We always knew that South India was thrifty. This extends to the area of loans too. Data from the Reserve Bank of India shows that South India doesn’t hesitate to take loans. According to the RBI, these are Loans taken to finance housing, a vehicle, education, consumer durables, advances against Fixed Deposits (FD) and Credit Card outstanding.
Data reveals that South India accounted for close to 40% of the total loans given out by scheduled commercial banks in India. South India includes states such as Andhra Pradesh, Karnataka and Tamil Nadu and also two union territories including Puducherry. The second in line is the Western region that includes Mumbai. Banks had the second highest exposure to this region when it came to loans. When it came to individual states, Maharashtra topped the list, followed by Delhi, Tamil Nadu and Karnataka.
Another significant fact is that metropolitan cities accounted for over 60% of the advances or loans offered by banks. This is no surprise given that financial knowledge/awareness and availability of banking services is higher in urban areas as opposed to other areas.
Are you one who is on the verge of taking a loan? If so, these are points that you need to keep in mind.
- Interest Rate – It is always best to choose a loan with a low-interest rate but check the conditions attached to it. Is it a fixed rate loan that will remain fixed for only a certain period? If it is a floating rate loan, will the interest rate be automatically reset every time there is a rate change? Note that many fixed rate loans are only for a limited period and banks charge fees for resetting your floating rate loan when there is a change in interest rates. Ask as many questions as possible regarding a change in interest rates so that you are prepared.
- Down-payment – Note that you need to make a down payment for most loans. The amount of down payment differs from bank to bank. But for Home Loans, the RBI has said that for loan amounts that are lower than Rs. 30 lakh, 10% of the loan should be the down payment amount. Find out in which form the bank accepts down payments. This is usually a cheque or demand draft. In case they accept Credit Card payments, be very careful about how much you swipe. This could put you in Credit Card debt.
- Collateral – Most loans, except for Personal Loans and cash against Credit Card, need a collateral or guarantor. Note that the asset you purchase (such as a car or house), will be in the bank’s hands until you repay the loan. And once you repay the loan, assets such as a car need to be transferred to your name. Ensure that you go through the process when you have repaid the loan.
- Repayment terms – Ask your bank about the repayment terms and conditions. Will it be monthly payments? Do you have the option to pay on a quarterly basis? Can the repayment be made through postdated cheques or an ECS mandate? What about late payment charges? What will happen if you miss an EMI? Give the terms and conditions a once over before signing on the dotted line.
- Prepayment charges – This is a very important factor that you should take into account. High prepayment charges will add to the cost of your loan. Ideally, there should be no prepayment charges but you could go for a loan with low prepayment charges if you are given other benefits such as a higher loan amount or a low interest rate. Some banks have a waiting period before which you cannot prepay. Make sure you talk to your bank about these before opting for the loan.
- Foreclosure charges – This is another important point to raise with your bank. Some banks do not allow you to foreclose your loan at all. This is especially true for Car Loans. This means that even if you want to close the loan, you have no choice but to continue paying interest. If your bank allows you to foreclose the loan, ask them if they will charge you. Higher foreclosure charges, again, will increase the cost of your loan.
Remember to always check your eligibility before applying for any loan. This will lower your chances of rejection and will also help protect your Credit Score. And take a loan only when it is absolutely necessary.