A personal loan transfer is also known as refinancing or balance transfer from one bank to another. Most individuals opt for this option to avail the benefits of lower interest rate in the market. Usually, the existing borrower does not get the benefits of lower interest rate even after the rate cuts by RBI. Hence it is better to transfer the balance amount of loan from one bank to another where lower interest rates are prevalent. There are several benefits of switching loans from one bank to another which are as follows:-
First and foremost if the existing bank does not agree to reduce the interest rate even after RBI rate cuts and the EMI amount remains the same then in such cases it is always better to switch to banks which offer less interest rates and reduced EMI’s or longer duration for repayment. Usually the interest rate on personal loan is very high and continuing with the same interest rates can drain out a lot of your savings. Therefore it is always advisable to transfer the balance amount to banks offering lesser interest rate at an early stage to repay lesser EMI.
Some banks charge minimal or zero processing fees on the personal loan. This is an added advantage for an individual as he saves the money on the processing fee. Usually banks charge 0.5% - 1% of the total loan amount sanctioned towards processing fee which is a substantial amount and if waived off can a great relief for the borrower.
There are some banks who will not ask for several documents while refinancing the loan. They will take into consideration the refinancing with minimal documents depending on his history of repayments. Regular repayments are always welcome and the individuals do not have to submit lot of documents as proof. This saves time for an individual from running from one office to another to collect the necessary documents.
Most of the banks provide standing instruction facility for repayment during refinancing. It is an easy and convenient method to pay EMI and the payment date is not missed adding more interest to the principal amount. Eg. Suppose an individual’s repayment date is 1st of every month then he can set a standing instruction in his account for the amount which needs to be paid to the bank and automatically every month this amount will be debited from his account and credited to the loan account. In this case he will never be a defaulter.
Sometimes loan top-ups are required to meet money requirements. However if the existing bank is not ready to extend the top-up amount then in such cases the borrower can look for a different lender who can sanction the required finance. If at any time the borrower is not happy with the bank’s services and accessibility then the borrower can prompt a change to a bank with better services.
Some banks charge prepayment penalty of 2% - 5% of the principal outstanding amount of the loan at the time of refinance. Hence while transferring the loan amount one should check with the new lender on the terms and conditions of prepayment. All individuals try for prepayment of loan as it is a method to get the loan amount settled quickly before the tenure gets completed. There are banks which waive off the prepayment charges depending on the credibility of the buyer.
Last but not the least during refinancing, the individuals may intimate the bank that they want to repay EMI through a credit card. In such cases banks check for the credibility of the customer based on his credit score.
It’s not that rare for people to notice the terms RPLR/BPLR vs. Base Rate. BPLR stands for Benchmark Prime Lending Rate and LPLR is Retail Prime Lending Rate. These terms are the determining factors when finalizing a home loan. Floating home loans are connected with base rate or with BPLR. Now it is quite obvious for a layman to question why can’t there be a single criterion to link floating home loans. This is because two different groups of Financial Corporations are providing the home loans (a) ICICI, Axis etc, (b) Home Finance Companies like HDFC, PNBHF etc.
The difference between Banks and HFC’s lies in the fact that, banks are governed by RBI, whereas HFCs are monitored by NHB (National Housing Bank). But there were numerous grievances among the customers whose floating loan was linked to BPLR regarding the fact that some customers had to pay high interest relative to the others whereas the other prime complaint was that HFC’s are not showing enough transparency in the procedure. HCF’s were also reported to hike the BPLR when the Reserve Bank of India increased the key rates but when there was a subsequent drop in key rates, these institutions didn’t bother reducing the BPLR. These infuriated a lot of customers. Although the Banks and HFC’s came up with an explanation that BPLR is related to the average cost required to acquire the funds, the customers weren’t totally convinced.
To deal with this, RBI came up with a guideline that was brought into effect from July 01, 2011. The guideline issued stated that existing customers can shift from BPLR to Base Rate and the banks were directed not to charge any extra amount for this. Base rate is essentially the lowest amount of interest rate below which the banks can’t lend any money.
RBI too suggested about scrapping the BPLR system as it is essentially market driven and there are a lot of inconsistencies in the system. Shifting to Base rate from BPLR will ensure that the part of your EMI which depends on the interests will come down in tandem with the rates. That is to say that when RBI reduces the interest rates, your EMI too will come down. Base rate is also related to the marginal cost rather than the BPLR which is based on average cost. So it goes without saying that if you have taken a floating home loan which is based on BPLR, it might be a wise idea to shift to base rate. Shifting is free of cost as banks or HFC’s won’t charge any additional amount of money from you. All you need to do is to fill up a prescribed request form or simply write a request letter and sign it. The bank would then make the change in 3-7 working days. It isn’t that complicated a procedure.
So by now it must be clear to you why Base rate if more beneficial from a lender’s point of view. It is more transparent system and allows you to pay less when the interest rates come down which was not the case with BPLR.
Tax season is on! And so every individual (salaried or businessman), needs to do proper tax planning to ensure that excessive money is not lost or wasted. Tax planning sometimes can be tricky, especially if you don’t know how to file it properly.
Here are some basic queries most Indians do have while filing their tax
- What are the major sections under which I can file tax?
Very basic, but very pertinent question while Income tax Planning, lets understand the various sections under which you can basically file your tax:
- Section 80C: The most prima facie section to do a proper tax filing. Section 80C deals with a total limit of Rs. 1.50 lakh from the financial year 2014-2015(assessment year 2015-2016). Under this section you can file for your tax returns if you have schemes like NSC, PPF, pension plans, life insurance plans and government bonds. Also under section 80C the principal amount paid for your home loan is also eligible for a tax deduction.
- Section 80D: This section deals with the health insurance premium paid with an increase of limit up to Rs.30, 000 p.a for someone who is paying premium for senior citizens.
- Section 80E: Payment of educational loans can be filed via this section.
- Section 80CCG: This section allows you to file for Rs. 25,000 if you have a Rajiv Gandhi Equity Savings scheme up to Rs.50, 000 on certain conditions.
- Section 80DDB: Under this section, you can file for tax deduction on the expenses made on a dependent’s treatment for specified diseased. Maximum deduction is Rs. 40,000 (on Senior citizens, its Rs. 60,000).
- Section 54EC: If you have sold any property and have capital gains up to Rs.50 lakhs, you can invest to save tax on capital gains.
- How much usually it takes to get my previous year returns :
Income Tax Department usually is a streamlined process so the refunds are usually processed within 120 days if not more. However remember to file your ITR on time and provide proper bank details.
- When can you be audited?
If you have a turnover of more than Rs. 1 crore as a business person or you have a turnover less than 1 crore but your profit is less than 8% of turnover you will be audited u/s 44 AD. You will also be audited, if you are CA/Doctor/Lawyer and you have receipts more than Rs. 25 lakhs.
- What are the tax implications in the early stages if you purchase a home loan :
You can get deductions in your home loan under section 80C only up to the extent of your principle amount paid but that also in your early stages of your home loan cycle is hard to receive full. Let’s say amount deducted for PF and insurances are Rs. 80,000. You can only receive tax deductions up to Rs. 70,000 only (Upper cap being Rs. 1, 50,000 U/s 80C), no matter how much more you pay.
- Difference between New and Old ITR forms:
In new ITR forms, introduction of Electronic Verification Code, easy filing for super senior citizens, detail listing of all bank accounts in FY with details of both domestic and foreign travels, domestic and foreign assets etc. will be the new provisions which will be added for making the process more transparent for both users and the authority.