Compound Interest and Its Benefits - 3 ways to get the most out of Compound Interest

What is Compounding or Compound Interest? What’s so great about it such that even one of the greatest minds on the planet sang its praises?

Don’t worry. It is not rocket science, and once you understand it, you'll know how it helps you save and even earn passive income. That’s right, passive income: the income you make while you sleep.

Compounding means getting an increase on the value of your investment due to interest earned as well as on the accumulated interest.

Compound interest actually means earning interest on interest. What happens is this: each time you get interest on the principal amount, this interest is added back to the original existing amount. This in turn becomes your principal. This goes on and on, and thus, you keep on earning more every time. In a way, it is passive income.

Consider a snowball rolling down the side of a mountain. At first, the snowball is nothing to worry about. But as it rolls down, it accumulates additional snow and ice. It gets bigger and bigger the more it rolls down. Compound interest is like that.

In compound interest, the interest is earned on both the interest and on the principal previously accumulated. This repeats itself, which enables you to get much more value at investment’s maturity.

Now that you know and understand the basics, it is time to learn about…
3 ways to get the most out of Compound Interest

You know the basics of how compounding works. Great!

It is now time to learn about how to use it to your best advantage.

The three rules are:
Understanding compound interest smartly

It is important to understand how it works because it can backfire pretty easily. If you don’t understand how your savings grow, it can make your credit or loans grow in the same way. That means unless you are careful, your loans and credit card debt can accumulate compound interest, which means you’ll have to pay a huge amount to close such loans and credits.

For example, you borrow Rs. 1000. In time, the amount increases, which means you’ll have to pay more than the original amount to close your loan.

This is why it’s so important to control all your credits, loans and borrowings. The best thing to do is to pay back as soon as you can.
Longer is better

When it comes to compound interest, longer is better.

This means the longer your investment is, the more your returns you’ll get. A lot of people start withdrawing money as soon as the first batch of interest comes down. Had they understood the concept of compound interest, they would not have done that. If you are still tempted to take out money from your account, we do advise that you keep your investments for the longest period of time possible.

Additionally, you should start saving as early as you can. For instance, if you start investing from the age of 20, and if a friend of yours started investing at 30, you have more time to benefit from.

Education Loan Against Property - What is Education Loan Against Property

If you have graduated recently and want to study abroad, you may already be thinking about getting an education loan. Education loans take care of all or most of your studies abroad. However, with more and more people each year asking for such loans every year, banks may not be able to give you an education loan on time. You may not meet all the lender’s criteria either, which may deter you as well.

So, if you are unable to get a traditional education loan, is that the end of your dreams of studying abroad?

Not at all!

You can now get an education against your property. This is a loan against a property, and is thus a secured loan. And that means a comparatively lower interest rate too!

If this is the first time you are hearing about education loans against property, or if you want to know more about it, then this article is for you.

Collateral education loans

Collateral education loan is the broad umbrella term under which we have several types such as education loan against property. Under collateral education loans, you can keep various forms of properties as security.

Which banks offer Collateral Education Loan?

You can get collateral education loans from various government banks like Bank of Baroda and SBI. You can also pick NBFC, but we advise this only if the collateral is of a lower value compared to the actual amount of loan needed.

How much Collateral Education Loan amount can you get?

You can get anywhere between Rs. 10 lakhs to Rs. 1.5 crore. As for the interest rate, it is between 9.4% and 10.3%.

Types of collateral

There are several types of collateral which you can mortgage to get an education loan for foreign education.

Immovable property

If you have an independent house, land or flat, you can keep those as security. You may also give non-agricultural land which has a clear and defined boundary. However, you can’t use agricultural lands. For all of these, you need to submit copies of the required property documents. Remember that there shall be a collateral margin, which means that the loan’s value won’t be the same as the property’s value.

Liquid securities

These include your LICs or Life Insurance Policies, your FDs or Fixed Deposits, Securities, and Government Bonds. These can be easily converted into cash when needed, and the good news is that these require no collateral margin. You can take education loans on your current FD and even make a new FD just for this need. The only thing you should ensure is that the education loan should be with the same bank where you have the FD.

Third-party collateral education loan

In this type, the collateral can be anyone’s property. It can be of your family, friends and others. However, most lenders may deny this type.

Why should you start getting an education loan process early on?

It is preferable to begin your loan application process before you get an admission letter. Firstly, the property valuation and legal report can be done early and that will increase your chances of getting the loan. The valuation report has a 3 months to 3 years validity period.

There will be lots of time to arrange documents for the concerned property or land. This boosts your chances of getting your loan sanctioned ahead of the visa interview date.

Should You Get Home Warranty? - What are Home Warranties ?

One of the biggest changes in life comes when you transition from renting a home to owning a home. When you own a home, your responsibilities increase manifold. For instance, if your dishwasher needs repair, or if there is a steep power bill for the month, only you will have to take care of it all.

One way to get out of this mess and tension is through a home warranty service.

Basically, you pay a home warranty services company a monthly fee, and if something breaks, the company shall fix it at no extra charge. There are several such companies in India now.

But the question remains: is the service really worth the money?

Well, it depends on the company you end up going to. If you do your research, then the service can be totally worth it.

What really is a Home Warranty Service?

This is a type of service which pays to cover the cost of repairs at your home. If an appliance stops working or if a system breaks down, they will be repaired.

However, this is a subscription service. You pay them a certain amount each month and if something goes wrong at home, they repair it at no extra cost.

Many such companies have a number of subscription plans or tiers. Thus, if you want more services or choices, you get a higher subscription plan. Some items these companies can repair are:

• Fridge
• Dishwasher
• Dryer and washer
• Electrical system
• Plumbing systems
• HVAC
  

If you do want to get a home warranty, you have a monthly or yearly premium. If the above-mentioned items need repairing, the company will do so. They shall give the service no matter how many times a month they need repairing, just as there can be months there shall no need for their service. However, there can be times when an appliance cannot be repaired at all. At such times, a replacement shall be recommended. Another thing to know that how many instances of service you can get depends on your subscription.

How much does a home warranty cost?

This depends on the size of your home, on the company home warranty service company, on your subscription plan, on your appliances, and etc. There shall be monthly and yearly plans, and these shall depend from company to company.

Are they worth it?

Lots of people take this service because of the added security cover and peace of mind. Indeed, one remains at peace if you know that in case of system or device malfunction, help shall be at hand. Without such a service, one may have to give many thousands to repair or replacement. A home warranty typically pays for itself if even just one major appliance breaks down.

However, it is important to take the service of the right company. There are instances of people paying premium or months and years, only to not get the service when time comes for repairing. That is when they find out that the company’s terms are different from what they thought.

If you are still interested in getting a home warranty, be sure to do your homework. Contact different companies. Ask about their plans and premiums before picking one. Also check their online reviews from both their own websites and on independent sites.

How to Increase Home Loan Eligibility?

Thinking about buying the dream home for your family? If you are, then this article will be of much use to you.

Buying a property involves a lot of money, and thus it is an important decision in anyone’s life. There are so many arrangements to be made. There are just as many contacts to get in touch with and adjustments to be made in the final deal.

Most of the time it does happen that the dream home one desires is in reality out of one’s reach. It is at such junctures that you have to make an important decision. Do you want to go ahead and still make that expensive purchase, or opt out to save money for something else?

Before you begin the application process, assess your eligibility factor. By now, you may have already finalized on a lender. If so, you also know the eligibility factors. If so, do you meet those factors? If yes, great! If not, don’t apply yet. Instead take the time to increase your eligibility criteria.

When you apply, the lender shall assess your ability to repay the loan within a stipulated time frame.

What is home loan eligibility?

This is defined as the maximum money you can get as a loan, and it is based on several criteria like your current level and sources of income, age, repayment capacity, credit score and other factors.

In this article, we will show you several ways that you can use to boost your home loan eligibility without any problem.

Clear out your current loans

If you still have existing loans, you may want to repay those first. This is because otherwise it can be harder for you to manage repayment of all the loans. Your prospective lender knows this, and that if you have multiple loans already it becomes risky for the lender if you are not able to repay.

Thus, there are increased chances of your application being rejected. It is better if you close all current loans before getting a new one. And don’t forget to get a No-Due certificate and get this updated in your credit report.

Increase the loan tenure

Increasing the loan tenure means you’ll be repaying the loan over time. This makes things easier for you, and by extension, it makes it easier for the lender. When you pay over a longer period of time, your EMI amounts go down. And that makes it easier for you to repay. If you choose to get a longer tenure, you are more likely to get the loan since it means there is less risk for the lender. However, do understand that having a longer tenure means giving more interest to the bank or lender.

Keep your Fixed Obligation to Income Ratio to below 40%

Fixed Obligation to Income Ratio or FOIR is that part of your income that goes into repaying loans. FOIR therefore is an important component for determining your eligibility.

The higher your FOIR is, the less chances you have of getting the loan. Thus, you need to keep the FOIR percentage lower than 40%. This boosts your chances of getting the home loan.

Get a strong credit report

To get most loans, you need a strong credit report, which means the credit score needs to be high enough. While most banks have a specific criteria for credit scores, it is generally agreed that you need to have a score of more than 750. The nearer it is to 900 the more are your chances of getting the loan of your choice.

Choose a joint home loan

Want to make it easier for yourself to get the home loan? Opt for a joint home loan. When you do this, another person is the co-applicant and thus the co-guarantor. In case you can’t repay for some reason, the other person will have to repay. Opting for a joint home loan makes it easier for you to get the loan since it is seen as less risky by lenders.

Consider additional income sources

Finally, you may want to get an additional source of income, or maybe boost your income level from your current sources. The more income avenues you have and the higher your income level is, the more chances you have of getting a home loan.

After applying all these tips, you have more chances of getting the home loan.

Repaying Debt with Unsteady Income

Most content on the internet on debt repayments are based on the presumption that the borrower has a constant source of income. For one who does have a constant source of income, it can be quite easy to clear of debts sooner.

But that of a person who does not have a constant source of income? Such a person can be one who depends on commissions or one who is self-employed and thus has an unsteady income. How can such a person clear all debts in time? 

Budgeting can be pretty tough when you don’t have a regular income source. You have to meet all regular expenses while having to save for the future at the same time! If you have to do these with irregular income, imagine the chaos that can follow.

However, it is not impossible. It just needs discipline and a different approach for paying off outstanding dues. 

Here are some ways to pay off dues when you have an irregular income. 

1. Build an emergency fund: The very first thing you need to do is to build an emergency fund. It may seem hard when you have limited money and irregular income, but doing so will help you in the long run. Besides, you don’t have to keep a huge portion of your income in an emergency fund. Just make it a habit and start building that fund. It will help you when you have no incoming income.
2. Manage your money closely: When you have a steady income, it is easier to manage your money. With an irregular income, you need to keep a closer eye on income and expenses. This will help you to manage your money more efficiently.
3. Be jealous when spending money: There will be times when you start getting a lot of income. But don’t splurge at this time. This is the time when you need to save the excess income, or at least spend only what you absolutely need. You can keep the excess income in your emergency fund. 
4. Get and keep a good credit score: This one’s very important. You need to maintain a good credit score in case you really need credit cards and loans. One easy way to increase the score is to take on small loans which you know you can repay easily. This increases your credit score.

Whether you have an irregular income or not, you require a long-term strategy for clearing debts and increasing your wealth.

Passive Income Streams - Best Passive Income Streams

There are several ways to create a passive income stream. You can sell your time to generate revenue in the capacity of a freelancer or consultant, you can build a training course and then sell it to enjoy passive income, invest in the share market and enjoy money coming in over the years, and etc.

As the same says, passive income is just that: passive. Ideally, it’s like a fire-and-forget missile. You invest capital into something once, and then sell it over time to get increasing revenue.

In this article, we are going to give you several income ideas which anyone can do, apart from the first two points which are not exactly “passive”. Creator of passive income ideas, just like stock market investors, count on a long-term expected return on investment.

1. Stock market: There is no shortage of ways of investing in the stock market. However, if this is completely new to you, you may not want to invest in the stock market anyways. Investing in ETFs or Exchange Traded Funds can be an easy way of getting into the stock market. Through ETFs, you can diversify your funds across several companies. You need a brokerage account to buy ETFs.
   
   
2. Bonds: With an interactive brokerage account, you can buy bonds as well. These give you a fixed passive income. Besides, these involve much less risk and give you typical yields of 2%. Investing in bonds is seen as a risk-free way of investing. However, if you factor in inflation, your actual returns can become 0.
   
   
3. Finance consumer loans: Consumer loans are quite popular now since you get an ROI of greater than 10%. There are many consumer loan platforms. The downside is that these come with much higher risks too since these involve peer-to-peer lending. Additionally, it is hard to say how market fluctuations would affect consumer loans.
   
   
4. Become a landlord: This is one of the oldest ways of generating recurring and passive revenue. If you have land or a property, you can rent it out to one or more tenants. This shall give you a steady income as rent. There is another benefit here as well. Your property’s value will only go up in time. One of the many ways to improve your ROI is to leverage a low-interest mortgage.
   
   
5. Purchase solar cells and sell electricity: This one is pretty interesting and yet viable at the same time. It does require a bit of capital investment in the beginning, and alternative investments like this are not easy to find. In this business, you can buy solar cells and then lease them to customers. The customers use its electricity and return the cells.
   
   
6. Lend to small business: One of the easiest ways is to invest or lend in small companies. These companies are always looking for capital. If you can lend to them at moderate interest rates, you can make a good living.
   
   
7. Real estate development projects: If you don’t like the idea of being a landlord, then you can lend to real estate development projects and still earn a nice passive income. However, it depends on the success of the real estate project. Know that these projects take years and have considerable risk as well.

How do Credit Card Companies Make Money?

Credit card companies make most of their money from credit card interest, transaction fees from merchant businesses, and the annual fees paid by cardholders. Even though there is a huge growth of Mobile Wallet apps and Fintech star-ups, many people still wonder if credit card companies still make enough money. Why are some credit cards interest-free while others hand an annual interest?

Which parties are involved in a Credit Card transaction?

1. Credit card holder and the card merchant: Both of these parties are a source of revenue.

2. Card issuing bank: This is the entity which issues the card in the first place. It gives a loan or a line of credit to the customer. The acquiring bank and the issuing bank share all liabilities in case of non-payment of loan.

3. Acquiring bank: It focuses on making payments to the concerned merchant. Acquiring banks keep in contact with merchants and request them to accept the concerned card. 

4. Payment network: These include payment networks and payment gateways like Visa, MasterCard, American Express, and etc. The link is both acquiring and issuing banks. Such banks have a relationship with the payment networks, and not with one another. 

So what happens when you use your credit card? 

On using your credit card, the money is moved automatically and electronically through the card’s network to the merchant’s bank. The payment network ensures that the transaction is from the actual cardholder in order for you to be billed.

Sources of revenue for the card issuer bank

1. Interchange fees: Each time you use a credit card, the merchant gives a processing fee which is equal to the transaction’s percentage. Interchange is that part of the fee which is sent to the issuer bank through the payment network. This is around 1% and 4% of the actual transaction.

2. Late payment fees and revolving interest charges: You’ll be surprised to know how many users do not pay their credit card bills on time each month. Where do you thing the late fees and penalties go to? The bank that issues the card, of course! Late payment interest is from 1.75% to 4% per month.

3. Annual and renewal charges: Some cards have these charges, and they go to the issuer bank.

4. Foreign transaction fees: This goes to the issuer bank as well.

The Issuer bank also gets Cash Advance fees, Balance transfer fees, conversion of Outstanding EMIs to easy EMIs, revenue from reward points redemption, commission from 3rd party product sale, various marketing revenues, card replacement fees, additional card issuance fees, and more!

Revenue sources enjoyed by the Acquiring Bank

These are: 

1. Acquirer fees: This is the commission taken from the MDR for the bank’s role in the payment settlement.

2. PoS terminals: These are given to merchants by banks at a cost. In India, the cost is between Rs. 8000 and Rs. 12000 for one terminal. This is the only one-time fee. After that, the merchant is charged for every transaction. 

3. Merchant Settlement Cycle Interest: All the transactions carried out at a merchant PoS are settled by the Acquiring Bank. The money which remains with the bank is invested in bonds and short term investment funds for interest.

Revenue sources for the payment network

The payment network gets revenue when you make transactions too.

It earns from its: 

1. Service revenues: This is earned from giving support services to financial institution clients for delivering Visa-branded payment solutions and products.

2. Data processing revenues: Payment networks get revenue for authorizing, settlements, clearing, and network access and for giving support services to facilitate information and transaction processing.

3. International transaction: Payment networks get revenue from here as well.