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