-end called the debt trap.

Before it is too late, approach your lender to make payment arrangements. If the situation is beyond repair, get in touch with a credit counselor.

There have been increasing instances of loan defaults in India recently, due to various reasons such as high interest rates, inflation, loss of job due to companies cost-cutting etc.

In India, there has been a growth in credit to household in recent years. The all-India Debt and Investment Survey 2003 estimates that nearly a fourth of the households were indebted in 2002.

When you approach a consumer credit counselor, they will try and convince the lender to decrease the rate of interest on the loan taken. That doesn’t help you decrease the loan. This means that if your outstanding loan amount is Rs. 1 lakh, this will be the amount payable, not any lesser than that.

Based on a credit counseling agency’s relationship with a particular bank, the negotiation between the debtor (you) and the creditors (bank) could be mediated to get reasonably favourable outcomes. The counselor may do a comparative study of the interest rates offered by various banks and also the terms and conditions of unsecured debt consolidation and choose the best one suitable for you.

The credit counselor also ensures that you get ample time in hand to stabilise your finances and also to pay off your debt in small installments.

But they may not be able to help you in debt consolidation.

So in a nutshell:

• A credit counselor examines ways and means to sort out the current financial crunch.
• They can help create awareness about the costs of misusing credit. This helps improve the customer’s financial management and develop sound spending plans.

These agencies help the distressed people gain access to the structured financial system, including banking.

What do they do? Who do they work for?

As the name suggests, these counselors help you gain control over your financial health that has deteriorated, thanks to reckless or over-spending.

You could liken them to a psychiatrist, the only difference being that while they help you out, they are really working for the benefit of the lenders. The benefit being that your sound financial health could help the bank recover the loan outstanding, or at least a part of it.

What do you need to check?

There are a few questions you need to get answers to before you finalise on a credit counseling agency.

• How much does the credit counseling agency charge for its services?
• Does the agency have due credentials?
• What are the services that the company can offer?
• A question you need to ask yourself. , Before you approach a consumer credit counseling service, have you read the testimonials and reviews of agencies previous or current clients as well as checked their official website?
• Is the credit counselor registered as BBB which stands for Better Business Bureau? This is a quality sign.

While much is being reported in the media about the significant dip in property prices, in actual practice most large developers are still holding on to their prices.

Though off course, they are trying to boost sales by throwing in freebies such as free stamp duty and registration, free parking, no charge for floor rise, etc.

Coming to home loan rates, banks are decreasing their interest rates on home loans and property prices are reportedly softening.

But will it be effective in raising consumer demand?

Does that mean that it will be easier to get loans?

Will banks give loans willingly?

Will consumers come forward to take more home loans?

The questions remain…

The fact remains that to a large extent, the lending and borrowing scenario has not brightened in spite of banks reducing the loan rates and some news of dipping real estate prices. Of course existing home loan consumers are happy that their inflated EMI burden will reduce somewhat.

However it seems these boosters are not sufficient to lift the spirits of Indian consumers who are grappling with financial insecurities. The overall economic slowdown, global news reported by the media, job loss, job insecurity, uncertain future of businesses/enterprises, volatility in the stock markets are a few reasons that may keep potential borrowers from investing in residential property (and therefore taking any home loans). Moreover additional taxes on real estate such as the 5 per cent value added tax (VAT) and 4.5 per cent service tax are obstacles in the way of boosting demand, be it for property or property loans. These costs have to be borne by the buyer.

To add to the number of speed-breakers in the way of these two inter-dependent sectors, there are the tightening eligibility norms. Lenders have made their norms more stringent. They have raised the margin required for a home loan because property prices could go down further.

The real up tick in demand will come when the consumer feels confident about taking on long term liabilities. We should watch for the Consumer Confidence Index (CCI) figures, which have been slipping downwards almost every quarter of late.

Predictions in a volatile scenario such as the current times are difficult. Interest rates need to see a further revision southward to be able to boost the demand for home loans. Similarly, property prices should see a visible correction to encourage the demand for realty and thus home loans. But most importantly, consumer confidence needs to be boosted.

Maybe wait and watch should be the buzzword for now.

If you have decided to buy your dream home, here is what you can do to take advantage of the current economic environment.

• The realty market is fiercely competitive. With a large number of builders competing with each other to get your attention (and your money), there is a wide range of choices available; not only in terms of property but also price, thus making it a buyer’s market. As a smart buyer you should negotiate and negotiate and then negotiate some more till you get the best deal.

• It is advisable that you choose ready-to-move-in property as it means lower risk for you. Or else you can go in for those builders who have tie-ups with banks. With many builders the tie-up entails 25% down payment and 75% loan from the bank. So, when you make 25% down payment you enter into an agreement with the builder and the bank, and your interest starts only when the flat is ready. In case such tie-ups are not available then only trust those developers who have proven track records of completing and delivering projects in time.

• Given in the current global financial scenario, be prepared to make down payments in the range of 20-25% and not 15-20% (which was the case till recently). In a way higher down payments make banks happy and it also puts you in a better position to negotiate with the lenders. You get better interest rates and therefore pay lower EMIs.

• Go window shopping for lenders, shortlist four or five, and get into negotiation mode. Now the big question is whether to go in for fixed or floating rate. Remember loan interest rate is not a one-time decision; it has to be reviewed periodically say every 6 months. As a new borrower you are advised to opt for a floating interest rate loan because those loans are linked to the bank’s Benchmark Prime Lending Rate (BPLR) and go down when downward revision happens. In the current scenario, floating rates make the best sense as rates are expected to go down in the immediate future.

• Rope in your spouse to get the maximum loan possible. Opt for the longest tenure possible, leaving enough wiggle room in your income to accommodate a hike in the loan rates. This is not likely in the near future but it is always better to be prepared.

• Man knows little of what fate has in store for him. When you take a home loan, it is on the basis and assumption of continuing income. We run into all kinds of risks in our daily life. Accidents and health issues like heart attacks, stroke, paralysis, kidney failure, and other physically crippling ailments can cause loss of income or, in some cases, even your life. Housing loans are a long-term liability. This is why when you take a home loan; it is advisable to take a life insurance and critical illness policy. Life insurance policies provide monetary benefit in case of an unfortunate incident like death and ensure that your family members inherit your home not your home loan. Critical illness policy will take care of the home loan liability if your income gets interrupted due to unforeseen, unavoidable circumstances which such conditions may create. That will be one less thing for you to worry about while you are under severe stress. Best of all, most banks will be happy to finance the one-time premium payable for both policies, enabling you to get this protection at a small addition to your regular EMI.

Protect yourself, protect your home. Insure your home along with the belongings. Every penny is worth spent here; therefore make these expenses part of the cost of buying your home.

“Is there any rule in banking that allows them to refuse to sanction personal loans or credit cards to a relative of a lawyer or policeman whether the person is self-employed or salaried?”

“I work with an NGO, but I am finding it difficult to get a loan.”

These are some of the common queries that I come across when I talk to people.

Or, when a friend of mine approached for a loan and said that he was working with an ad agency, the bank agent politely declined the application saying “Sir, we do not offer services in your area”. So, the friend asked which areas had the service. The agent just walked away!

Though we are not aware of any such specific practices, banks may not be keen on lending loans to specific categories of lenders.

But, hearsay doesn’t really convince one of the issues that borrower community may face. A friend, Ms. Bhateja employed with a private limited company approached a private bank for a car loan. She was employed with a dotcom company and had a good pay package. Ideally, she should not have faced problems getting the loan.

Well, she could just get about 50 per cent of the cost of the car as a loan. And, being unmarried, she could not get a loan without a guarantor.

Bhateja’s mother, a teacher employed with a listed school applied for the same loan on her daughter’s behalf. She got the loan within 15 days - without a guarantor. She also got 75 per cent of the cost of the vehicle as a loan and for tenure as short as 12 months.

Well, while the borrower community may not like the idea of ‘preferred borrowers,’ it is very much there.

People working with dotcoms, private companies, or those associated with NGOs may not have a stable source of income. In fact, in a few cases, the income may fluctuate. Banks may also be wary of lending to professional such as lawyers and doctors, especially those with private practices.

By not lending a loan to a ‘weak’ borrower, the bank is saving its interests; as well as the borrower’s. Private practices can be monetarily lucrative, but whether the pattern can be sustained or not is not a risk the lender is willing to take. Keeping this in mind, the lender may offer a reduced loan amount or tenure. A loan default can spoil your creditworthiness. Worst, it can bring you face-to-face to a recovery agent.

There can also be an issue with designations. Once a borrower has given in the application, the verification is out-sourced to some credit-verification agency. More often than not, these individuals are not well-versed or exposed to the new careers, or may find it difficult to understand or converse in English. Say, a designation of Features Writer can be very ambiguous as compared to that of a Journalist.

Ms Bhateja got a call from a bank saying that she could apply for personal loan of a lakh against her credit card. Followed a rapid round and a promise that a guy from the bank would come to pick up the documents.

She got a call in the morning, “Madam, apaka designation clear nahin hai. Journalist log ko loan mein thoda problem ho sakta hai.”

No clear answers. All vague.

Is the any monitoring body to watch the interest rates charged by banks against personal loan? Is there any mandate from the RBI to the banks, asking them not to charge an interest rate above a certain limit? Do banks have the right to charge an interest rate up to 50%?