I was irregular in repaying my EMIs for a personal loan I had taken eight years ago due to financial problems at that time. But I had cleared the loan within the stipulated time of five years and there is no outstanding amount left. I have not applied for any loan for the last three years. Now I need a housing loan, but I’ve found that my CIBIL score is quite low and does not meet the requirements of the bank. Can you suggest a way out for me? Can I approach a private financer?
— Dipankar Gupta Before granting you any loan, the banks will obtain your credit report from any credit information bureau, including CIBIL. Your default will reflect in the report obtained and will continue to stay on the credit bureau’s record for at least seven years as a result of which you will face difficulties in getting any loan or credit card even after clearing your dues.
Whether you pay the full amount due or the agreed amount within the stipulated time, your credit report would continue to show that you had delayed payments in the past. But if you have settled for less than the full dues it will also show that the bank had to write off some amount. This has additional negative implications.
With delay and default, your credit score is bound to be low making it very difficult for you to get any credit facility from the lenders.
You can try and rebuild your credit history by taking a secured credit card (secured against FD) or loan against tangible movable security such as FD / jewellery / shares / units of mutual funds / life insurance policy with high surrender value etc where the lender can give you a loan despite your adverse credit history. By being regular in the repayments of such a loan, you will gradually improve your credit history. This is a very slow process and it will take at least a couple of years before your credit history gets repaired enough for you to be eligible for regular loan or credit cards. You can try applying to co-operative banks that may be willing to lend to you at a higher rate of interest. I have purchased an underconstruction property and applied for a loan of ` 30 lakh. I was looking at a loan term of 15 years, but one of my friends suggested that it will be better if I go in for the maximum tenure (of 25 years) and prepay the EMI. I was told that increasing the tenure will result in lower EMIs and it will, in turn, give me the flexibility to pay in excess, whenever I can. This will reduce the interest and principal. For example, if a 25-year tenure loan has ` 9,000 as EMI (`8,500 interest and ` 500 principal) and if I pay ` 30,000 as EMI this will reduce the principal by ` 21,500 (`30,000-`8,500). Is it more beneficial for me to take a loan for a longer tenure?
— Alok Verma T h e m a x i m u m t e nu r e i s restricted by your age at the end of the tenure so as to ensure that your loan repayment ends on or before your retirement age. Even if loan eligibility is not a constraint, you should normally opt for a longer tenure floating rate loan. This way you retain the flexibility of low EMIs. You can also pre-pay the loan without any penalty, whenever you have surplus funds, as prepayment payment penalty is waived off on all home loans given under floating rate.
Since you are opting for bank loan, putting additional money in the linked account is as good as prepayment. Every month when the loan installment is paid, interest at the applicable rate is calculated on the aggregate principal outstanding after taking into account the balance, if any, in the linked current account.
Additionally, it gives you the flexibility to take back any portion of prepayment if you so desire. As long as you keep the extra money deposited in the account, it serves your purpose of prepayment, besides helping you save interest cost and giving you the buffer balance. Harsh Roongta is CEO, Apna Paisa. He can be reached at email@example.com