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Faq

  • Why one should repay his loan on time?

    Lender report the repayment history of all their customers to credit bureaus. Late payment of a loan or default of a loan is reported by the lender to the credit bureaus. This is recorded on the credit report of the borrower and the same pulls down the credit score of the individual. This may bring down the credit worthiness of the individual not adhering to the loan repayment schedule. Such persons find it difficult to get loans from banks, or have to pay high interest rates to avail credit.
  • Does the property value matters in the home loan?

    Banks typically fund up to 80% to 85% of the home value. Even if the income of the loan applicant supports offering more loan banks do not go beyond their threshold limit. Banks first expect the property buyer to bring in his contribution from his own funds, and the remaining money is lent by the banks. In case of commercial property, the banks typically fund only upto 50% to 60% of the property value, subject to fulfilling other eligibility criterion.
  • Does income of an individual affect his loan taking capacity?

    Income of the applicant is an important factor for the banks while ascertaining if they want to lend to the individual. Higher the income, better it is for the loan applicant. Loan sums are typically a function of the take home income and the consistency of the income.
  • What is a loan against fixed deposit?

    Banks offer short term loans against the fixed deposits. The tenure of these loans are typically less than the tenure of fixed deposits and charge 1% or 2% more rate of interest than the rate of interest at which the fixed deposit is made. Banks also offer overdraft facility against fixed deposits.
  • What is a co-branded card?

    A bank may tie up with a partner such as airline, retail chain, movie exhibition chain and issue a credit card that offers specific loyalty programmes or member reward programmes for expenses incurred at partner offerings. Such cards are called co-branded cards.
  • What is a secured loan?

    A loan extended by a bank against collateral is called secured loan. For example, a home loan is a secured loan. The bank finances purchase of a house and the same house is mortgaged with the bank. If the loan is not repaid as per the repayment schedule, then the bank has the right to sell the house the recover the money lent along with accumulated interest if any. Such secured loans typically are offered at lower interest rate as compared to unsecured loans.
  • What is floating rate of interest?

    Floating interest rate is an arrangement wherein the bank and borrower agree at a rate of interest at the beginning of the loan. The rate of interest so agreed may change in the currency of the loan, depending on the prevailing interest rates in the economy. If the interest rates in the economy fall, then the rate of interest on the loan may fall and the other way round, if the bank finds it fit. The bank keeps the borrower informed about such changes in the interest rate on the loan from time to time. In some cases, the rate of interest is linked with some benchmark interest rate such as the yield on 10 year government bond or MIBOR Mumbai inter-bank offer rate or the rate of interest offered on treasury bills.
  • What is fixed interest rate?

    Fixed interest rate is an arrangement wherein the bank and borrower agree at a rate of interest at the beginning of the loan. The rate of interest so agreed is charged till the loan is repaid. Neither the bank nor the borrower can unilaterally change the rate of interest on the loan in the currency of the tenure.
  • What will be the credit score of an individual who has never borrowed from any bank?

    If an individual has never availed a loan from a bank or a non-banking finance company, then there is no credit repayment data captured by the credit bureau. In such circumstances, the credit score is reported to be zero.
  • Why secured loans are cheaper than the unsecured loans?

    Secured loan such as home loans, loan against gold has collateral which can be monetized by the bank if the borrower defaults on the loan. In case of unsecured loans such as credit card and personal loans, there is no such security bank has which bank can sell to recover money lent. Hence the bank needs higher margin in case of unsecured loans, which is built by charging higher interest rates.

borrowings glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
  • Acceptance Letter

    After you collect your sanction letter, you should, if you accept the terms of contract, communicate your willingness to accept the loan by way of an acceptance letter. You should do it within a particular time-frame which may vary between 1-3 months from the date of the sanction letter.
  • Accrual Basis

    A method of accounting that allows revenues and expenses to be accrued, even if cash had not been received or paid during the accrual period.
  • Administrative Fee

    The fee you pay for meeting the overheads of the administrative work handled by the housing finance firm. Usually to be paid while giving the acceptance letter.
  • ADR

    An acronym for American Depository Receipt. Currently popular because of the rush of Indian firms to issue ADRs. Technically, it is an instrument traded at exchanges in the US representing a fixed number of shares of a foreign company that is traded in the foreign country. By trading in ADRs, U.S. investors manage to avoid some of the problems of dealing in foreign securities markets. The ADR route enables companies to raise funds in the U.S. financial markets, provided they meet the stringent regulatory norms for disclosure and accounting.
  • Advance EMI

    Number of equated installment(s) paid in advance at the time of disbursement in the form of post dated cheques.
  • Allotment

    The acceptance of an application subscribing to the shares of a company. Establishes a contract that underlies an investment through public subscription.
  • Amortisation

    Reduction of an amount at regular intervals over a certain time period. Usually, refers to the reduction of debt by regular payment of loan installments during the life of a loan. Also describes the accounting process of writing off an intangible asset.
  • Annual Reducing Method

    A method of calculating interest on the reduced principal at the end of every year. However as repayments for all loans are EMI, though the principal is reduced every month, the interest is calculated on the original loan amount for twelve months after which the repayments towards principal are taken into account. Basically, this method will benefit you the least.
  • Annual Rest

    A method of calculating EMI in which the appropriation towards interest and principal is made at the end of the financial year.