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Why You Should Consider Personal Loans To Ensure Liquidity Amid Coronavirus

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The unprecedented medical emergency caused by COVID-19 has starved economies of liquidity. India, too, is battling with deep financial constraints; the gross domestic product or the GDP shrunk 23.9% in the Q1FY21 ending June 30 as compared to 5.2% growth in Q1FY20, marking the sharpest quarterly contraction on record. 

In India alone, 2.62 million cases of coronavirus have been recorded and more than 64,000 people have died. The slowing economy, due to unexpected lockdowns and ambiguity surrounding a vaccine to fight the deadly virus strain, has caused great panic among Indians and that has affected everyday trade and commerce. 

Amid dampened business activity and a deep impact on people’s income as well as savings, personal loans have emerged as an easy way to meet credit requirements. Let’s understand what makes personal loans a good bet. 

Why Are Personal Loans So Attractive

A personal loan is the money that you borrow for a personal activity. This activity could be paying off your medical expenses, expenses for college, buying new equipment or a gadget or to cater to any other personal consumption needs. 

To get personal loans in India, you need to have two important things in place – documentation and a credit score. Among the advantages personal loans offer are these features:

Most Personal Loans Are Collateral-free

Personal loans are majority collateral-free and help you access lump sum money, which is repaid usually in monthly installments over a period of time. 

The collateral-free nature makes personal loans the easiest to get compared to other consumer loans, which often are secured, and credit cards. India’s biggest private bank HDFC Bank claims to grant collateral-free personal loans to pre-approved HDFC Bank customers in as little as 10 seconds and to others in under four hours. 

The financial institution or the lender giving the loan accesses the applicant’s cash flows and the stability of their income (business or professional) to ensure a secure repayment. 

Non-banking financial institutions (NBFCs) and fintech companies in India are promising collateral-free loans to first-time borrowers with no prior track record to promote personal loans. 

Aditya Birla Capital, one of India’s largest private diversified NBFCs, categorizes bad credit score, insufficient income, incomplete or incorrect documentation and applying with too many lenders as the main reasons for first-timers loan applicant’s request to be rejected instead of a previous record of loan repayment success. 

Personal Loans Interest Rates Make Borrowing Affordable

For personal loans, the repayment is based on an interest rate decided in annual percentage terms at the beginning of the loan tenure. 

Nadeem Pirzada, head of consumer risk at Capital Float, thinks personal loans are ideal during COVID-19 as the interest rates are affordable and the interest is calculated on a reducing balance basis, which reduces the actual interest payment made. 

For first time borrowers, the interest rates might be higher when compared to tenured borrowers with high credit scores. However, taking a personal loan and paying regularly helps in building a healthy credit score which in turn helps reduce the interest rate on future loans (including getting lower interest rate offers on housing loans), he adds.

Personal Loans Offer Flexibility 

A personal loan gives you the flexibility to use the cash without a specific use case. In most cases, no bank or banking institution asks you why you need to borrow. 

Adheer Dhar, the head of personal loans at Clix Capital thinks personal loans may also be a great way of debt consolidation, i.e. use of fresh personal loan to repay the existing higher rate loans or a card outstanding.

When compared to other financial products which provide the same flexibility, example credit cards, the personal loan option is much cheaper, says Pirzada. 

Personal Loans Are Easy of Access

India adopting a digital-first approach for national banking and the introduction of a one-point verifiable 12-digit identification number Aadhaar has made getting a personal loan much easier. 

The Indian federal government’s digitization project IndiaStack enlists the eKYC, which allows businesses to perform the Know Your Customer (KYC) verification process digitally. This process uses biometrics or a unique code sent via mobile. 

The eSign, which has an open API to facilitate an Aadhaar holder to digitally sign a document. It also uses the DigiLocker, a digital platform for issuance and verification of documents and certificates that eliminates the use of physical documents. 

Digital payments associated with the loan are carried out via the Unified Payments Interface (UPI), which is touted as one of the safest in the world by the Indian government.

Factors to Consider While Taking a Personal Loan

While evaluating loan providers for the most suitable personal loan, a consumer needs to ideally keep eight considerations in mind.

Eligibility 

An applicant must ensure they fit into the eligibility criteria of the loan provider. Personal loans being unsecured are often subject to stringent scrutiny. Customers must approach credit lenders who are most likeable to approve a loan to ensure their credit score remains unaffected. 

Interest Rate 

Interest rates have become easily comparable in the digital age of banking. Before applying to a financial institution, consumers must take the onus of a robust check, preferably digitally, and compare the different interest rates offered by the financial entities of their choice. 

Pre-closure Charges

Banking entities are likely to impose varying charges on pre-closure of a personal loan in case you decide to repay before the stipulated tenure of the loan. Before finalizing your loan, consumers must thoroughly check pre-closure penalties. 

Certain finance companies do not have the provision of a pre-closure or have a minimum lock-in period for the loan interest to be paid. Some companies allow only a part of the loan to be pre-paid and hence these factors are also crucial when deciding on your loan. 

Loan Tenure

The tenure of a loan becomes significant as a longer tenure makes the loan affordable by reducing the monthly payment, but it also adds an incremental interest cost. 

Evaluating the maximum monthly instalment towards loan repayment based on your income and monthly expenses will provide an indicator to choose the most suitable tenure.

Add-Ons

In some cases, loan companies providing a clubbed offering such as an insurance policy can influence your decision towards opting for a certain personal loan.

The possibilities of clubbed discounted offering must be explored before finalizing your loan.  

Ease of Access 

In today’s times of a medical crisis, it may be wise to choose a banking entity that provides a complete digital loan journey and does not require human contact or branch visits. 

In other words, your bank or banking institution should be digital-savvy, preferably should be able to cater to your queries via their own website or their mobile app. 

Documentation

Simple and clear communication in the personal loan documents is important to ensure you are not signing up for any unexpected liabilities. 

Consumers must seek clarifications on loan documents’ jargon, if any, and all that they don’t easily comprehend. 

Processing Time 

The time between you finalizing a personal loan and the timeline of the final disbursement becomes important keeping the interest liability in mind. 

With almost every second financial institution in the country offering personal loans, it is worth considering the processing time to avoid paying any unnecessary interest amount. 

The processing time gains more importance when the personal loan amount is significantly big. 

Do’s and Don’ts For Availing Personal Loans 

Personal loans may be easier to get and tougher to repay if you don’t factor some of the important do’s and don’ts. 

Evaluate Why You Need The Loan

Clix Capital’s Dhar advises consumers to opt for a loan keeping the need and end-use in mind while also considering the time frame to determine the monthly instalment liability in one’s cash flows. 

“One should not take personal loans for speculative purposes or for instinctive purchases, which could lead to stress in cash flows,” says Dhar.

Check Your Loan Spend 

Madhusudan Ekambaram, the CEO of KreditBee, advises consumers to be clear of the spend utility for which they avail a loan. 

“Lack of clarity can cause irresponsible spend of the loan, followed by skewed repayment behaviour,” says Ekambaram.

He suggests taking a loan only if you have the repayment capability. Putting too much

pressure on yourself might result in hassles later.

Maintain Clarity On Terms And Conditions

Capital Float’s Pirzada advises evaluating the eligibility criteria before applying for a loan.

Reading the loan agreement carefully and fully comprehending the terms and conditions is paramount in ensuring you meet the repayment structure and timelines properly.

He suggests taking into account all relevant and applicable charges – interest rate, late fees, processing fees etc and setting up eNach or standing instructions, for hassle-free and on-time monthly instalments payments.

eNach is short for Electronic National Automated Clearing House that helps financial institutions and government bodies to provide automated payment services.

Be Honest, It Goes A Long Way

Ekambaram stresses on consumers to strictly avoid providing incorrect information or make attempts to mislead the financial entity. 

“Firstly, it’s unethical. Secondly, if caught, you might have to face unnecessary consequences,” says he. 

He also advises against availing a loan for the utility of anyone other than yourself. If there is any repayment issue, you’ll be the one facing the brunt since the loan is registered against your name in the central bank-regulated financial institution.

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A Look Back At Housing 2020: Rental Housing Gets Riskier

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According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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Can My Cosigner Take My Car?

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Cosigners don’t get any rights to the vehicle they signed the loan for. However, if the cosigner is trying to take your car, it may be time to take some action.

Cosigners and Ownership

Can My Cosigner Take My Car?Cosigners can’t take the vehicle they cosigned for because their name isn’t listed on the title. A cosigner isn’t responsible for making the monthly payments, maintaining car insurance, or really anything else. Cosigners simply lend you their good credit score to help you get approved for the auto loan, and if you can’t make payments, the lender can require them to pick up the slack.

Since you’re the primary borrower on the vehicle and your name is listed on the car’s title, you have ownership rights. Your cosigner can’t come to your residence and take possession of the vehicle – even if they’re the one making the car payments right now.

If you do default on the loan and the vehicle is repossessed, the cosigner still can’t take the car.

But My Cosigner Did Take My Car!

If your cosigner did somehow take your keys and your vehicle without permission, it’s considered theft. If you want to take action, you can report the car as stolen.

However, a better first step is probably contacting the cosigner and letting them know that they don’t have any ownership rights (if you want to maintain a relationship with them). You can ask them to return the vehicle and explain that their name isn’t on the title.

Removing a Cosigner From a Car Loan

If things are dicey with your cosigner, then it may be time to consider removing them from the auto loan. The easiest way to remove a cosigner is by refinancing.

Refinancing is when you replace your current loan with another one. You can work with your current lender or another one, but most borrowers look for another lender to refinance with.

You don’t need a perfect credit score to refinance your car loan – it just has to be good or better than it was when you first got the loan. Another common requirement of refinancing is that you’ve had the loan for at least one year.

Other common requirements for refinancing are:

  • You’ve stayed current on payments throughout the loan
  • You have equity or your loan balance is equal to the vehicle’s value
  • Your car has less than 100,000 miles and is less than 10 years old

Most borrowers usually refinance to lower their loan payments. Since you’re replacing your current auto loan with another one, many borrowers try to qualify for lower interest rates or extend their loan to lower their payments. If your credit score has improved, you may even be able to get a better interest rate and remove your cosigner!

Can’t Refinance to Remove the Cosigner?

Refinancing isn’t in the cards for everyone. However, another efficient way to remove a cosigner is by selling the car. Cosigners don’t have to be present at the sale of the vehicle, since they don’t have to sign the title to transfer ownership.

If you sell the car and get an offer large enough to cover the entire balance of your loan, you and the cosigner can walk away from the auto loan scot-free.

However, many borrowers need cosigners because their credit score isn’t the best. If you want to sell your vehicle to remove your cosigner, but you’re worried you can’t get a car loan by yourself, consider a subprime auto loan for your next vehicle.

Bad Credit Auto Loans

Since many traditional car lenders don’t work with borrowers who have poor credit histories or lower credit scores, they often ask them to bring a cosigner. But what if you don’t want a cosigner (or can’t get one) on your next auto loan? Enter subprime car loans.

Subprime lenders are teamed up with special finance dealerships, and they operate remotely. When you apply for financing with a special finance dealer, you work with the special finance manager who acts as the middleman between you and the lender.

You need documents to prove you’re ready to take on an auto loan – typical things like check stubs, proof of residency, valid driver’s license, a down payment, and other assorted items depending on your credit situation. If you qualify, the lender determines what your maximum car payment can be, and you choose a vehicle you qualify for from there.

What sets subprime auto loans apart from traditional car loans is that they assist borrowers in tough credit situations and offer the opportunity for credit repair. Some in-house financing dealerships that don’t check credit reports don’t report their auto loans, which means your timely payments don’t improve your credit score.

Finding a Car Dealership Near You

The best way to improve your credit score is by paying all your bills on time. Payment history is the most influential piece of the credit score pie. There are many lenders willing to work with bad credit borrowers, you just have to know where to look!

Here at Auto Credit Express, we’ve already done the searching, and we’ve created a nationwide network of dealers that are signed up with subprime lenders. Get matched to a dealership in your area, with no cost and no obligation, by filling out our car loan request form.

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United Way hoping to raise thousands of dollars on Giving Tuesday –

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“We have partnered with Carter Meyers Associates in the community and developed what we call Driving Lives Forward, an automobile loan program to help families that maybe have no credit or bad credit to access resources to have an affordable loan to purchase a reliable used car,” said Barbara Hutchinson, the Vice President of Community Impact for the United Way of Greater Charlottesville.

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