LOAN ON CREDIT CARDS

I have taken a loan of Rs 50,000 each from two banks through credit cards. While one of the banks is charging only a service tax of 12.24 per cent, the other is charging the interest on the equated monthly instalment (EMI) apart from the service tax. Why this discrepancy? Which bank is following the correct procedure?
Both banks will charge interest as well as service charges. Make sure you have understood the repayment process correctly. Since the EMI includes the interest component, there will be no interest on the EMI itself, unless you have not paid the EMI.

TRANSFER OF FUNDS

I have an account in HDFC Bank in Delhi and my sister has one in State Bank of India, Mumbai. What is the most cost-effective way to transfer funds from my account to my sister’s account?
Both the banks are participants in the Electronic Clearing System (ECS) and are located in metros.
You should ask your bank to give you a form that enables you to write an ECS mandate that will enable you to transfer funds, without any cost, to your sister every month. You have to specify your sister’s bank branch and account details in your mandate.

I have a salary account with ICICI Bank. This month, when my salary was credited to the account, I received an SMS about my account balance. But the amount in the SMS was Rs 60 less than my salary figure. I was not able to check up with the bank immediately and used my debit card a day before. Now, I have lost the earlier SMS also. How do I clarify with the bank?
You can use your ATM card to print out the latest list of transactions on your account. You can also call the bank’s customer service centre to seek the balances and the details of debits and credits into the account. You can also post in a request to the bank, asking it to mail you the account information to enable you to verify the transactions in your account.
If you apply for Internet banking services, you can log in to check your account at any time.

PRE REPAY LOAN

I want to prepay a loan. I am told the EMI paid till now is mostly interest and the principal is due. Why?
The bifurcation between principal and interest works on a decreasing basis, so that the interest component decreases over time, while the principal component increases. If you prepay, you lose the interest already paid. EMIs are financial structures constructed in the same manner and the effective interest paid can be higher than the quoted number. Since borrowers mostly care about how much the EMI is, lenders get away without explaining the math and the effective rates.

HOME LOAN IN JOINT NAME

My wife and I are salaried and intend to take a home loan. We want to register the house in the name of both of us. Should we apply for the loan jointly?
Every individual is entitled to deductions of up to Rs 1.5 lakh on interest repayment under Section 24(2) and up to Rs 1 lakh on principal repayment under Section 80C. When you apply for a loan jointly, here is how you end up enhancing tax savings.
If you take a Rs 25 lakh loan for 15 years at 7.5 per cent rate of interest, you will pay Rs 1.84 lakh as interest in the first year. If you apply alone, you will be able to claim a tax deduction for Rs 1.5 lakh only. Of course, you will be able to claim Rs 93,784 as deduction for principal repayment under Section 80C (maximum limit: Rs 1 lakh).
If you apply jointly with your spouse, assuming that you are both in the highest tax bracket, you would both be able to claim Rs 92,159 under Section 24(2) and thus make the interest payment fully exempt from tax. A deduction of Rs 46,892 each can be claimed for principal repayment under Section 80C by both of you. This will help you claim deductions for other permissible investments. The tax saving in joint loan application is much higher—at Rs 83,431 compared to Rs 73,135 in a single application.;

PREAPPROVED LOAN

I have seen cases of friends who suffered due to delays in the sanctioning and disbursement of their home loans. I am yet to finalise on a property. My friends suggest that I go for a pre-approved loan. Is it a good idea?
When you get a home loan pre-approved, the home loan provider gives a commitment to provide you with the loan at a contracted rate after you have chosen a property, within a stipulated period, mostly six months.
However, the bank will give early approval if it finds the chosen property suitable for mortgaging.
This commitment comes after a lender has thoroughly examined your credit-worthiness through the home loan process. You have to negotiate the home loan rates with various lenders and decide on the right lender after having done market research. Of course, you will have to pay the requisite charges, often 0.25-0.50 per cent of the applied amount, for loan processing.
These days, the period of the loan pre-approval is often extended, without the payment of any extra charge.
Apart from the certainty it lends, pre-approval helps in other ways. In many property transactions, you have to sign the buyer-seller agreement, where there might be a condition about the forfeiture of your payment amount, if the full payment isn’t made available within a certain period, mostly a month.
This delay can arise from loan processing delays. With pre-approval, half the loan processing is complete. The disbursal can materialise quickly after technical and legal scrutiny of your property. In this way, pre-approval can spare you a lot of anxiety.

FIRE INSURANCE POLICY

I have bought a house. The earlier owner had a fire insurance policy for it. This is still in his name. Can it be transferred in my name? If yes, what is the procedure?
The fire insurance policy issued in the name of previous owner cannot be transferred in your name. You will, therefore, have to buy a fresh policy in your name. The previous owners, however, can cancel the policy and claim the refund. The insurance company will retain the premium on the short period scale and refund the balance.

My flat caught fire two months back. Since I had a fire insurance policy, my costs were covered. However, the flat just beneath mine also suffered some damages. Now, the occupants of that flat are asking for compensation. Should I approach my insurance company and ask them to cover their costs too? If they refuse to do so, what is the other option?

The standard fire and special perils policy, unfortunately, does not cover the liability of the insured towards the third parties. Therefore, you can approach your insurers only if you are also covered under a public liability policy. Public liability cover is available as a part of the householder’s package policy. The only other option is that if somebody else was responsible for the outbreak of fire—your housing society or builder—you may recover the cost of damages from that person and, in turn, pay the owners of the flat below yours.

SCOOTER INSRUANCE POLICY

I bought a scooter four years back, but stopped using it a year later. I have not renewed its insurance all these years. Now, I want to sell it. Do I need to buy a motor insurance policy before selling it?
It is obligatory on the part of vehicle owners to get a third party insurance cover if they intend to bring the vehicle on road. Since you did not use the scooter for the last three years, you don’t need to get a policy for it. Now when you want to sell the scooter, you will have to buy at least a third party cover for the vehicle. In fact, this is one of the important documents required for the registration of the vehicle in the name of new buyer.

AUTO INSURANCE

My company has given me a car. Do I need to take an auto insurance policy for it, or will the company take it?
Who will take the policy basically depends on your contract with the company. Generally speaking, if the company has purchased the car in your name and is recovering the cost of the car from your salary in instalments, the responsibility to insure the car lies with you since the owner has to insure the car. On the other hand, if the company owns the car and it has been given to you for use, it is the company that should insure the car. However, you must clarify the matter with your employers and act accordingly.

FAMILY HEALTH POLICY

I had taken a family health policy before my daughter was born. Should I take a separate policy for her?
All health insurance policies have to be issued in the name of individuals. So, for your daughter, you will have to buy a policy in her name. Normally, standalone health insurance policies are not offered to individuals below the age of five years. But, children below the age of five can be covered under a mediclaim policy if one of the parents is also covered under the same policy. In your case, since you already have a family health insurance policy, you can get her name included in it. Insurers will not offer a higher sum insured for your daughter, but you can always go for a family floater policy where, if a situation arises, the total sum insured is available for each member of the family.

PAID UP VALUE

When exactly does a life insurance policy acquire a paid-up value? How is the value determined?
If premiums are paid for three years for a policy, but not subsequently, the policy is said to have acquired a paid-up value, although literally speaking, it is a lapsed policy. The paid-up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable. Most policies stipulate that if the value thus calculated is lower than Rs 250, the policy is not said to have acquired a paid-up value. Once a policy acquires a paid-up value, it is disqualified from participation in future bonuses.

TERM IS BEST

Why should one prefer term plans for life insurance over unit-linked plans and Why are term plans considered the best?
Term insurance is the purest form of insurance—it provides cover only for the risk of death of the life assured. If the life assured dies during the policy period, his legal heirs receive the ‘sum assured’ under the policy; if the life assured survives the term, there is no return. The entire premium paid in a term assurance plan, that is, the cost of buying the insurance cover, is utilised for covering the risk of death of the life assured. It is for this reason that insurers offer this plan at the lowest cost. The best thing about this plan is its cost advantage. Due to this, one can afford to secure an adequate amount of coverage.

CHILDERN POLICY

I want to insure the life of my two-year-old son. Should I take a policy in his name or mine?
The basic aim of taking a policy is to provide for those who are financially dependant on the life assured. Since children do not have dependants, the purpose of securing a child policy is to save for the child’s future. An earning parent is an integral part of child policies as they have to propose the policy and pay the premiums. Different insurers offer different products. Whether you insure your son or yourself will depend on the policy you choose. The best, in our opinion, will be to insure your son under a policy, which provides for premium waiver in case something happens to you. Normally, children policies cover the risk after the deferment period, which may be two years after the commencement of the policy.

EDUCATION LOAN

I have just finished my MA in political science and want to do research from a foreign university, preferably in US, or UK. What is the procedure for taking a loan for my studies? Which banks should I approach? How do banks fix the modality for paying back the loan?
The willingness of a bank to give you an educational loan will depend on what they see as employment prospects for the course they are funding. The bank is well within its rights to deny a loan to this PhD course, after such an assessment. You will have to provide them adequate information so that the decision can be made in your favour.
For funding education, banks tend to prefer shorter duration courses, like an MBA with a campus placement, rather than longer tenure PhD courses. But you can still try your luck. Public sector banks give more education loans than private banks. If your university has high credentials, foreign banks could be interested. Several educational loans for large amounts require guarantees and collaterals, so check with the bank. Educational loans are repayable in instalments only after the borrower has begun to earn money to repay it. If you already have credentials and papers, the university will be willing to offer you fellowships to fund your studies. Most PhDs are funded by fellowships, grants for research and by tutorial earnings of the candidates. Explore these options before going for a loan.

ZERO BALANCE ACCOUNT

I had a zero balance salary bank account in my previous job. I quit that job three years back and did not operate the account after that. Recently, I got a mail from the bank saying it had debited money from my account because the account was switched from zero balance to a normal savings one and it did not have the minimum deposit for a savings account. What should I do?
The zero balance facility was linked to the fact that your employer held their accounts with the bank and, therefore, it was able to extend this facility to the employees. The facility ceases to exist when you are no longer an employee. Close the account if you do not need it or use it, or cannot maintain the required minimum balance.

You do not have any rights in this case because the facility offered to you was conditional upon your employment. Banks determine the minimum balance required based on their assessment of costs to keep and maintain an account and offer the facilities thereon. It is their business decision to fix this amount. You need to make your choice of the bank, based on your needs and abilities.;

COMMRCIAL LOAN

I want to take a bank loan to start a small grocery store. How will the bank decide the maximum amount it can give me? What can I furnish as security? I own a two-bedroom apartment. Can it be considered as security for the loan?
Banks are usually comfortable lending to an existing business, rather than funding start-ups. Some of them do have special schemes for small entrepreneurs, and may be willing to fund your venture.
The loan will be sanctioned after you have submitted a project plan, which describes the prospects for your business, and also has the information about your finances and net worth. Some banks are willing to fund up to Rs 15 lakh without collateral, provided you are able to bring in your own capital into the business. Banks usually do not offer mortgage-based loans for businesses, but the value of your home will add to your net worth and can increase your credit-worthiness. There is no standard set of practices when it comes to small business loans. Approach a bank that you are dealing with already since they know you and are familiar with your transactions.

LOAN FOR NGO

I run an NGO in Ahmedabad, which works for slum children. What are the requirements for taking a bank loan for my NGO?
Since your NGO is not involved in the activity of on-lending, you may not be able to obtain a bank loan for your activities. A bank loan is usually routed to activities that have the potential to generate cash flows, but have the constraint of mobilising a large amount of initial capital to lend in the first place. The ability of your NGO to borrow will, therefore, be limited. You may have to depend on donations to run your NGO. The Rashtriya Mahila Kosh (RMK) scheme does have some lending initiatives for education, but the procedures remain cumbersome. See http://www.rmk.nic.in/.

BAD SERVICE

I took a house loan last year. The property price are declining, will the bank recover the difference in price?

The loan amount is based on the borrower’s ability to repay, or the worth of the property, or both. Most loans are based on the borrower’s income. Fall in the value of property will be a loss to the borrower, not the bank. If the loan amount is linked to the property value, the bank will seek a revision of the terms. In either case, the bank will act on possible default from fall in prices. You should use your own funds to the extent of expected decline in value, and take the loan only for the rest.

ACCIDENT POLICY FOR ABROAD TREATMENT COVER

I lost my left leg in a car accident when I was 20 years old and took a health policy at the age of 26. I plan to get an artificial leg made for me from the US. Will my health policy cover the cost of this artificial limb and the cost of any repairs? Is there a rule that the cost of artificial limbs will be covered only if they are made in India?
As a general rule, all health insurance policies exclude the pre-existing diseases or any sort of physical handicap from the scope of coverage of the policy. Since you lost your leg six years before the commencement of your health insurance policy, unfortunately, the policy will neither cover the cost of the artificial limb nor the cost of any repairs. Mediclaim insurance policies, which are issued in India, are operative within the geographical territory of India. Therefore, in order to qualify for the claim (if coverage is established under the policy), the treatment must be taken in India itself.

I purchased a car recently. Should I take a motor insurance policy now, or wait for detariffing to get implemented fully? I have heard that premiums will come down after detariffing.
It is true that after the detariffing of motor premiums has taken place, the premium has started coming down because of competition in the market. But, in our opinion, once you have purchased the car, you must get it insured immediately. You may get a slight advantage in pricing by delaying buying of the insurance policy for your car, but at the same time you are running a very heavy risk by not insuring your vehicle, especially for third-party losses. In any case, third-party insurance is compulsory by law. Therefore, you must have at least that part of the cover if you are bringing the car on the road.