Archive for September, 2009

Personal Finance – What is a down payment ?

A term such as a down payment may seem obvious to many people who have experience in dealing with financial matters, but it makes a lot of difference to somebody who is getting into the matters of loans, EMI’s, etc for the first time. I know a lot of younger people who did not plan for a down payment when considering a loan, and had to scramble to arrange the funds for a down payment (and in their cases, since they did have much of a credit rating, there was no flexibility in down payment terms for them). Read more about what a down payment is, and what sort of planning is required (link to article):

Down payment is the amount of money that you have pay from your end. Typically, banks and other financial institutions expect buyers to pay around 15-20% as down payment. So, for a house costing Rs. 40 lakhs, the amount to be paid as down payment could be be something like Rs. 6-8 lakhs, which is a large amount of money. A lot of people do not really expect to pay this kind of money, and get into problems when they have to make such down payments. Banks can even increase this amount of down payment when times are bad, or the person has a lower credit rating.

Personal finance – What is loan insurance ?

What is loan insurance, and why do you need it ?
Loan insurance is an insurance policy meant to cover the risks taken when a person takes a loan for which the principal amount is many times greater than your annual money inflow, and you need to have a backup plan if this source of income stops coming in, and still need to keep repaying the loan. Read more about this type of insurance at this article (link to article):

But what happens if suddenly things take a bad turn ?
- You lose your job
- Or even more horribly, the person gets injured or loses their life
In all such cases, the burden of repaying the loan becomes huge, since the income stream could reduce or vanish. When that happens, the bank or financial institution will want to reclaim their loan or their asset, and the family members will be in a bad position. The asset against which the loan was given could be taken away, or something similar could happen.

India Consumer: Banks levying charge on pre-payment

You have a loan from a regular private sector bank, and your loan is for a 15 year period. Most people I know, including you, will not want to have the loan continuing for the full period of the loan, and would rather do prepayments as much as possible. However, banks apparently charge an interest for the stupid thought of returning their money to them. And it also emerges that the RBI is fine with things, as long as the banks do not charge too heavy a penalty (link to article)

A few days ago, the RBI had apparently sent a reply under RTI that it did not really approve of banks charging a penalty for pre-payment; the latest clarification was meant to even remove this statement. The RBI is stating a more hands-off policy, since these are private banks with their own management; apparently the RBI expects that market competition is enough to ensure that banks do not heavily over-charge, and that they should not charge customers more than their standard rates