Fixed Vs Reducing Balance Loan EMIs

It is possible that while an individual is taking a loan, you will find out that some of the financial institutions give affordable interest rate compared to other banks. However, you must assure that if you're availing such offers, your EMI could be calculated in two ways either by fixed interest rate method or reducing balance method. Quite often people give too much importance to the interest rate applicable on an EMI and they overlook the method through which the interest rate on EMI will be calculated. You must choose the loan provider based on the interest rate applicable as well as the method with which the interest rate will be calculated.

Advantages of Fixed Interest Loans

• Interest amount applicable remains the same, and it is estimated based on the principal amount borrowed.
• The principal amount doesn't change in these types of loans with a change in time.
• The customer is offered flexibility concerning loan repayment tenure under this type of loan so that it matches the borrower's repayment capacity.
• This kind of loan has a low-interest rate, and it increases the loan eligibility of the customers.
• The risk associated with this type of loan is relatively less.

Disadvantages of Fixed Interest Loans

• The absolute EMI paid by the customer is much higher compared to any other scheme.
• Until the refinancing is done, the customer has to continue paying the same interest rate.
• The loan repayment tenure is longer under this scheme.

Difference between Fixed Interest Loan and Reducing Balance Loan

It is understandable for a customer to get thrown while selecting the kind of loan that will accommodate his/her needs while spending the least amount possible in the form of interest. You can check the list mentioned below to find out the difference between fixed and reducing balance interest rates and choose the scheme which suits you the best:

• The interest rate applicable under fixed interest loans is lower than reducing balance loans.
• The calculation of aggregate interest payable under the fixed interest loan scheme is easier than the estimation of aggregate interest under the reducing balance loan.
• The interest charged for a Fixed Interest Loan is computed based on the principal amount of loan acquired by the customer, and it doesn't change throughout the tenure of the loan. However, the absolute interest for a Reducing Balance Loan is estimated based on the outstanding principal amount after each EMI is paid.
• The interest paid under the Reducing Balance Loan reduces over time, and the amount of interest applicable under this type of loan is less than the fixed interest loan.
• In a real-time scenario, the reducing balance interest scheme is better than the fixed interest rate scheme.
• Loan tenure under a fixed interest loan scheme is much longer than the reducing balance loan scheme.

Fixed vs. Floating Interest Rates

Home Loans are one of the simplest ways to finance a property purchase if someone wishes to buy a home. These days, getting a home loan is not a difficult task but deciding between floating and fixed interest rate can be a difficult choice. It's crucial that you consider both the interest rates, weigh the pros and cons, analyze the market predictions and then make an informed decision. If you are entirely new to the field and have no idea what these terms mean, read on to get a basic idea.

What is a Fixed Interest Rate?

If you choose a fixed interest rate, you'll be paying the same amount of interest rate each month. This type of interest rate is unchanged by market fluctuations. If you are particular about budgeting and prefer planning your repayment schedule with a fixed monthly amount, this type of interest rate would be more beneficial for you. The main drawback of a fixed interest rate is that that they usually are 1-2.5% higher than the floating interest rate for a home loan. Another disadvantage is that if the interest rate decreases, you won't be able to take advantage of the decreased rates and you will have to continue paying the original amount. It is essential that you check the fine print. If you see the economic scenario assuring a rise in interest rates shortly, fixed rates would be a better option as compared to floating rates.

Benefits of Fixed Interest Rate

• As the name hints, fixed interest rate continues to remain constant for the loan tenure. This interest rate doesn't alter depending on the rise and fall in the market.
• Since this type of interest rate doesn't shift over time, you will have to pay a fixed monthly installment over the tenure. Therefore, you can efficiently and accurately plan your investments under this type of rate of interest.
• It is the best alternative for people who are skilled at budgeting and favor a fixed EMI schedule.
• If the economic conditions imply that there are possibilities of a rise in the interest rates in the future, paying back the loan with a fixed interest rate is an excellent option.

Drawbacks of Fixed Interest Rate

• The fixed interest rate is usually 1% -2.5% greater than the floating interest rate granted by a bank or NBFCs.
• Even if the fixed interest rate decreases after policy changes suggested by Reserve Bank of India (RBI), it doesn't modify the loans that are already borrowed by using the prior interest rate. The borrower will be required to continue repayment at the higher interest rate even after a rate cut.
• Many a time, the fixed rate of interest is valid for a couple of years. In such cases, after the tenure is over, the interest rate will get updated depending on the current rate. This might not be a practical plan in the long run.

Why choose a Fixed Interest Rate?

The reasons why you should choose fixed interest rate are given below:

• If you prefer a fixed repayment and you're comfortable paying the current interest amount, then you should ensure that the monthly installment that you pay towards the loan isn't more than 30% of your monthly salary.
• You predict a rise in the rate of interest in the future and want to assure that your interest amount doesn't rise greater than what you are currently paying. In such case, the fixed interest rate can be used to secure the current rate of interest.
• In case there has been a decline in the interest rates recently, and you are content with repaying your loan at the present rate, you can choose the fixed interest rate while repaying the loan amount.

What is Floating Interest Rate?

As the name infers, the floating interest rate alters with the market fluctuations. If you choose to get a home loan on the floating interest rate, it means that you'll be constrained to a base rate and a floating component will be added to the base amount. This implies that if the base rate changes, the floating rate will also change. The main highlight of the floating interest rate is that they cost the investor less than the fixed interest rate. If the fixed interest rate is 14% and the floating interest rate is 11.5%, even if the interest rate increases by 2%, you will be saving money. Even if the floating interest rate increases over the fixed rate, it will be short-lived, and not for the entire term of the loan. The main shortcoming of the floating interest rate is that it is challenging to manage a budget since the rate of interest keeps changing frequently. Planning your finances for a long-term could get complicated with a floating interest rate.

Benefits of Floating Interest Rate

• The floating interest rates granted by a bank or non-banking financing company (NBFC) is usually more economical than the fixed rate it offers to its customers. Therefore, it means that even if the floating interest rate increases, it can still be less than the previous fixed interest rate offered.
  
  
• If the floating interest rate caps the fixed interest rate, it won't happen for the entire loan tenure. There are possibilities that the floating rates might get lower after a period.

Drawbacks of Floating Interest Rate

• Due to the fluctuating nature of the floating interest rates, the monthly installments of a distinct amount of loan will alter throughout the tenure of the loan.
• Budgeting can be a major problem if you've chosen floating interest rates. Since the interest rate keeps changing, you might end up paying more than the amount that you would've paid under a fixed interest rate scheme

Why choose a Floating Interest Rate?

• You can choose a floating interest rate for your loan when you understand that the rates might lower in the future, thereby, decreasing the total cost of the loan.
• Sometimes, the interest rates under floating rates are set as low as 1-2% under the fixed interest rate.
• This type of interest rate usually befits people who do not hold enough insight into the financial market and, thus, want to cling to the market rates.

In conclusion, selecting the type of interest rate that you should go for is an individual's choice. What works for one person may not certainly be the best choice for someone else. If you prefer to plan your finances and not leave anything to chance, the fixed rate of interest would be better suited for your needs.

Apply for IDFC First Bank Debit Cards - IDFC First Bank Debit Cards

IDFC First Bank offers you several debit cards. This includes Personal Debit Cards as well as Visa Debit Cards. In this article, we shall look at all of them.

Personal Debit Cards

The Visa Signature Debit Card

• Use this card to dine, shop and pay your bills both online and abroad.
• The debit card has an EMV chip through which you can set your own limits
• It has enhanced daily purchase limits and cash withdrawal limits
  

Here are its benefits:

Preliminary benefit

• If you spend Rs. 1000 or more on your very first transaction using this card, you get 10% back to a maximum of Rs. 250.
• Benefits in special offers
• You get special offers on BookMyShow buys.

Benefits in free airport lounge access

• Maximum of two complimentary access for IDFC First Bank Visa Signature and for IDFC First Bank Visa Business card holders for each calendar quarter
• Unrestricted but chargeable or paid access for self and for accompanying guests
• Card holders have access to shower, Wifi and Fax, at the discretion of the lounge operator. These are paid services.

Exclusive offers

• Exclusive hotel visa offers
• Get fantastic discounts on picked online and offline stores

Insurance coverage

• The cardholder will have no liability for any unauthorized transactions on the debit card after the receipt of a notification from the card holder.
• The card comes with a free death or permanent disability insurance cover.
• If the customer has several debit cards, the claim shall be given to the highest eligible debit card which meets all criteria

Special cash withdrawal and daily purchase limits

• Maximum daily cash limit- Rs. 10000
• Maximum daily purchase limit- Rs. 10000
  

Dinner offers

• You get exciting offers on food and beverages, and on wellness and medical centres and purchases
• Get fantastic discounts on selected stores using your debit card
  

Fuel surcharge waiver

Get 2.5% fuel surcharge on all petrol pumps across the country

IDFC First Bank Net Banking key features - IDFC First Bank

IDFC First Bank Net Banking key features

• Synchronized experience across all devices
• Easy to transfer money with NEFT, RTGs and IMPS
• Fast bill payment
• Access to loan details
  

NEFT

This allows you to transfer money instantly between your own bank account and a third party beneficiary’s account in any bank. Such funds are securely transferred through RBIs India’s InterBank Transfer Scheme.

RTGS

This allows you to transfer money to any Third Party beneficiary having an account at any other bank but not in IDFC First Bank, as long as the beneficiary is a participant in RBI’s Real Time Gross Settlement scheme.

IMPS

This is a unique instant interbank payment transfer system within India. You just need to input the beneficiary’s bank account number and his/her Indian Financial System Code to send money.

Are there any charges involved?

No, there are no charges to transfer money at all!

How to add a beneficiary?

• Log onto the IDFC First Bank Net Banking portal
• Select Add Beneficiary under the Fund Transfer section
• Select type of beneficiary and give details
• Enter the OPT you’ll get on your registered mobile number
• You’ll receive information about your beneficiary’s addition on your mobile number
• After successful addition to your account, the beneficiary shall be added after 30 minutes

Gold ETFs and their Benefits - Top 7 Benefits of Gold ETFs

Gold is unique as a market commodity. Whether it is a recession or a time of economic boom, trading in gold continues at all times. Yes, there are some price fluctuations, and yet its value is not diminished. In India, the desire to possess gold is strong in all classes of society. Even the poor classes gave some gold ornaments, which they prize a lot like family heirlooms. Business families use their gold to get loans. As a result, you can see that buying and selling will always continue. To further facilitate and encourage this habit, the government has revealed gold ETFs. Gold Exchange Traded Fund or ETFs are investment funds in which investors invest money in gold producing firms and in gold bullion by trading gold ETFs on the market stock exchange.

One can buy gold ETFs with open-ended mutual funds, and the funds collected through its trading are invested in turn in the gold market. Market experts are of the opinion that returns received from these are close to the ones one can get from trading physical gold.

How to use Gold ETFs?

In Gold ETFs, you basically invest in gold that it listed on the market index of stock exchanges. These funds are passively managed, which means that these funds don’t require the oversight of a fund manager. Gold ETF invest in portfolios having numerous companies. Through Gold ETFs, you can therefore invest in Gold stock exchange traded funds and Gold Price exchange traded funds. Gold stock ETFs are typically associated with those companies who are in gold mining and other related activities. You can also invest in companies that deal in Gold price index.

Benefits of trading in Gold ETFs?

There are several benefits here.

There’s no need to make changes when purchasing gold ETF units as in the case of physical gold jewelry, bars, coins and such.

• Golf ETF units are linked to your KYC documents and records, which means there’s no need to worry about them being stolen. Additionally, you won’t need to worry about the gold’s purity either.
• You can sell these at any time you want, unlike the selling of physical gold which is a long and tedious process.
• You can benefit from trading in an ETF since the Indian economy is gaining right now. The rupee is in a strong position against the dollar.
• Gold ETFs have more liquidity, which means you can sell these and convert these into cash fast. The process is easy too.

The price of gold ETFs is the same everywhere, unlike physical gold. Thus, you don’t need to worry about quality, price variation, weight, purity and other factors.

You can keep gold ETFs as collaterals when getting loans too.

There are many benefits here, as you have seen.

However, there are certain downsides too.

Downsides of using Gold ETFs

• Gold ETFs won’t help you if your mind is set on buying gold coins and gold jewelry. These may replace the monetary value but not the sentimental value.
  
  
• You can redeem the value of a Gold ETF in cash but not in gold. Additionally, you’ll need to open a Demat account to trade in them and also pay the annual maintenance of the account.

Lastly, you need to check a gold ETFs performance before investing in it.

Understand that tax on Gold ETF is similar to debt funds.

At the end of the day, the benefits outweigh the cons. Gold ETFs are easy to get and to deposit safely as compared to physical gold. You should certainly have this in your portfolio.

Debt Settlement - Why People Get Into Debt

Have you ever thought of why you are in debt? Have you ever scrutinized the reasons behind your debt problems? We know that debt can lead us to disastrous consequences in our lives. It can consume our assets, bring on mental stress and even hurt our relationships.

There are multiple factors that compel people into debt, this is because many are not aware of the causes behind it. Although there are effective debt elimination programs like debt consolidation, debt settlement etc, we must be aware of the causes that lead to great financial errors so we can avoid being consumed by debt.

Understand the causes of debt below to make sure that it doesn’t take over your life in the future.

Reduced Income: Often your expenses exceed your income. If you delay in taking care of handling your life with a lower income then you are sure to start to take on debt. Make sure that you understand your changed income and create a budget and a plan as soon as possible.

Divorce: Many marriages end up in divorce and with it comes strain on personal finances. The laws govern what should be done with a couple’s money during a divorce settlement. When one party demands too much, the other will be forced to go into debt to pay for attorneys as well as what their partner deems necessary as part of the settlement.

Poor Money Management: Most of the time, poor budgeting invokes debt. You must have a monthly budget. Without a proper budget, you will not be able to track your expenses. If you write down your spending for an entire month you can see exactly where you money ends up. This is the best way to learn where you can cut some unnecessary expenses and help yourself avoid debt.

Underemployment: People often feel that underemployment is temporary, but it can have a lasting effect on your life, especially if you have to go into debt to make ends meet. If you are underemployed, calculate your expenses and start looking for a second job. This might eliminate your chances of falling in debt.

Gambling: Is one of the most controversial forms of entertainment out there. However in reality, it is just a guaranteed exchange of money from you to “the house”. As loans are easily available today, one becomes easily addicted to the idea of “winning big” and striking it rich. In fact, gambling can easily lead to you effortlessly mortgaging your future to “the house” as you try to win back what you have lost.

Medical Expenses: Lapsed policies and expensive medical treatments make this one of the easiest ways to fall into debt. Everything to do in the medical realm costs money and usually a lot of it. On top of that doctors and hospitals are becoming more and more impatient with people that don’t pay their bills on time. Because of this they tend to turn in patients that don’t have the money to collection agencies. When you don’t have the money to pay for your doctor visit it can be easy to put the bill on a credit card or even to take a loan out to avoid collections.

Little Savings: If you want to avoid unwanted debt, try to be prepared for unexpected expenditures by saving some money. If you have decent savings in place you can use it for emergencies like severe illness, a job-loss or divorce without increasing your debt. Believe me, no one ever regrets saving money for emergencies.

IDFC First Bank Business Loans - Types and Features

IDFC First Bank is one of the top banks in the country which offers various banking products like business loans to both enterprises and to individuals. IDFC First Bank provides BIL or Business Instalment Loans to its customers, which is actually an unsecured loan for both companies and individuals. The loan is typically used to expand a business, for buying machinery and raw materials.

Interest rate

• Interest rate- 19%
• Loan amount- Minimum is Rs. 3 lakhs and Maximum is Rs. 75 lakhs
• Repayment tenure- Minimum is 12 months and Maximum is 5 years
• Age criteria- Minimum is 28 years and Maximum is 68 years
• Business existence time- Minimum of 3 years
• Business profit after tax after 2 years- Should be positive
• Company turnover- Rs. 1 crore or more

Eligibility

• Manufacturers
• Traders
• Retailers
• Sole partnership firms
• Partnership firms
• Self-employed individuals and professionals
• Private limited and closely held limited companies

Fees and charges

• Processing fees: Till 3.5% of the loan
• Foreclosure charges: 5% of the principal loan outstanding amount
• EMI bounce charge: Rs. 400
• Document retrieval charge: Rs. 500
• Statement of account: Rs. 500
• Duplicate NOC: Rs. 500
• Rebooking charges: Rs. 10000 within 30 days of disbursement
• Repayment instrument swap charges: Rs. 500
• Overdue interest: 2% per month of unpaid EMI or Rs. 300, whichever is more
  

Loan features

• Low processing fees
• Less paperwork
• No security needed
• You can get a comprehensive insurance coverage
• Door-to-door service
  

Documents you’ll need

• ID proof
• Address proof
• Last 6 months’ bank statement
• Last 2 years ITR statement with income calculation, Balance sheet and P/L account
• Proof of business continuation

IDFC First Bank - IDFC First Bank Vehicle Loans

Money can be a big problem for many people when they wish to buy the things they would like. Whether it is buying a new home, funding a marriage, finding a child’s education or buying a new car, or buying a commercial fleet of vehicles, money can be a problem.

The good news is that there are banks like IDFC First which offers you a Commercial Vehicle Loan. This loan is one of the best options for helping you in growing your transport business.

In this article, we’ll tell you the features and benefits of IDFC First Commercial Vehicle Loan.

Let us come to the features first.

Features and benefits of IDFC First Commercial Vehicle Loan

• You can get loans for both new vehicles as well as used vehicles. That means you can get the loan even if you are buying a used vehicle or second hand vehicle. And, as you know, there are distinct benefits in getting a used vehicle. These are used, but that does not affect its performance by a huge margin when compared to first hand vehicles. Besides, buying such vehicles is much cheaper than buying first hand ones. The market value of first hand vehicles decline sharply right after being bought. And thus, getting a used one is a smart move.
• You can get a loan amount anywhere between Rs. 1 lakh to Rs. 2 crore. This is a considerable benefit as you can get the amount you want or need.
• You get a flexible loan term between 1 year and 5 years. Depending on the amount, you can pick a suitable time to repay the loan.
• It is easy to get the loan as it involves minimal documentation. You’ll get the loan disbursed fast so that your life goes on as normal.
• You can get up to 100% of the total cost of the Small Commercial Vehicle or Vehicles.
• USP and Benefits of the IDFC First Commercial Vehicle Loan
• You can get up to 100% of the total cost of the Small Commercial Vehicle or Vehicles. You won’t find this anywhere else.
• You don’t need to have any prior experience for commercial transportation.

What are the eligibility factors?

People who can apply can be:

• Individuals
• Partnership firms
• Proprietorships
• One-person company
• Private and Public companies
• Trusts
• Limited Liability Partnership
• Hindu Undivided Family

Documents you’ll need:

• KYC Proof including ID and Address proof.
• Passport size photo
• Give links (individual and non-individual)
• Experience proof documents like driving license, current account statement and registration copy of owned commercial vehicle
• Income proof documents like bank statement of last 1 year, income tax return records, or audited financials for the past 2 years
• Fleet list, which is the list of all vehicles you own along with their supporting documents

Effect of Co-signing Car Loan on Credit Score

Maybe you know someone, a family member or a friend, who needs to purchase a car but cannot do so due to their bad credit score. They really need someone to cosign their car loan. They call you one day since they know you have an impeccable credit score, and now they want you to co-sign their auto loan.

They tell you that this is only a formality, and even promise that their payments to you shall always be on time. You trust and love the person and really want to help them. We know you do, but we would also like you to know that there are certain obligations and risks involved.

Don’t jump in just because a loved one is telling you to do this, since this is a matter of your money. If you lose, it shall be your loss alone. Your concerned loved one won’t be able to help you out. Your credit score may take a hit, which can mean you won’t be able to take loans easily next. Looking out for yourself does not make you selfish. Only when your wealth grows and is protected can you help others.

What does co-signing an auto loan mean?
First of all, it is important to know what you’re getting yourself into. What does it mean to cosign an auto loan? It meanTs that you’ll share the responsibility of repaying the loan on time, just as if it were your loan. If your loved one, family member or friend cannot repay the loan, you are obligated to repay it.

How does it affect your credit?
There are two ways in which co-signing a car loan, or any loan for that matter, can affect your credit. The first way is my affecting your credit score. You, as a co-signer of the loan, are obligated to repay the loan if the primary borrower is unable to do that. In such a case, it shall be entirely your responsibility. A co-signed loan will be seen on your credit report, as if you have taken the loan. If the primary borrower makes a late payment, your credit report and score will be affected. And you know what low credit score means.

Here’s one thing to keep in mind. You are not the main or primary borrower, and thus won’t get monthly statements or late payment notices. You might now even know about your lowered credit score unless you keep getting credit reports every couple of months or so. You may want to get a new credit card yourself and be unpleasantly surprised. Due to the primary borrower’s missed payments, you are not able to get a new credit card or loans when you need them most.

The second way it affects you is by affecting your ability to get a loan. As we said before, due to the primary borrower not making timely payments or missing them entirely, your credit score will be affected. Too much of that, and you yourself won’t be able to get new loans. Pretty infuriating, right?

Advantages And Disadvantages Of Prepayment And Partpayment

Personal loans have the highest interest rates, apart from credit card interest charges for unpaid amounts. The interest of personal loans ranges from 15% to more than 20% at times. These have a premium interest since these are unsecured loans in nature.

Unsecured loans are those which do not ask you to give any form of collateral or security or guarantee of payment. Thus, the lender takes a huge risk by giving such loans. To offset this risk, they seek to get as much of their loan amount as soon as possible by exacting a high interest rate. So for instance, if the loan was for Rs. 100000 and the interest rate was 20%, their given amount would come back to them within five months, but if you take more time than that to repay, you’ll end up losing a lot. Even Rs. 20000 interest for a Rs. 100000 loan is a big amount. However, for borrowers looking to get unsecured loans, this is the thing they need to deal with.

A personal loan, a kind of unsecured loan, is very popular in India as it helps to get over temporary financial problems. These are used to finance weddings, buy medical items or get someone treated at a hospital, finance a vacation, buy a home, or anything one wants. Different banks have different charges and fees for such loans. A customer will have some benefits if they pay either partly or by prepaying the loan.

Full prepayment

If you prepay the loan early on in the loan’s tenure, you’ll be saving a lot on interest especially if it is a personal loan. Generally, personal loans have a lock-in period after which one can prepay the whole outstanding amount.

For instance, if your personal loan is of Rs. 2 lakhs and if the interest rate is 15% for a term of 5 years, your monthly EMI comes down to Rs. 4758. You pay Rs. 29039 within the first year towards the premium along with Rs. 28057 as interest. If you decide to prepay the rest of the amount at this time, you’ll be paying Rs. 57422 less in interest!

The real trick is to prepay the whole amount early on in the loan’s tenure. This allows you to enjoy all the benefits of the loan without suffering the disadvantages which high interest brings on. Even if one reaches almost the end of the loan’s tenure and has some excess cash left, one can prepay the rest of the amount. One still saves money that way.

However, some banks do charge a penalty for doing so. The penalty charge is between 3% to 5% of the loan if you want to prepay. Recently, the RBI has told banks to stop charging this penalty for customers who are prepaying loans.

Very often, banks do charge a penalty for prepayment.

However, this directive still applies only to loans that are taken on a “floating interest rate” basis. If the interest rate for your personal loan is fixed, your penalty shall not be taken away. However, some private and public sector banks do not charge this. Thus, if you have idle cash at hand, you can easily prepay the loan at no extra cost.

Can Paylater and Postpaid Services On E-commerce Platform Affect Credit Score?

On most e-commerce platforms online, when you are buying things, you’ll see an option before paying: Pay Later. This option is very useful of course, but the brutal fact is that this option is there to incentivise people to purchase more. In other words, it is there to ensure that more and more people keep buying at these e-commerce platforms.

These online platforms partner with lenders who are the ones actually giving this service at either a fixed fee or at zero cost.

What you may not know is that paying later at e-commerce stores can affect your credit score. Here’s an example. Capital Float partners with Amazon India and ICICI Bank to offer pay later services to give the facility to Amazon India’s customers. When, while buying anything, you choose this facility, you’ll see this credit line approved by the lender in your credit report.

Here’s another example. Aditya Birla Ltd or ABFL partners with Ola Money to offer pay later service. If you are subscribed to Ola Money Postpaid, ABFL will sanction the transaction which shall be shown on your credit report.

According to industry officials, this type of credit facility is known as Embedded Finance. It is a type of credit card facility or a personal loan.

When using postpaid schemes or pay later services, there are few things to know. During your onboarding processing when you buy something, the e-commerce platform shall tell you who the pay later service partner is. Make a note of that like you would of a credit card company. Treat them as your lender. If you miss payments or delay them, your credit score shall fall. It will get affected.

See the pay later service partner as a credit card company.

Generally, for a certain period the credit is free. However, some lenders can charge a one-time flat fee after you sign up. You need to know of these charges from beforehand.

Again, treat these services or facilities just like a normal loan. Don’t use it unless you really need to. If you have money in your account to pay for the stuff, why use this facility? If you are in a cash crunch, try delaying the purchase for a few months. Chances are, you’ll have more than enough money to buy the things you want.

Additionally, don’t buy too many things with the pay later facility, or use it too many times. As said, this is similar to taking a loan. And when you take several loans within a short span of time, your credit score falls as well.

What is Loan Amortization? - Benefits of knowing about amortization

Amortization is the process which deals with how loan payments are applied in various types of loans. Generally, the monthly payments remain the same as before, and these monthly payments are divided into interest costs. By doing so, your loan balance is reduced, which is also known as paying off the loan’s principal. Doing this also reduces your other expenses like property tax.

Your final loan payment shall settle any amount which may remain on your debt account. For instance, after exactly 360 monthly payments (yes, that means 3 years), you’ll be paying off a 30-year term mortgage. To understand how loans work and how they can aid you in predicting your interest costs and outstanding balance, you need amortization tables.

How does it work?

The best and easiest way to understand the process and phenomenon of amortization is by seeing an amortization table. Anyone taking a mortgage is given an amortization table by the bank or the lender. These help you a lot.

The table is actually a schedule which tells you how much you’ll have to pay each month in EMI, and how much of the EMI will comprise of interest and how much of principal. Regardless of which table you have, all tables contain some common items like:

• Scheduled payments: The monthly payments you need to give are listed month by month individually for the whole duration of the loan.
• Principal repayment: In this variation, after you have paid off the interest, the remainder of your EMIs shall go for meeting your principal amount of the loan.
• Interest expenses: Of your monthly EMIs and expenses, a portion is given for paying off the loan’s interest. This is calculated by multiplying the remaining unpaid balance by your monthly interest rate.
  

While the total payment remains the same for each period, you’ll be giving the loan’s principal and interest in separate amounts per month. At the start of the loan, the interest cost is at its highest. With time, as you keep on paying EMIs per month, you’ll have to pay less and less interest each month.

Types of amortization loans

While there are various types of loans you can get, it is important to know that they don’t all work in the same way. For instance in the case of instalment loans, these are amortized and one has to pay the whole balance with level payments.

These include:

• Auto loans: These are typically for the short time, often for 5 years. You repay the loan with a fixed monthly EMI payment. You can get longer term loans, then you’ll have to give more through interest and even have the risk of your loan exceeding the auto’s resale value.
• Home loans: These are over the long term, typically for 15 to 30 years. These loans do have a fixed amortization schedule, but there are also ARMs or adjustable rate mortgages. With an ARM, one can adjust the interest rate on the repayment schedule.
• Personal loans: These loans are available from banks, online lenders, and credit unions. These are typically amortized, and have terms of 4 years generally, along with fixed monthly payments and fixed interest rates.

Loans which don’t get amortized

There are some loans which don’t get amortized. These are:

• Credit cards: These allow you to repeatedly borrow through the same card, and to choose how you’ll be repaying each month as long as you give the minimum payment.
• Interest-only loans: These loans do not amortize, however, that is only in the beginning of the loan’s life cycle.
• Balloon loans: This loan requires you to make large principal amount payments at the very end of the loan tenure. During the tenure’s early years, you make small payments.

What are the best passive income generating ideas in 2021?

There are many ways to generate an income online. If you’re someone who wants to be location-independent, a passive income stream, or several of them, can work wonders for you!  All you need is a computer and a good internet connection.

Dropshipping

Dropshipping is the action of managing an online retail store to sell items, and using a third-party supplier and perhaps even a dedicated delivery agent to fulfil orders. The difference with Dropshipping and managing your real life store is that you do not need to keep physical inventory. So how do you fulfil orders? You buy inventory as needed from wholesalers or manufacturers.

The benefit with this model is that you do not need a lot of capital to get started. You don’t need to purchase products yourself. In practice, you are merely connecting the manufacturer or wholesaler and the customers. You get a big percentage of the transaction. There is no need to stock inventory and do other administrative functions. You don’t need to know how to create a website, nor do you have to code. All of these you can hire people for. Better yet, you can save a lot by getting ready-made e-commerce websites from sites like Wordpress.com.

Blogging

If you have a hobby you want to write about, or have a hobby, you can start a blog and make good money out of it. A blog is short for web blog. It is an informational website or even an online journal showing the info you put in. The latest posts appear near the top of your websites, and the older ones below. Even better, readers can comment on your posts. You follow up with such comments, keep on giving fantastic posts, create a strong following, and make money in due time.

As to how your blog can generate money, it can do so in several ways. You can do affiliate marketing, display advertisements, and even sell your own digital products. If you want to go the display ads road, you’ll have to have strong SEO skills yourself, or hire one who does. Once related companies see that your blog is getting traffic consistently, they may come to partner with you.

To start a blog, you need to think about a niche, a blogging platform, a domain name, a hosting service and minimal to no design skills.

Digital courses

You can make serious money out of this one. We all have considerable knowledge about something or the other. It can be how to play a sport, how to do coding, how to do business, how to be happy in old age, and so on. You may not know it, but people are actually looking to get help in these things, and they’re willing to give good money in return. This is where you come in. If you can give them digital courses or online training on the things they want to know more of, or to get better at, you can earn a lot. And this is passive income. Make the training once, and watch it earn you money on autopilot. However, this can be expensive upfront since you have to record and develop the course.

E-books

These can earn you passive income too. If you are skilled in something, let’s say in personal finance, your advice can matter to a lot of people who’ll pay good money for it. And once you start getting positive reviews on your ebook, you can start charging even more!

Digital downloads

These are pretty useful as they offer a quick solution to a problem your target audience is having. This is not an e-book, but is a separate product which can still add value to your customers. These can be as simple as something as an excel sheet to develop a budget plan, printable checklist on SEOB and content best practices, social media templates and much more. To make this type of product, you’ll need to do a lot of market research. Only when you know what the customer is looking for and at what price, can you give them that.

Affiliate marketing

You can earn a lot from affiliate marketing when you do it right. Remember this is not a quick solution if you need money fast. It takes time, but can earn you serious money, even on autopilot much like blogging. In affiliate marketing, you promote a product or service. These can be your own, or others, in which case you’ll get a nice commission each time there’s a sale. There are places where you can promote affiliate links like social media, YouTube, blog, podcast, email marketing, and more. You’ll also need to pick a good affiliate marketing platform. Authenticity and trust matters a lot in this business. Selling bad quality things can spoil your reputation, and no one will buy from you. But create a reputation of selling high quality things, and people will come to you themselves in time.

Real estate investing

It costs a lot, and takes considerable time and investment, but it can give you a passive income greater than all the rest combined. However, you also need to know a lot about the real estate world, and your local real estate as well. Remember, there are many types of properties in which you can invest.

Investing in the stock market

This is one of the easiest options since you don’t need to do anything, but you do need to have a sound knowledge about the stock market itself. You earn from capital gains, compound interest and dividends over time.

Investing by Age - How Should you be Investing According to your age

If you are planning to build your retirement savings, you have to know how to invest. After all, it is only when you save and invest over the years before retirement from your job that you can get a big-enough egg nest retirement fund.

It is also essential to know that the same investment strategies are not suited all your life. What works in your 20s won’t work in your 40s. How you invest at each age determines the success of your retirement.

Asset allocation

Before you even start to think about investing, it is important to understand the concept of Asset Allocation. In investing, there are various classes of assets like:

Stocks

Bonds

Cash and equivalents

Commodities

Real estate

Futures and various other derivatives

Each of these asset classes have different levels of risk and reward in returns. These behave differently over time, depending on the economy and several other factors. For instance when the economy is booming, you have confident investors who withdraw money from the bond market and invest in stocks where there is a likelihood of higher profits. The opposite is true when the economy is not good. Generally, bonds and stocks are negatively correlated, but during any financial crisis it is not the case. However, generally, bonds help in the volatility of the stock market.

If you put all your money in one asset class, you’ll lose everything when this asset faces a loss. This is why everyone says one needs to diversify one’s investment portfolio. Diversification enables you to save money in case one asset class fails or goes through a loss. For instance, even if you lose on stocks, you may not have too many problems since most of your savings are on mutual funds and bonds. Asset Allocation is the arrangement of allocation of assets in your financial portfolio. Depending on your age and the number of years you’ve been doing investing, asset allocation can look quite different.

Asset allocation by age

Here is a suggestion of asset allocation through one’s various life stages. Remember, these are suggestions and recommendations only. Your investment decisions shall still depend on your age and circumstances. It’ll also depend on your risk appetite.

A financial advisor can help you considerably, as can online brokers.

Regardless of your age, you should first have 6-12 month’s living expenses saved in the money market, savings account and liquid Certificate of Deposit.

Investing during your 20s

Suggested asset allocation:

Stocks: 80-90%

Bonds: 10-20%

Even after graduating from college, you may still be paying off your student loans. This is a good time to start investing. This can be through a Provident Fund, a Savings Account, or something else. Save what you can, even if it is 10% of what you earn. If you start investing now, you’ll have a huge advantage over those who start investing later. And a lot of people do so. This is also a good time to go for aggressive investment strategies.

Investing in your 30s

Suggested asset allocation:

Stocks: 70-80%

Bonds: 20-30%

If you haven’t started investing in your 20s, this is the best time to do so. This is the time you are or already have established your career. You are still comparatively young to reap all the rewards of compound interest, but still are old enough to be investing a meagre 10-15% of your income.

Contributing to your retirement fund should be a top priority now, regardless of what loans and credit card debts you may have now. You still have at least 40 years of working life left, so make this time count. You can be somewhat aggressive in your investment, but it’ll pay to be play it safe now. Buy bonds for safety.

Investing in your 40s

Suggested asset allocation:

Stocks: 60-70%

Bonds: 30-40%

If this is the time you’re starting your investment at, it is high time to get serious about it. If you started already in your 20s and 30s, it is now time to consolidate and deepen your financial portfolio since during this time you are earning the most you will in your life. To beat inflation, invest in aggressive stocks, but always take advice from a financial advisor.

Investing in your 50s and 60s

Suggested asset allocation:

Stocks: 50-60%

Bonds: 40-50%

You are getting quite close to your retirement age, and so don’t lose focus now. This is also the time to make conservative investments. Switch to stable and low-earning funds since these come with less risk.

 

Is Credit Card Better Than Salary Overdraft

Do you know which demographic lenders generally target? They target young salaried borrowers who are facing a temporary financial problem at the end of the month. And this happens more than you think. The thing with salaried individuals is that most don’t budget. And even when they do, expenses pile up suddenly. A vacation here, a family outing here, and medical bills there. All these pile up, and at the end of the month they have a cash crunch.

However, if you face a similar situation, you have several options: a credit card and a salary overdraft. To take a salary overdraft, there are certain criteria which differ from bank to bank. There are also certain things you need to watch out for before you take out a Bank Overdraft. You can get a loan for all occasions, of which a salary overdraft can save your life if the situation calls for it. It is considered to be the most convenient way to get emergency funds, and thus it is important to know how an OD or Overdraft on salary functions so that you can use one properly.

A salary overdraft is one type of Revolving Credit and, as the name suggests, you can get this money on your salary account. This works like a credit card. Like a credit card, a Salary Overdraft has an upper limit. You can withdraw a certain amount over and over again, provided you repay each time of course. As you can see, this is pretty useful.

Each bank has different parameters for determining the entire extent of such an overdraft. Typically, banks offer a credit line that is 3x of your current net monthly salary. Some banks, though, restrict the same to 80% or 90% of your salary or to their own fixed overdraft limit, whichever of these is lower.

For example, there are some banks which put a cap on the overdraft at Rs. 3 lakh to Rs. 5 lakh. Others allow a much smaller amount ranging from Rs. 1 lakh to Rs. 1.5 lakh, regardless of how much you earn. There are even banks that give micro loans ranging from Rs. 10000 to Rs. 25000. It all depends on their policies.

As for repayment, this varies from one bank to another too, but most of them give an automatic sweep facility which enables the amount payable to be auto-swept when there is sufficient balance available in the account. Understand that this service is given only to some salary holders depending on their credit history and eligibility factors. To get the OD facility or service, you need to apply through Net Banking. There will be some processing fees, which generally is charged only after the OD is sanctioned. If you want to revolve the credit for more than a year, there is an annual renewal fees.

One thing you should remember is that Overdraft facilities are quite expensive. Whether it is a question of a daily decreasing balance or a simple interest, the average rate of interest is around 1% to 3% a month or 12% to 30% a year! It gets even more expensive if you factor penalties and processing fees.

Unlike a credit card, it does not bring any benefits like reward points or exclusive benefits. Unless you need cash on an emergency basis, it is far better to get or use a credit card instead which at least gives you some benefits and at a much lower cost. With credit cards, you even get an interest-free period each month. This makes a credit card more cost-effective than a Bank Overdraft on salary.

Top 6 Credit Score Myths and Truths - Check Your Credit Score

Today, you’ll find information about credit score everywhere, but still customers have many misconceptions when it comes to increasing their scores. These misconceptions can be downright harmful. In this article, we are going to show you 6 credit score myths with the truth behind them.

A bad credit score is forever

This is, unfortunately, one of the biggest misconceptions. People think that a bad credit score will last forever, in which case you’ll always have problems getting loans and credit cards. The truth is a bad credit score only lasts forever if you continue to make many harmful choices, including maxing out your credit cards, making late payments, and letting loans or bills reach collections. If you manage your credit well, you’ll see the credit score improving. Most negative information remains on your credit report for seven years. After that, they fall away. The score can be seen to improve even before than if there is positive credit account information.

It take a long time for your credit score to fall

You’ll be surprised to know how soon it can happen. It just takes a few months, and when this happens, your credit score can be ruined for years. If your loans are due for 6 months, your loan account will be charged off and perhaps given over to collections. This is the worst thing that can happen for your credit score. The worst thing is multiple write-offs or loans sent to collections.

You’ll hurt your credit score if you check it

This is not true. You can check as much as you want, provided you check or use a credit score service, and are not checking through mortgage lenders.

You need to have a lot of money to have a good credit score

Again, this is not true. Your credit score is not directly influenced by your bank account balance or your income. The score is affected indirectly by how much money you have. Income, therefore, is not a factor. However, timely bill payments do affect your credit score. Thus, regardless of how much money you are making, paying bills on time is good for your credit score.

There is just one credit score for each person

The truth is that each person has more than one credit score. Typically, one has several credit scores since there are several credit scoring models. For each of these models, there are 3 different credit scores for each credit bureau.

Your lender and you shall see the same credit score

Your credit score which you see online, whether you purchase it or get it for free, is just an educational credit score and is not the real one which your lender will be seeing. Educational credit scores may give you a general ideal of how healthy the score is, don’t take financial decisions based on that.

These are the major credit scores myths which still abound. We home we have busted these myths for you.

Should You Go For Car Loan Refinancing?

 

A car loan refinancing is the process of replacing your current auto loan with a new one from a different lender. Doing so can help you in several ways. It can give you better repayment terms like better rates and loan tenure. You get better benefits, features and terms with a car loan refinancing.

Why should you go for car loan refinancing?

There are several benefits of getting this facility.

It lowers your interest rate: If you do find a suitable refinancing loan with a lower interest rate than what your current loan is giving you, then go for it. With a lower interest, you save more money over time. And, as they say, more money saved is more money earned. All you need to do is to pay off the loan you have at hand and then talk to the new lender. Remember though that prepayment charges for the old loan is lower than the refinancing’s benefit. You may also want to think about refinancing your car loan in case your credit score has improved since the last time you took a loan. If so, you can be eligible for a loan with better interest rates.

It modifies your loan tenure: When you get an auto loan refinancing, you can modify the tenure. This helps you in bringing down your monthly EMI payments. For instance, if you increase the tenure, you can pay over a longer time safely and this brings down what you pay each month. However, this means you’ll be paying more money in the long term. You can reduce your loan tenure. However, here the EMIs shall be higher even though you will be able to pay off the loan faster.

To change the agreement of a co-signer: On refinancing a loan, you can add or remove a co-signer. If your current co-signer does not want to give the lender a loan guarantee, you can remove their financial responsibility.

To change the auto loan terms: If you weren’t happy with the terms of your loan last time, you can use a car loan refinancing to change the terms now. If you get a better auto loan, you can choose to refinance the loan to get all the features.

Things you need to remember before taking a loan refinancing

There are a few things to know about before taking the step of getting a loan refinancing.

Prepayment charges: To get a loan refinancing, you’ll need to prepay the current loan, and in most cases that involves a prepayment penalty. This can range between 1% to 3% of the loan.

Your car’s depreciating value: In case you buy a new car, and think of refinancing the car loan. The value of your car slightly comes down and new lenders may not want to refinance cars and automobiles that are too old. Even if you do get a deal, it may not be a good one.

Reliability of the lender: Getting a trustworthy lender is very important. Don’t go for a refinancing just because of lower interest rates.

Additional fees and charges: If you choose to go for a refinancing, you’ll have to apply for a new loan from another bank. This involves giving some processing fees and additional charges. You’ll need to determine how much these shall be and if these are ok with you, or not.

30 Day Rule of Savings - Buying on an impulse

This is a comparatively new concept which is fast becoming popular among those who have a strong desire to save money. As you rethink the things in life, which are those things the buying of which you regret? Most probably, there are at least some of these things. According to the 30 day rule, you commit to saving money for at least 30 days before making any purchase, other than what is absolutely necessary of course. It actually saves you from making big purchases that you can come to regret later.

According to those who have tried out this rule, you can easily save up money by the end of 30 days. Additionally, you’ll have created the habit of saving, which is going to help you out long term. For instance, before making any unnecessary purchase, you’ll think about it and not buy it on a whim and regret it later. You’ll value your money and not let emotions take you for a rough ride. Yes, the 30 day rule for saving money is only a concept, but it is a powerful one at that. Many have benefited from it by following it for 30 days, and even beyond. How about you?

Buying on an impulse
Buying on an impulse means you buy on the spur of the moment. You get little time to think about your would-be decision, or maybe you want the thing so much you buy it anyway without giving it much thought. Impulse buying, according to research, stems from spontaneous or random emotions or feelings which you have at the time of buying something. These are triggered by either seeing a certain product.

For instance, you see a bag of potato chips and immediately remember its spicy taste and crunchy bites. This is pretty much the same for items like art, clothing, jewelry, cars and pretty much everything. Did you know that 80% of all purchases are done on an impulse?

Did you know that most of such decisions lead to some form of financial hardship? Additionally, such decisions give rise to family problems, relationship issues, an increased feeling of guilt and of disappointment.

The 30-day rule helps you to avoid all of these.

Here’s what you have to do- A step by step guide
When you feel like buying something on a whim, stop yourself. Put it away and delay the decision.

After removing the item or temptation, note the item in a notebook. This should include the name and nature of the product, where you found it, the date, and the price.

Make it a commitment of thinking over the purchase for 30 days. Determine if it is a need or a want. Give your reasons for deciding so.

Till the 30 days are up, put the money you’d have spent on the item into an interest-giving account.

After 30 days, think whether you still want to make the purchase or not. If you want to, remove the amount from the savings account. However, do remember that you won’t earn any interest on that amount. Additionally, there may be penalties and limitations on withdrawals. If you don't want to buy, leave the money in the account and let it earn you more interest!

This is a simple yet powerful concept. It breaks bad habits, builds wealth and also saves you money!

What is Revolving Credit? - How does revolving credit work?

There are so many expenses when you are running a business. From paying bills to replenishing your stocks to making payroll, it takes so much out of your profits that it ultimately leaves you wondering- where has all the money gone?

Sometimes, your business may need extra cash to pull through tough times. The good thing is that this is possible without having to take a loan.

When you use revolving credit, your business can get money till a predetermined amount or limit. This is called a credit limit, much like a credit card’s limit. A revolving credit is much more flexible as a borrowing option than a normal loan. Here you can take out as much money you want whenever you want, within certain limits of course.

How does revolving credit work?

Just like your own personal credit card, a revolving credit enables you to spend within a certain limit. This limit is agreed upon beforehand by you and your lender. The amount you can get depends on the state and health of your business, your credit history and your monthly revenue.

When you repay the loan, the money you have available tops up again, which means you can use the money again. This is why it is called “revolving.”  

What can you use revolving credit for?

While revolving credit is useful for planning for your future, or for the future of your business during any crisis, it is still not completely easy to deal with a crisis. Revolving credit enables you to run your business as normal without having to worry about multiple loans or one credit after another.

For instance, your company’s work becomes stalled by broken equipment or a big tax bill. This makes it hard for you to buy from suppliers, give salaries, and etc. Revolving credit gives you a safety net for unexpected times. During such times, with revolving credit therefore, you’ll be able to bounce back and tide over the problem. As a result, your business flourishes continuously.

What is the difference between a line of credit and a credit card?

The primary difference here is that business credit cards are mostly unsecured. These don’t require you to give any collateral but that also means you’ll have to give more fees and higher interest rates.

To get a secure credit line, you’ll need to give some collateral. This minimizes risk for the lender, which increases your chances of getting the loan, especially if it is a large amount of money. If you are unable to repay the loan, the lender takes over your collateral assets legally.

Not all lines of credit are revolving in nature. Some may be one-time. A revolving line of credit helps you in getting the same amount after loan repayment. It saves you from having to apply again and again.

Effect of Clearing Debt on Your Credit Score

When you repay your debt, you can expect to see a higher credit score.

A higher credit score increases your chances of getting credit cards, loans and new lines of credit. These can come with better terms like lower interest.

However, do you know how long you’ll have to wait before seeing an increase in your credit score? If you don’t, don’t worry. In this article, we’ll tell you everything you need to know about it. We’ll tell you how long it takes and tell you the factors which influence the increase of your credit score. We’ll also tell you the types of debt you can have.

When does your credit score improve after debt repayment?

Of course, you’ll want debt repayment to have an immediate positive impact on your credit score, but that’s not how it works. Even if you have repaid your loan completely, your score won’t increase till your lender reports the repayment.

How long can this take? It can take a couple of months or a couple of billing cycles. Lenders usually report activity per month to credit bureaus or credit reporting agencies.

Which factors influence your credit score?

To really understand how your credit score changes after you pay off a loan, you need to know the elements which comprise the score.

The factors influencing your credit score are:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Credit mix: 10%
  

Which of these affect your credit score, from most to least?

• Amounts owed: Extremely influential
• Credit mix: Highly influential
• Payment history: Moderately influential
• Length of credit history: Less influential
• New credit: Less influential
  

When you pay off debts, your credit utilization shall get a big positive boost. As you may know, you need to keep credit utilization ratio below 30%. This gets boosted when you pay off credit cards or repay loans. In turn it raises your credit score. Your credit history decreases each time you repay and then close an account. That hurts your credit score.

Special Features of Secured Credit Cards - Secured Credit Cards

Banks offer secured credit cards against fixed deposits as collateral. These cards are usually aimed at those who cannot avail regular credit cards due to reasons like low or no credit score, unserviceable location, inadequate income, job profile or employer’s profile.

Let’s take a look at some of the crucial features of secured credit cards

Relaxed eligibility criteria

As secured credit cards are issued against collateral in the form of fixed deposits, it reduces the credit risk of banks. In case a credit card holder fails to repay his card bill, the bank has the liberty to liquidate fixed deposits to recover outstanding dues.

Owing to this risk-free attribute, banks do not factor the applicant’s credit score, income, employment profile, unserviceable location, etc, as they do while evaluating applications for regular credit cards.

Helps in building credit score

Just like regular credit cards, transactions made through secured credit cards are reported to the credit bureaus. The credit bureaus then factor in this data while calculating credit scores. Thus, secured credit cards can be a very good tool for building or improving credit score for those having low or nil credit score, thereby, improving their eligibility for availing loans and secured credit cards in the near future.

Credit limit decided against the value of fixed deposit

Banks set credit limits of secured credit cards against the fixed deposit value used as collateral. Depending on the risk appetite of the bank, the credit limit of the secured credit card usually ranges between 80-90% of the fixed deposit value offered as collateral.

Fixed deposit used as collateral continues to earn interest

The fixed deposits used as collateral to avail secured credit cards continue to earn interest till their maturity. In this sense, availing a secured credit card is the same as opting for a loan against FD or a loan against securities wherein the borrower continues to generate returns from his securities offered as collateral.

Provide higher capital efficiency to their holders

Ability to leverage fixed deposits through secured cards also leads to higher capital efficiency for cardholders if they repay their credit card bills on time.

Cardholders can easily access credit through their secured credit card to meet their short-term financial mismatches without closing their FDs prematurely. Most banks penalise premature withdrawal of FDs by charging a penal interest rate of up to 1%. This penal rate is then subtracted from the effective rate of interest of the fixed deposit, which is usually the lower of the original booked card rate and the card rate of the period for which the FD has been in effect.

Thus, secured credit cards offer sanctioned credit line to their users and save them from incurring opportunity costs involved in premature FD withdrawal. This feature can especially be helpful for those facing frequent but very short-term cash flow mismatches.

Withdrawal from fixed deposit not allowed till card closure

As the pledged fixed deposit is lien marked by banks, secured credit card users cannot close their fixed deposit account till the card is closed or reaches its expiry. Thus, those looking to opt for secured credit cards should consider submitting only those FDs as collateral without which they can easily manage till the expiry of their secured card.

Avoid using fixed deposits earmarked for emergency funds or short-term financial goals as collateral for availing secured credit cards.

Broad features similar to regular credit cards

Just like regular credit cards, secured credit cards offer reward points, vouchers, discounts, etc on transactions made through them. Also, they offer interest free period on credit card transactions and levy finance charges on non-payment of the credit card bill by the due date.

However, the diversity and consumer choice offered by card issuers in the case of secured credit cards are not the same as regular credit cards. In the case of regular credit cards, card issuers offer numerous card types, such as fuel, travel, shopping, premium, and reward cards for targeting specific consumer requirements. In the case of secured cards, most of the issuers offer just one or two variants. This deprives secured cardholders of the freedom to select their card on the basis of their spending pattern and lifestyle.

What is the 20/10 Rule? - Diverging from the 20/10 Rule

If you find yourself constantly on the verge of overspending with your credit cards, consider using the 20/10 rule to keep your spending in check. The 20/10 rule is a simple guideline for keeping your debts at a manageable level.

What is the 20/10 Rule?

The first part refers to your overall debt. Excluding mortgage debt, you should keep your borrowing total below 20% of your annual after-tax income. This includes credit cards and debts such as student loans, as well as car loans and any similar installment debt.

Mortgage debt is excluded for two reasons. A mortgage debt has some positive aspects, allowing you to build equity in an appreciating asset as compared to buying depreciating or disposable assets. On a more practical level, the sheer size and long-term aspect of a mortgage relative to other debts generally swamps the other types of debt you are trying to analyze.

The second part of the 20/10 rule relates to monthly payments and cash flow. Your goal is to keep your payments on all the loans and credit cards to no more than 10% of your monthly after-tax income. Again, mortgage payments are excluded, along with rent (since it is just another form of monthly housing payment).

In practical terms, if you have a large mortgage payment or live in a high-rent area, you may have to adjust the rule. If you are spending up to half of your net income on housing – not an unfamiliar situation for some who are underemployed – you probably cannot afford to extend your credit to 20% of your net income.

Diverging from the 20/10 Rule

You are just one surprise expense away from a debt spiral and need to focus instead on saving to build an emergency fund. If you do have an emergency fund, you can consider loosening your credit somewhat – just use common sense.

This illustrates a point about the 20/10 rule – it is a general guideline that makes general assumptions, such as starting with some degree of initial financial stability, stable regular income, and proportionate housing expenses. Your situation may require a different strategy.

Keeping your debt at 20% of your income, without a regular income, is somewhere between difficult and impossible.

For example, if you are recently unemployed, have suffered a pay cut, or have an unpredictable income, keeping your debt at 20% of your income is somewhere between difficult and impossible. You do not need a general guideline – you need a more detailed plan to guide your debt strategy until you get to a more stable place financially.

Student loan debt can also skew this equation, because of the massive increase in size, which can approach that of a modest mortgage. Defaulting on student loan debt also carries significant penalties, and limited options for discharge. Creditors can repossess your house for partial recovery, but they cannot repossess your education… yet. (Let’s hope that no agency is researching that.)

You may run into an unavoidable expense, such as an uncovered medical bill, that throws you over the 20/10 level. In that case, you need to evaluate the situation and make your plan to get back slowly to the 20/10 mark – unless your situation requires cuts that are more drastic.

What Should You Do?

In summary, there may be times where you should bend the 20/10 rule. If you are in a difficult financial situation, you will have to cut spending even further and focus more on reducing your high interest debt. However, for most borrowers, the 20/10 guideline provides an excellent rule of thumb to keep from overextending credit – or at least make you think hard about certain purchases before you whip out your credit card.

Credit Report Freeze - What is a Credit Freeze?

Data breaches are more common than you think. MNCs like Facebook and Target have problems with data breaches and hacking of private information.

Credit information can include driver’s license, credit card details, date of birth, social security number, email ID, phone numbers and more. In the hands of hackers, this information can be problematic. It is understandable that the average person wants to be more cautious about sharing their private information online.

You can freeze your credit but before you do that, there are a few things you should know.

What is a Credit Freeze?

In case of a data breach, a credit freeze is highly recommended. When you freeze your credit, you prevent anyone who tries to steal your information by opening an unauthorized account in your name. By freezing the credit, you lock down your credit information and thus prevent any misuse and theft. People who wish to try to steal it won’t be able to.

Here’s an example:

Let’s say that you are looking for a loan or a credit card. You apply for them at a bank. The bank will now decide whether or not to give you the loan or the credit card depending on your credit report. You will have to show the bank your credit report, but you can choose to “freeze” the information. You can call your credit reporting agency to freeze your details. On doing this, only the bank can see your details and information, no one else.

However, even after freezing, it shall be accessible to you and your current creditors.

• You can access your credit information and still get your free credit reports.
• Your current creditors and your debt collectors can access the information too.
• Your credit score won’t be affected by a Credit Freeze.
  

How to freeze your credit?

To do that, you’ll need to call your credit bureaus separately. Tell them about your intention and follow their processes, which may be different from one bureau to another. You may need to share all the necessary details in order for them to find and lock such information. Once the bureaus have frozen your credit, you’re set. No one can access it without your explicit permission and authorization to the credit bureaus.

Pros of a credit freeze

• It can prevent identity theft
• It is free
• You can lift a freeze temporarily in case you need to get the information checked by a credit bureau
  

Cons of a credit freeze

• It can be time-consuming since you need to contact and follow the process of all credit bureaus separately
• Credit freeze can offset your other priorities, for instance when you apply for loans or credit cards. In such cases, you’ll need to lift the freeze temporarily, which still delays the application process
• Credit freeze won’t help you when a hacker already has stolen your information, or if it has happened in the past
  

Credit freeze can be a good option if you want to protect your data from a data breach or from online fraudsters. However, the process can be long. Consider that before taking the decision.