Financial Planning is must for everybody to live a comfortable life. In financial planning, first of all, goals are fixed and then finance, Income; expenses are managed in such a way so your goals can be achieved. The main financial goals of a common man are buying a new house, car, marriage of children and retirement planning.
First financial goal that is purchasing of a new house is generally achieved by taking a Home Loan. Being the major component of financial planning, it is very important to take home loan from an appropriate bank along with the right amount, and interest rate and for a suitable tenure.
So before taking the loans from the bank we should take into account the following points:-
Which is the Best Bank: The general factor used to select the appropriate bank for Home loan is one which gives you the best rate of interest. But this should not be the single criteria for taking a loan from the bank; we should also consider processing charges and other hidden charges along with other benefits and facilities provided by the bank to evaluate the bank proposal. Major factors to evaluate the bank have been discussed as under.
Type of Loan: Banks are now providing loans for a number of things. From a Car Loanto study loans, you can avail loans for anything. It is best to find out the bank that will give you the best rate for the type of loan you wish to avail. So do your research before choosing a bank.
Interest Rate: Interest rate is the major factor to decide a loan, as this is the most crucial factor so we should know every aspect of it. Whether interest is calculated on monthly balance, yearly compound rate or quarterly compound rate, whether interest is floating or fixed all such things must be enquired first and only then we can evaluate and select the bank for Home loan.
Convenience: Generally all salaried persons have bank accounts in which their salary is credited on monthly basis. Banks provide various schemes for employees of large companies for less interest rate or discount in the processing fees or longer EMI period. So before going to other banks, you should also confirm from your employer or HR department whether any scheme or such tie up with the bank is available or not. Similar agreements are also being done by builders or land developers or car dealers with the banks to facilitate the prospective customers. So before considering other any bank for loan, you should first enquire from the builder/Car dealer about the scheme, if any available.
Loan amount /EMI: These two components are also most important, if you do not get sufficient amount of loan to purchase the house, then the whole purpose of a loan is defeated. So you should confirm the margin requirement from the bank. More the Margin requirement, lesser the loan amount, this is the principal.
Further EMI (Equal Monthly Installment) should be such amount which you can pay easily after meeting your day-to-day needs or other obligations. If EMI is high as compared to your spare funds, then the chances of default will increase and become problematic for you. Amount of EMI can reduced by increasing the tenure of the loan but by doing so, this amount of interest actually paid will be increased. So you should keep a balance between both i.e EMI and Actual interest paid.
Pre-payment Penalty: When a person has spare funds then he can repay his loan earlier than schedule, which is called as prepayment of loan. But only few banks charge penalty on prepayment of loan. So, before availing the loan from the bank you should also take the information/ rules regarding prepayment penalty of loan. If your income is irregular in nature, this means it is expected that you will receive income or extra surplus cash flow which will be generated during the loan tenure which can be used for prepayment, then it is a must for you to know and consider prepayment penalty while finalising the bank for loan.
Other Consideration: Other consideration which you can think of is TOP up loan; Cash credit limit, late payment charge, EMI moratorium period, online access of loan account etc.
So overall selecting a Bank for home loan/car loan needs due care as it is an important decision of finance planning and the wrong selection may lead to a disaster.