How to knock off 8.5 years of your loan tenure with 2 easy step approach?

Owning a home for most of us is the single and largest commitment we have. Do you know that most Malaysians only pays minimum loan installment every month and this translates into paying nearly double your loan amount and serving all those interest to the bank.

Take for instance a RM300,000 loan amount with a 30 year tenure at an interest rate of 4.5%. If you pay the loan diligently until the whole tenure (taking interest rate constant) you will have paid a total of RM247,218.25 in interest. Well, this is what typical Malaysians are paying to the banks.

Sometimes, you just need to put a little extra effort into looking for ways to save those interest and this will definitely make huge impact on your savings. It is all about starting to do proper planning on your mortgages.

Taking the above example for instance, with a monthly loan installment of RM1,520 you can device savings strategies based on the huge range of mortgage packages offered by the bank. Different borrowers are suitable for different loan packages. You will have to find the one that can help you the most and please remember lowest interest rate does not necessary is the best loan package.

I will share with you 2 simple steps which you can apply which will save you tens and thousands in interest.

Instead of paying monthly installment you can opt for Bi-weekly payment instead. This is very popular in the United States. In the US, you need to pay a consultant to assist in setting up the account but in Malaysia it’s free. Just walk right into the bank and get the mortgage officers assistance in applying for the package.

This is how it works. 
Loan Amount RM300,000
Tenure 30 years
Loan Installment RM1,520
Total Interest paid RM247,218.25
Bi-Weekly Payment 
Loan Installment RM760
Total Interest Paid RM204,722.54
Interest Savings RM 42,495.71
Loan Tenure 25.5 years

First Step. Choose a Bi-weekly payment package

Instead of paying the usual monthly installment you can pay half the amount but twice in a month. By doing this you have already saved 4.5 years on your loan tenure or RM42,495.71 in interest to the bank.

The next question going through your mind is what is the catch? It is too good to be true. Well, in any packages introduced by any banks, they will not make a losing business. In actual fact, you will be paying 1 extra month installment every year. Bi-weekly payment is calculated every 14 days and based on a year with 365 days the borrower will make 26 installments in a year instead of 24. Most borrowers will not even feel a pinch in their wallet but look at the savings.

If you would like to save more than this, then follow my second strategy which is very simple.

Second Step: Pay More every month
As a general rule of thumb take 10% of your monthly installment which is RM150 based on the previous example and use the money as extra payment towards the principal of your loan. You will combine strategy 1 and 2 together.

Loan Amount RM300,000
Tenure 30 years
Loan Installment RM1,520
Total Interest paid RM247,218.25
Bi-Weekly Payment 
Loan Installment RM760
Total Interest Paid RM204,722.54
Interest Savings RM 42,495.71
Loan Tenure 25.5 years
Extra Payment RM150
Bi-weekly Loan Installment RM835 (760 +75)
Total Interest Paid RM169,205.85
Total Interest Savings RM78,012.40
Loan Tenure 21.5 years

Based on the above calculations, if you add both strategies you already saved 8.5 years off your tenure years and also RM78,000 in interest payable to the bank. Isn’t this great?
Every loan borrower will be able to do this. You just need a little effort. In my years in mortgage consultancy I even manage to assist my clients to finish less than 10 years using money they already have. All these can be made possible with proper planning.

Should you liquidate an asset or take a loan?

While financial prudence demands that one should have as little debt as possible, preferably none at all.

But there are times when it may be a better idea to fund the purchase or expense through debt rather than liquidating an existing asset.

Loans can help you to realise your aspirations in a timely and planned manner, provided you repay the loan on time. Navin Chandani, chief business development officer, Bankbazaar says, “Not all debt is bad. Aspirational products like a car or home of one’s own can take years or even a lifetime to save up. By the time you save up, you may realise that your savings aren’t enough. Other things, like education or health-related expenses, are very time-bound. You may not be able to pursue a higher degree five years down the line, or it may be too late to pursue by the time you build up your corpus. In all such situations, a loan can help.’’

Manav Jeet, MD and CEO, Rubique, points out that someone who has never taken any loans, will not have any credit history. “In certain countries, people with no credit history are not viewed as viable borrowers. It is essential to have some sort of debt to have a credit history. However, this is more a self-management choice, meaning if one requires borrowing money they can always look at lenders for the same,’’ he says.

While debt is best avoided, but is there anything like a good debt, at least in certain circumstances?

Financial planners disagree. “There are only two classifications for debt - bad or worse. Nothing like a good debt – not even for housing. However, some professionals can borrow and buy assets which grow faster than the rate of interest. Normally these are professional investors - not for the common man. Borrowing to get tax benefits is one of the stupidest tax planning techniques,” says P V Subramanyam, chartered accountant and financial trainer.

Individuals should do a cost-benefit analysis before they decide to take a loan or liquidate an existing asset. “For instance, you are buying a car, and you have a fixed deposit (FD) that covers a substantial part of the cost. If your loan costs you 12% and your FD gives you 6.5% after tax, you may want to liquidate it and take a smaller loan. However, if the same amount is in an investment that gives you 15% returns, you would be better off with a loan. So, take your financial, practical, as well as emotional situation into consideration before you take a call,’’ says Chandani.

In case of emergencies and if you can repay the loan in a few months, then you may be better off taking a loan. “In case of shares or mutual funds, it is worth holding on during tough times and selling during good times,’’ advises Subramanyam.

“This is a very personal choice based on the individual’s urgency. Selling an existing asset may take some time, while a loan will have an interest rate. It is primarily the choice of the individual if they have the option to wait or not,’’ feels Jeet.

While you may choose to opt for a loan, but often individuals find that the bank rejects their loan application. “If your loan application is rejected by a bank, you always have the option of approaching an NBFC for a loan,’’ points out Chandani.

Banks and NBFCs have certain criteria they use to evaluate a loan application. “Compare your background and requirement before you apply for a loan with any lender. If your credit score is lower than a particular threshold, banks may not be willing to lend. NBFCs have more relaxed policies towards customers with low credit scores, though it comes with its own caveats. So, if you have a lower credit score, it would be better to apply to an NBFC,” says Chandani.

With the advent of fintech, there are now a plethora of unconventional alternative lending options also available to individuals.

Rubique is an online credit marketplace that uses technology to ensure perfect matchmaking between borrowers and lenders. “We leverage technology to not only reduce processing time but also bring predictability and assess creditworthiness, thus offering the best deals to customers,’’ says Jeet.

If you opt for a loan, remember that you first check that you can afford to repay the loan. Also, avoid private financiers as some of them resort to extra-constitutional methods to get back their loan. 

DEBT- TO DO OR NOT TO DO?

• Individuals should do a cost-benefit analysis before they decide to take a loan or liquidate an existing asset  
• Loans can help you to realise your aspirations in a timely and planned manner, provided you repay the loan on time  
• Banks and NBFCs have certain criteria they use to evaluate a loan application

SMALL BUSINESS LOAN BAD CREDIT OKAY!

Bad credit is a major concern among people today, and nearly 25 percent of Americans struggle with bad credit scores. This can damage their ability to get a car, buy a house, and even run a small business.

All small businesses require funding in order to thrive in the industry, but many entrepreneurs are routinely denied access to loans due to poor or nonexistent credit histories. Fortunately, there are a variety of lenders who cater specifically to individuals with poor credit, enabling business owners of all financial backgrounds to access the funding they need.

Family and Friends

Your family and friends know you personally and are eager to watch your business succeed. By seeking out loans or investments from the people you know best, you can access the capital needed to launch your business venture regardless of your credit score. However, don’t expect your family and friends to offer you loans at no interest.

While interest rates will likely be lower than other loan options, it will increase their confidence and assurance in lending to you if you promise to pay a small interest rate in exchange for their generosity. Be professional with your presentation, and treat it as you would any other business deal by presenting them with a sound business plan and strict repayment terms.

Merchant Cash Advance

Merchant cash advances provide a convenient option for business owners struggling with poor credit. With a merchant cash advance, you are provided with a chunk of capital in exchange for offering the agency a percentage of future credit card sales.

The repayment terms consist of a fixed monthly rate that automatically deducts from your account each month. Interest rates for cash advances vary drastically, so conduct research into a variety of agencies to ensure you receive the best deal available.

Micro-loans

There are a variety of micro-lenders available that can get you a small business loan, even after the banks have turned you away. Micro-loans range in size but are often around $5,000 to $25,000.

Most micro-lenders are willing to accommodate those with poor credit and by repaying the loan on time, it can even help improve your credit score for later. Interest rates vary, so peruse a variety of micro-lenders to source the lowest rates possible.

Find a Cosigner

Sometimes, all it takes to have your application approved is finding a cosigner with good credit. Perhaps you have a business partner, a friend, or a family member who would be willing to cosign on your loan. A cosigner will provide added assurance to the loan agency that, should you ever default on the payments, there is another individual capable of paying what is due.

When searching for a small business loan, bad credit can seem like a deal breaker. However, there are a variety of lenders that cater specifically to individuals who have been turned away by the banks. Micro-lenders offer loans of up to $25,000, enabling you to access a substantial portion of needed capital, even if your credit score is suffering.

For those in need of smaller short-term loans, merchant cash advances can provide a convenient alternative to traditional bank loans. No matter your credit score, there are lenders available who are eager to help you succeed. For all your working capital needs, contact Credibly.

Determining the amount of your loan

If you are applying for a business loan, then you must already be a few years into running your own company.

These loans are meant to boost your revenue potential by helping you acquire necessary items.

Your lender spends a lot of time analyzing your business and personal financial situation when you seek out a business loan. Some people are willing to put their personal assets on the line, while others prefer to keep business endeavors separate. Even if the lender makes some changes, it is a good idea to go in with an idea of what you desire to borrow. There are a few things your lender may look at when determining the final amount.

Credit and Collateral

Credit checks are a regular part of most loan applications. This is not something you can get out of. It is best to confront your credit before you apply so you know what you are dealing with.  If you find a lower score than you prefer and have some time to work with, focus on some credit repair before you apply for a business loan. Be prepared to have both your business and personal credit score under scrutiny. For a faster fix, you may need to contact a credit repair company. 

Some lenders are willing to work with collateral when credit is less than stellar. This, however, may involve bringing your personal assets into the equation. This can be risky if your business is having problems already. Using your home for collateral, for example, leaves you without anything if your business fails. This is not recommended and should only be considered if your business is showing steady growth. Better options may include using your business equipment or other business assets. This keeps your personal property safe. 

Personal and Business Income

You can also expect for all your income sources to be checked. This may be done by looking at bank accounts, business records, and tax documentation. Your lender wants to know how much money you typically have leftover at the end of each month, so they do not loan you more than can be paid back. If your business is doing well, this can help you immensely. It is much easier to get a loan for a growing business than to try and rescue a failing one. Be sure to show documentation that shows your growth patterns. Business Loans can be a great asset in the right situation.

Financial Responsibilities 

This is also a situation where both your personal and business information may be assessed. Lenders need to see how much money you have going out on a regular basis. Their goal is to help you, not overextend you. They may look at things like mortgage, car payments, and credit card debt for your personal finance. When it comes to your business expenses, they may look at things like rent for office space, salaries to employees, and advertising expenses. 

The best way prepare for a meeting with your lender is to have your financial paperwork available. When you are organized and upfront about your expenses, a lender is more likely to take you seriously. You also need to remain realistic about what you can pay back in a decent amount of time. Business loans are meant to go own for several years, however, you should not feel overwhelmed every month by the payments. A lender knows how to choose an amount that you can afford. 

Home Loan Vs Land Loan: What’s the difference?

Loans for buying a house and owning a plot may just seem like getting another home loan, but it’s not. Land loan and home loan may seem similar on many parameters, but have some fundamental differences.

Loans for buying a house and owning a plot may just seem like getting another home loan, but it’s not. Land loan and home loan may seem similar on many parameters, but have some fundamental differences.

Loans for buying a house and owning a plot may just seem like getting another home loan, but it’s not. Land loan and home loan may seem similar on many parameters, but have some fundamental differences.

Let’s find out what the differences are and which one is suitable for you.

Home vs Land

Both land and home loans are offered by banks and Non-Banking Financial Companies (NBFC) to all Indian residents over the age of 21 years. Some banks also offer land loans to Non-Residents Indians (NRI) if the land is being bought to construct a house.

While a home loan is granted by a bank or an NBFC to purchase a house that is already constructed, under construction, or has been approved for construction in the recent future, for land loans one needs to make sure that the plot of land that you want to purchase is a residential plot.

Also, while home loans are available on all approved properties irrespective of their location or size, land loans have some regulations.

These are:

# The land needs to be used for residential purpose in future

# It should be a non-agricultural and non-commercial property

# Situated within municipal/corporation limits

# Not in an industrial area nor a village

Lower LTV for Land Loans

Loan To Value (or LTV) is the quantum of loan you can get against a property. One can avail up to 80-85% funding in a home loan (90% in some cases). But for a land loan, the maximum LTV is capped at 70% of the plot value at best. So, if you are considering buying a plot for either personal use or as an investment, you would have to shell out a minimum of 30% of the funds from your own pocket.

If the property is situated in smaller cities or towns, the maximum Loan To Value (LTV) ratio for land loans can be lower, at about 50%-60% of the total cost of the plot.

Interest Rate

Interest on loan charged by lenders on home and loan are similar. However, home loan interest rates are usually a few basis points (100 basis points=1%) cheaper than land loans. There could be some minor differences as per the borrower’s profile. Also, both types of loans charge additional processing fee.

Tenure

Home loans have a higher tenure in comparison to land loans. Usually, tenure for home loans can go up to 30 years, but the maximum tenure for a land loan is 15 years. Some NBFCs may offer 20-year tenure for land loans.

Tax Deductions

This is by far the biggest setback for those opting for a land loan as even though it is offered for construction of a house, you are not eligible for income tax deduction for payments made towards the repayment. However, if you start construction activity on the purchased plot, then you become eligible for tax benefits for that part of the loan. The part of the loan that is used for the construction of a house can be used for tax deduction. The deduction is applicable only from the year in which the construction activity is completed.

Contrary to this, one can claim deduction on the interest for and type of home loan.

Overall, legal verification of documents for land loans is much more stringent than home loans. So, make sure to get legal help when going in for a land loan.

(By Adhil Shetty. The writer is CEO at Bankbazaar.com)

Five(5) tips to get approved for a personal loan for debt consolidation

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If you need relief from your high-interest loans or credit card debt, you may be considering a personal loan. Offered by many banks and credit unions, personal loans let you consolidate or refinance your debt into a lower-interest loan with one fixed monthly payment.

While they do have some disadvantages – personal loans often have higher interest rates than the typical auto loan or mortgage – they are a viable option for consumers who need to pay down high-interest debts.

If you’ve decided to pursue a personal loan, you should try to increase your chances of approval.  

GETTY IMAGES

If you’ve decided to pursue a personal loan, you should try to increase your chances of approval. Here are five tips to get approved for a personal loan for debt consolidation.

1. Decide on a loan type

There are two main types of personal loans: secured and unsecured.

Secured loans require you to put up collateral, such as your home or car, which can be possessed by the lender if you don’t pay. These loans have looser credit requirements, and you may have lower interest rates and greater borrowing power. However, you’re putting your own property on the line.

Unsecured loans require no collateral, but rely upon your creditworthiness and ability to repay. You will need better credit to get approved, and you may end up with a higher interest rate than a secured loan.

2. Know how much you need to borrow

Before you apply for a personal loan, know how much you need to borrow. Tally up the existing debts that you wish to consolidate or refinance. You may not need this information immediately, but it will help you determine your requirements and avoid asking for an artificially high amount.

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3. Know your credit

Before you apply for a personal loan, you should know the state of your credit. This means you should check both your credit report and your credit score.

Once a year, you can check your credit report with all three credit bureaus for free at AnnualCreditReport.com. Closely examine your report for negative or inaccurate information that could hurt your chances of approval. 

It’s also a good idea to check your credit score before you apply. You can get two of your credit scores for free, updated monthly, at Credit.com. Before you apply, you should do everything you can to improve your credit score.

If you’re in dire need of debt relief, you may not have time to wait for your credit to improve. Even so, it will help to know the state of your credit as it stands.

4. Find the right lender

Not all financial institutions are created equal. Shop around at several lenders, including banks and credit unions. You may need to choose your lender based on the bank that’s most likely to approve your loan application, but you shouldn’t jump at the first offer. Review the fine print, interest rates, and terms of all the loans you’re considering.

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5. Create a checklist

Once you are ready to move forward with your application, create a checklist of all the documentation you will need. You may need to work with creditors, your employer, and others to gather everything, so give yourself enough time. Incomplete applications can result in an immediate rejection, so it’s important to make sure you have your ducks in a row.

Remember, debt consolidation only makes sense in certain scenarios. Depending on the interest rates you can get and the length of the loan, you could end up paying more for a personal loan in the long run, even if the monthly payments are lower. Make sure you understand the total cost of a personal loan compared to the total cost of your current debts.

TIPS FOR YOU GOING TO HARVARD…OR ANY OTHER ELITE UNIVERSITY

For some students it’s not just about studying at a university in another country, it’s about studying at the university in another country. 
But how can you make sure your application wins you a place at one of the top universities in the world?

Do you dream of getting into Harvard or another top-ranked university?

There are some obvious things you need to do first. Check out the websites of the universities that you’re really interested in thoroughly.  Read through all the documentation, make sure you know exactly what the qualification requirements are and what the application process is.
In general the elite universities want the very best students and they want those students irrespective of nationality.
Usually you will need to follow the application process of the host country and that is likely differ somewhat from the one in your home country. Often some of the detail can get lost in translation (or just in the amount of information you have to work your way through). Start early, give yourself time to get it right and, with these top tips below, you could soon be on track for a place at one of the top universities in the world….

Be passionate
Lisa from the admissions team at Oxford University in the UK says the best way to be competitive is to really show a passion for your subject.
She says: “Many students tend to think they should select courses that are vocationally useful rather than what they are really passionate about – but it’s your passion for a subject that is what is going to count and is going to come out in an interview.”

Interviews at Oxford – one of the world’s top five universities – are held by the academics who teach the courses.  They love their subjects and want to see a similar hunger for study from the people they interview. So if you’re thinking of applying to study medicine but can’t keep away from the poetry books in your spare time it may be worth reconsidering your chosen subject.

Students sit a mock exam at Oxford University

Be inspirational
Harvard University, ranked fourth globally, asks: “Will you inspire those around you during your college years and beyond.  Who do you find inspirational?”
Colin Manning, a spokesman for the US university, is quick to confirm that candidates need to have a certain spark, beyond checking the formal boxes.
He says: “There is no formula for gaining admission to Harvard. We give serious consideration to all of the ways in which the candidate might contribute to our educational environment and community.”

Think about who inspires you now and who you inspire. Colin says Harvard relies on information shared about you from your teachers, counsellors, headmasters and fellow students. Be sure to sparkle when you’re around those people even before you put your application in as their opinion of you could make all the difference.

Be bold
It can be really intimidating applying to elite institutions, especially if you’re applying from another country. But often you can be your own worst enemy. It’s too easy to create a long list of reasons why it’s not possible.
Write your concerns down but carry on working through the process.  You’ll be surprised that if you don’t give in to the negative voices at the time they stop having such power over you.
Even practical concerns that can seem insurmountable at the time can be overcome. For example, you might assume that studying at an elite university is going to be too expensive for you and your family but check the university websites first to understanding what funding they can offer. Universities like Harvard operate on the basis of merit and can provide a significant chunk of funding in order to support the students they want at their university.

Be bold! Someone has to get into MIT!

Try something different
The Indian Institute of Management (IIM) has developed a reputation for being one of the toughest top management schools to get into in recent years. IIM prides itself on a rigorous application process that takes students with Graduate Management Admission Test (GMAT) scores higher than the likes of Harvard or Stanford.
Until recently only Indian nationals could apply from overseas. However, the admissions team have confirmed they are working out a separate admission procedure to enable the admission of international students.
The process should be finalised by October so if you’re looking ahead to your Doctoral and post-graduate studies keep an eye out for new and different opportunities.

Get the grades and open doors

Get the grades
Sorry, this is an obvious one, but it’s also necessary. You need to get the grades.  Whilst all these universities are looking for someone extra special, ultimately they need to know you can perform at the highest academic level too.
Oxford University admissions team member Lisa says prospective students need to think about the style of teaching they will receive during their degree as well.
“Because we operate a tutorial-based system it’s quite personal,” she says. “Our students get a lot of time with academics in small group situations. Tutorials are places for discussion and debate and people need to be comfortable with that.”

So, in summary, be passionate, inspirational and bold, try different options and keep your eye on getting the grades and you’ll be in with the best chance possible. Easy, right?

Photography:
Students sit mock exam at Oxford University, by Piers Nye; Get the grades and open doors, by Andreas Metz.