Banks Are Approving Small Business Loans at Rates Not Seen Since Before The Great Recession

3D image of bank vault and gold ingots with red carpetGetty

Approvals of loan applications from small business owners reached post-recession high mark (26.9%) at big banks (assets of $10 billion+), while small banks granted more than half of the small business funding requests they received in November 2018, according to the latest Biz2Credit Small Business Lending Index™.

Overall, 2018 has been a good year for both borrowers and small business lenders. Because the economy continues to show strength and companies are doing well, small businesses in search of capital have been able to find it. For good reason, optimism among entrepreneurs remains high, according to the October NFIB Small Business Optimism Index, which has trended upward for the past two years.

Meanwhile, the Fed has continuously raised interest rates over the past 18 months. While there are signs that the increases may slow down, the hikes have made it more profitable for banks to loan money – especially when compared to the near zero interest rates that were in place during the post-recession credit crunch.

Technology has played an important role, too. Data analytics have become very advanced and have helped reduce lender risk. Thus, default rates on business loans are lower than ever before, according to Biz2Credit’s data. Further, banks and credit unions have been making SBA loans at record volumes.

SBA loans come with government guarantees against default that mitigates lender risk, thereby providing incentives for institutions to lend money to businesses that might not otherwise qualify for term loans. SBA loans help thousands of small businesses get off the ground each year, and I do not see an end to this trend anytime soon. SBA lending helps bolster the economy.

[“source=forbes]

How Personal Credit Affects Small Business Borrowing

Unlike the CEOs of major public companies, whose personal financial situation has little effect on their companies’ borrowing, if you are a small business owner, your personal credit is a major factor influencing your company’s access to capital. The power of personal credit scores to predict small business loan repayment, the legal structure of many small businesses, and small business owners’ use of personal guarantees and personal borrowing to finance business operations, all link small business owners’ personal credit to their companies’ access to capital.

Many, if not most, lenders will look at your personal credit score if you are a small business owner seeking a loan for your company. A 2006 report written for the U.S. Small Business Administration found that 71 percent of banks used small business owner credit scores when underwriting small business loans.

The use of the owners’ personal credit scores makes sense. As Federal Reserve Bank of Atlanta researchers explain, the personal credit record of the business owners is a good predictor of the repayment of business loans of less than $100,000.

The legal structure of small businesses also links personal credit to business access to capital. Approximately 72 percent of U.S. businesses are sole proprietorships, Internal Revenue Service data indicate. Because the debts of sole proprietorships are not legally distinct from those of their owners, lenders and trade creditors pay careful attention to the personal creditworthiness of sole proprietors.

Even when small business owners set up corporations to limit their personal liability for the debt of their businesses, they often tie their personal credit to their companies’ borrowing by personally guaranteeing the debts of their businesses and personally borrowing to finance their companies’ operations. According to analysis by the Federal Reserve, 41 percent of all small business loans and 56 percent of small business borrowing are personally guaranteed.

Studies show that many small business owners borrow personally to finance their business operations, further intertwining small business borrowing and owner personal credit. A paper by Alicia Robb of the University of California at Santa Cruz and David Robinson of Duke University indicating that about one quarter of new companies are funded by the personal borrowing of their founders.

For many small business owners, tapping home equity is an important way personal credit is transformed into business capital. Analysis by Minneapolis-based market research firm, Barlow Research shows that about one quarter of small business owners tap the equity in their homes to finance their businesses either by using their homes as collateral for business loans or by taking home equity loans and plowing the proceeds into their companies.

Drawing on personal credit card credit lines is another way that small business owners use personal credit to finance business operations. According to Intuit’s Future of Small Business Credit Report, small business owners have $150 billion in outstanding credit card debt that they have used to finance their businesses.

[“Source-smallbiztrends”]

Why is credit card usage on the rise?

Clockwise from top: Sumit Bali, Ranjit Punja, Surya Bhatia, and Vijay Jasuja

In the past couple of years, credit card outstanding has been increasing. It went up 35% in value during the April-October period in FY18. We ask experts about the increased focus on credit cards

Sumit Bali, senior executive VP and head-personal assets, Kotak Mahindra Bank

If you look at the overall lending market, there is hardly any demand from companies. A lot of repricing is happening, but there is no fresh demand coming in. It is the same story for home loans as well. These are two big segments going through a slowdown. On the large ticket loans, a lot of churn is happening. Borrowers with higher rates of interest are negotiating and getting lower rates or moving to other banks at a lower rate. Overall, that segment is not growing for the bank.

However, the unsecured piece has been growing. Over the last few years, we have seen systemic change in unsecured lending. Today, you have a lot of information from the (credit) bureaus. Fintech companies give you a lot of data about a customer. Even if you don’t have a customer’s credit history, you can still onboard her based on other data about her. Based on the transaction history from her savings account, though she is a new-to-credit customer, a bank is now comfortable to lend. Also, post-demonetization, acceptance of card has grown.

Another reason why personal loan is growing is that there is a segment now that is happy to consume now and pay later. Today if you want to go on a holiday or buy latest gadgets, the new generation is happy to take a loan. As consumers, you should use credit card sensibly because ultimately it will reflect on your credit history.

Vijay Jasuja, chief executive officer, SBI Card

Overall, credit card spends have increased 42% year-on-year. Our credit card outstanding growth has been 80% year-on-year. There are multiple reasons for the growth in spends. Firstly, the e-commerce boom has increased the spends on the cards. Secondly, the confidence level of consumers to use cards has gone up post-demonetization. Earlier, there was a concept that unless you have a credit history you will not be eligible for a credit card. But now individuals have a higher income in their first year of job itself. But they don’t have a credit history. Technically, they will be called new-to-credit customers. Another segment is the individuals in the tier 1 and 2 cities who see their peers using cards.

The question is, will the bubble burst if credit card spends go up significantly? In the credit card asset portfolio, the credit card outstanding amount is of people who are away from the due date. There are customers who get their high-value spends converted to EMIs, which has also increased the overall credit card outstanding amount. Then there are people who don’t have sufficient liquidity to pay. They pay a minimum amount and revolve the facility with high interest. This is the segment (that is) risky. About 20-27% of our customers fall in the last segment and it is consistently the same. That means additional and new-to-credit portfolio are not bringing in additional risk.

Ranjit Punja, co-founder and CEO, Creditmantri.com

Largely, since the last downturn in the economy, lenders have become careful about who they lend to. They typically only lend to those who have demonstrated a good credit score. They have clamped down on bad credit customers. However, today, with a general upsurge in income, the  whole advent of e-commerce, the ability to pay online and digitally savvy customers has led to utilisation of more income. Banks have started believing that newer fintech models are probably the way to go in terms of underwriting. At this point, it is a drop in the ocean. Banks are making the underwriting journey simpler. There is a lot of data available digitally.

Time will tell if that is a good way to look at lending. At this moment, the end users are enjoying the benefit. Typically, in the financial world, you see these ups and downs. You will see a bad credit cycle and then delinquencies. I am concerned with newer models that are not time tested.

As a consumer you shouldn’t spend beyond your means. Credit card and unsecured loans tend to do that to you, especially for people who don’t have the discipline to borrow and repay. Credit card is a simple way to overspend. And interest rates are very high. Being credit wise is critical for someone who has not used a credit card ever. Our advice is to start small, display discipline and make sure you service you debt.

Surya Bhatia, New Delhi-based financial planner

The push by the government has helped India convert to a cashless economy. Meanwhile, none of the banks want to miss out on the retail population. The people in the higher income bracket were already having a credit card. Digital banks like Patym Payments Bank will give this a further push. The bigger banks want to have the bigger pie, which includes the HNI segment and those in the higher income group. But the real money in terms of volume is the young population. Everyone wants to grab hold of that population. The young millennials are the people who want to spend, especially digitally.

There is also a bit of loyalty factor. For instance, I still hold the credit card that I got for the first time. In the last many years, I have bought two other cards and discarded them too. But my first credit card still continues. There is no specific reason why I hold on to it. Every bank wants to cash in on that population. The idea is to catch them young and to make them stick with you.

Consumers have also changed. They are now spoilt for choices. In the early days, they used to pay for credit cards. Now there is no concept of paying for cards. For instance, if you spend a certain amount, most of the card providers waive off the charges.

Logically, you should not have more than one card. And better still is stick to a debit card. Once you understand debit cards well enough, then may be opt for a credit card.

[“Source-livemint”]

9 Bookkeeping Apps Your Small Business Needs to Succeed

One of the most common causes of business failure is inadequate financing. But, let’s be honest, sending out invoices, keeping track of expenses, doing the weekly payroll and filing taxes can be incredibly challenging when your mind is on business growth.

No matter how vital these tasks, they are tedious and can consume more of your time and resources than you would like.

With the following bookkeeping apps, however, you streamline all of your finance tasks so that you can ensure that your business succeeds.

Wave

Since launching in 2010, Wave has been used by more than 2 million small business owners, consultants and freelancers to manage all of their accounting, payroll and invoicing needs. Wave also has a handy receipt scanner and is 100 percent free. And, if you do run into any serious problems, Wave can connect you to a local accountant through it’s ‘Find an Account’ feature.

With the Wave iOS app, you can easily send out an unlimited number of invoices while on the go. As for Android users, the Receipts by Wave app allows you to scan receipts and upload them to the cloud to simplify your business’s record keeping.

FreshBooks

Forbes has stated that FreshBooks is “incredibly user friendly,” and there’s a whole lot of truth to that. The FreshBooks platform gives you the power to create online invoices, capture expenses, track your times on a job, and keep a tab on your cash flow and expenses. If that isn’t enough, FreshBooks comes with award-winning customer support.

The FreshBooks app is free and handles all of the tasks that were just mentioned. One of the best features about the app is that you can work offline and all your information will be synced to the cloud once you’re back online.

Due.com

If you’re looking for a top-notch time tracking and invoicing platform for your business, then Due.com is worth checking out. You can create professional-looking invoices in a snap and manage times by either client, project, or task. What makes Due.com stand out from other time tracking and invoicing tools is it’s design. It’s well-organized and has brightly colored icons so that you can easily view the progress of your work.

The app is free for five clients per month. If you want to integrate with PayPal, set-up recurring payments, and send out unlimited invoices, pricing starts at $3 per month.

You Need a Budget

YNAB was named the 2011 Reader’s Choice Winner for Best Personal Finance Software by About.com because of how efficient it is at helping you make informed spending decisions. With YNAB you can quickly view your budget’s ‘outflow,’ schedule bills and paychecks, and split transactions. YNAB supports most currencies (Dollars, Euros, Pounds, Rupees, Reals, Rands) and has a convenient autosave.

You can download the YNAB app for iOS and Android devices for a free trial. You will have to purchase the software with a one-time payment of $60 following the free trial.

Zenpayroll

If you find payroll and taxes a bit too tedious, then Zenpayroll is one of the best solutions available. Zenpayroll will automate everything from new employee reports, calculate state and federal payroll taxes, and process payroll. You can even use Zenpayroll to track employee sick and vacation time, set up worker’s compensation, and create online payroll forms.

To access Zenpayroll on any device, you’ll have to pay a monthly fee of $25 plus $4 per employees.

Ebates

Keep on top of the coupons and cash back deals on the products and goods that your business commonly uses to save 3 to 10 percent utilizing the Ebates app.

If your small business or startup purchases supplies from Amazon, for example, the Ebates.com app can notify you or your buyer when discounts are available.

Expensify

As a business owner, there will be plenty of employee expenses that come across your desk. Thankfully, Expensify has developed software that will simplify how expenses are reported and approved. With Expensify, you can capture billable expenses, add cash expenses, scan receipts, and automate duplicate expenses with ease.

There’s a free mobile app for iOS, Android, BlackBerry, and Windows Phone devices.

Neat

Neat is a nifty tool if you’re looking to improve your workflow. This is accomplished by letting you file receipts and invoices in seconds and create tax, spending, and expense reports. And, if you need to pull up a previous invoice or receipt, you can do so in one convenient location.

The app can be used on Android and iOS devices, but you’ll have to purchase the Neat Cloud Service. Plans range from $5.99 to $24.99 per month.

Zoho Books

What can’t Zoho do for your business? The platform can be used for sales and marketing, email collaboration with team members, recruiting, invoicing and expense reporting. Zoho also seamlessly integrates with Google Apps and is an affordable option with plans starting at $12 per user per month.

If you need to manage your business’s finances while on the go, Zoho is available for iOS and Android users. There’s even an app for the brand new Apple Watch!

Which bookkeeping apps do you frequently use to handle your finances?

[“Source-smallbiztrends”]

Separating Your Personal and Business Finances: Why and How

Why and How to Separate Your Personal and Business Finances

New business owners may seek to keep things simple and co-mingle their business and personal finances. This is a BIG mistake. Here’s why, and what you can to do to appropriately separate your financial activities.

Why and How to Separate Your Personal and Business Finances

Why Keep Finances Separate?

There are important financial, legal and tax reasons to separate your finances:

  • Financial. It’s difficult to know how well your business is doing if you can’t easily eyeball a bank balance devoted to your company. You may run into cash flow problems using a single account for business and personal expenses. Also, having a separate credit card for the company helps to build business credit scores.
  • Legal. If your business is a corporation or a limited liability company, you can lose the personal liability protection you sought by setting up such an entity by co-mingling your finances. The reason: If you don’t respect the separate legal status of the entity, creditors may not have to and can go after your personal assets to satisfy their claims. There’s a legal doctrine called “piercing the corporate veil,” which means courts can ignore your entity’s status for purposes of your personal liability for any claims against the business if you haven’t observed the formalities of a separate business entity.
  • Tax. For federal income tax purpose, the law requires you to keep good books and records. This can only be done if you have a business bank account into which you deposit income and from which you pay expenses. A rookie mistake is thinking you can remember what expense is for business, such as a meal, when it comes time to prepare your tax return; you can’t — and it can cost you tax deductions!

How to Keep Finances Separate

It’s really a no brainer. All that is needed to keep your business affairs untangled from your personal money matters is to have a separate business bank account and a separate business credit card. If you choose to use PayPal, also set up an account for your business.

You also need separate accounting for your business income and expenses. So, for example, if you use Quicken or Mint.com to track your personal expenses, use a separate accounting solution, such as QuickBooks, for your business.

To make sure you input expenses into the correct accounting solution, be sure to keep business receipts separate from personal expenditures. This can be done using separate files for paper receipts or separate online folders for e-receipts. Online options, such as Shoeboxed can help you keep track of business receipts.

If you use a home office, business with personal matters can all too easily get mixed up. In order to claim a home office deduction, the space must be used regularly and exclusively for business. Incidental personal use may not kill the deduction, but it’s better to keep personal things out of the home office area.

If you use a paid professional to prepare your tax return, ask that you receive separate invoices for services related to your business and personal income and expenses. For example, if you’re self-employed, an itemized bill enables you to take a business deduction for the cost of preparing Schedule C; the balance is deductible only on Schedule A if you itemize.

Conclusion

Keeping your business and personal life separate is extremely helpful. It’s easy to do. It merely requires a little housekeeping to set things up properly, and then to follow through.

[“Source-smallbiztrends”]

Focus On Loan Waivers, Agriculture On Congress Madhya Pradesh Manifesto

Focus On Loan Waivers, Agriculture On Congress Madhya Pradesh Manifesto

The Congress today promised to write off farm loans of up to Rs. 2 lakh and provide a “salary grant” for five years to industries offering jobs to the youth if elected to power in Madhya Pradesh.

Releasing its manifesto for the November 28 Assembly polls, the main opposition party also promised a slew of benefits for other sections of the society in the state where it is making a renewed bid to dislodge the Bharatiya Janata Party (BJP) from power.

Aggressively wooing farmers, who had launched a statewide protest last year, the party promised a social security pension to them and a rebate in the registration fee of land documents, besides a financial help of Rs. 51,000 for the marriage of daughters of small cultivators.

In its manifesto titled “Vachan Patra” (document of promises), the Rahul Gandhi-led party, out of power in Madhya Pradesh since 2003, also promised a minimum support price (MSP) for crops in accordance with the Swaminathan Commission’s recommendations.

Releasing the 112-page manifesto at a press meet, state Congress chief Kamal Nath described it as the “voice of the people of Madhya Pradesh”, saying the document was prepared after consultations with every section of the society.

The manifesto offers sops to every section of the society, including government employees, homemakers, the common people, women and journalists, but the focus is largely on farmers and young people.

Among the plethora of measures for farmers mentioned in the document, the Congress has promised a social security pension of Rs. 1,000 per month to farmers who attain the age of 60 and whose land holding is below 2.5 acres, besides writing off farm loans of up to Rs. 2 lakh.

Other sops promised to farmers include a 50-per cent subsidy on loans for agriculture equipment, halving the power bill rates for them, a bonus on the MSP of some crops and a subsidy of Rs. 5 per litre on milk procurement among others.

The opposition party also promised a re-investigation into the Mandsaur police firing incident, in which six farmers were killed in June, 2017.

It also promised a rebate in diesel and petrol prices.

Professionals like tourist guides and lawyers would be provided an “encouragement fee” of Rs. 4,000 per month for five years for settling down in their respective professions.

The Congress also promised a “salary grant” of Rs. 10,000 per job to the industries offering employment to the youth of the state.

It promised the constitution of a Yuva Aayog (Commission for the Youth) to look into the problems of young men and women.

The Congress also promised several sops, including a rebate in the Goods and Services Tax (GST) and subsidised loans for setting up industries with an investment of at least Rs. 100 crore.

Those covered under the existing social security pension scheme would get Rs. 1,000 per month, instead of Rs. 300 now, if the Congress was elected to power in the state, according to the document.

A subsidy of Rs. 100 on gas cylinders to poor families and free education to girls up to the post-graduation level were also promised by the party.

In a bid to appease the agitating general category people, the opposition party promised the constitution of a Samanya Varg Ayog (General Category Commission) to look into their issues.

The state recently saw a series of protests by people from the unreserved (general) category communities.

Besides, the Congress promised regularisation of daily wagers, 30 per cent government contracts to tribals, setting up of a Senior Citizen Board, a law to protect journalists and lawyers, honorarium to journalists above 60 years of age, tele-medicine facility in rural areas and four new medical colleges.

Mr Nath said a Jan Aayog (People’s Commission) would be constituted for investigations into scams like Vyapam.

A “jan jababdeh kanoon (public accountability law) would be enacted to hold the government departments responsible for providing public amenities, he added.

The manifesto has 973 points on 50 subjects.

State Congress Campaign Committee chief Jyotiraditya Scindia and former chief minister Digvijay Singh were also present at the press meet.

Taking potshots at the BJP, Mr Scindia said the Congress’s manifesto was not like the saffron outfit’s “jumla patra” (document of rhetoric) as the party would honour every promise made in the document.

“We are bringing a vachan patra and not a jumla patra like the BJP. Our document of promises has something for everybody,” the former Union minister said.

4 COMMENTS

The 230-member Madhya Pradesh Assembly will go to the polls on November 28 and the results will be announced on December 11.

[“source=cnbc”]

Personal loan vs gold loan: Which is better? Your loans decoded

Personal loan vs gold loan: Which is better? Your loans decoded

If you’re dealing with an intense financial emergency or your financial situation has suddenly turned too fluid, there are a pool of options available by banks that can help you get through the distress. For sudden financial need, you can either choose to opt for personal loans, they are most easy and flexible form of borrowing. However, there are also secured form of loans such as gold ones which are actually emerging as an alternative to the personal loan. Both have their own advantages and disadvantages.

Personal loans

The procedure to avail a personal loan is also very simple, however, your eligibility for availing this form of loan depends critically on your credit score.

Generally, personal loans are sanctioned to salaried, non-salaried and self-employed individuals. The documentation and rate of interest is different for personal loans granted to self-employed individuals.

Personal loans come with tenures ranging from 12 months to 60 months. Some lenders offer tenures starting from 6 months as well.

One of the most basic advantage of personal loan in comparison with gold ones, is that you do not have to keep any type of assets like property, yellow metal or life insurances, etc. as collateral with bank when you are in need of funds in emergency.

Personal loans can be taken for many reasons especially during weddings, home renovation or down payment. Considering weddings come with a heavy amount of jewelleries, and not many would prefer keeping their assets as security with bank to opt for loans.

Majority of lenders disburse a personal loan with 48 hours of time, once a borrower has been selected as per the banks criteria.

Gold loans

Unlike personal, the gold loan is seen as a secured form of borrowing for both lenders and borrower. There is trust in the eye of lender, as it sanctions a sum of amount to the borrower against gold collateral. Simply put, a borrower can avail loan from banks by giving his or her gold jewelry, coins or bars as security with them.

The moment, the borrower finishes repayment of his or her tenure, the bank returns the shining metal on due date.

One of the key advantages of applying for gold loan, is that they are processed within minutes and are generally kept for short to medium term duration.

To apply for gold loans, a customer must be above the age 18 years and must own the yellow metal.

Reason behind why a gold loan is easier, is because the interest rate on these form of loans are cheaper compared to other available options such as personal loan.

Also, the tenure is very flexible varying from few days to 5 years. Furthermore, a bank or NBFC does not levy any pre-payment charges on gold loans. Documents needed for this form of loan is also very less.

Which is better? 

Anuj Kacker, coo and co founder MoneyTap says, “Gold continues to be one of the most popular options for both savings and investments among Indians. Gold is also synonymous with a safety net in case of emergencies.”

Kacker adds, “Hence gold loans are considered a reliable alternative to lending products. So when in need of funds, which loan to choose – a personal loan or a gold loan? The choice depends upon the tenure of the loan.”

Explaining, Kacker says, most of the personal loans are collateral-free loans. And hence come with a higher rate of interest. Since longer loan tenure translates to a higher interest, availing a gold loan would be a cheaper option if you are confident of repaying it within a year. Whereas, opt for a personal loan if the loan amount is too big for you to repay it within a year.

Additionally, Kacker explains, that gold loans usually have a faster disbursal process as compared to personal loans.

Customers should compare all the options and make an informed choice before opting for the one that suits their needs.

[“source=cnbc”]

How The Midterm Elections May Affect Your Student Loans

How could the midterm elections affect your student loans?

Here’s what you need to know – and what to do about it.

Student Loan Debt Statistics

Student loan debt is now the second highest consumer debt category – second only to mortgages and higher than credit card debt. According to Make Lemonade.com there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt. The average student in the Class of 2016 has $37,172 in student loan debt, while the average student in the Class of 2017 has almost $40,000 in student loan debt. Approximately 11.0% of student loan debt is in default or over 90 days delinquent.

Here are a few potential ways that student loans could change at the federal and state levels:

1. Reauthorization of The Higher Education Act

As its name suggests, The Higher Education Act governs higher education policy, including student loans.

A lack of bipartisan agreement has led to the failure to reauthorize The Higher Education Act in recent years. However, with Democrats in control of the House and Republicans in control of the Senate, bipartisan leadership may be needed during the next Congress to get things done in Washington.

While both parties have indicated a willingness to simplify student loans, divergent views remain on the specifics.

How This Affects You: If both parties can find common ground, key issues could include the cost of higher education, how to address growing student loan debt, repayment plans and student loan forgiveness, among multiple others.

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2. Increased Oversight of Student Loans

Expect Democrats in The House of Representatives to increase oversight over the U.S. Department of Education, which is led by Betsy DeVos, as well as the Consumer Financial Protection Bureau.

At the state level, regulators may ramp up oversight of student loan lenders and student loan servicers to ensure proper business practices. A recent example includes state attorneys general suing student loan powerhouse, Navient.

How This Affects You: Increased oversight comes at a cost, but is meant to ensure that student loan borrowers get a fair shake.

3. End of Student Loan Forgiveness?

How This Affects You: While student loan forgiveness may end, the time it takes for student loan forgiveness under income-driven repayment may not be worth it to student loan borrowers in the long run. You may be able to pay off student loans faster or refinance student loans to save money.

4. More Choices To Borrow and Repay Student Loans

President Trump wants to increase the role of the private sector – particularly private lenders such as banks – in the issuance of federal student loans.

Trump believes that the federal government generates too much “profit” from issuing student loans, and wants private sector lenders to participate in federal student loan origination.

How This Affects You: You may have more choices when it comes to borrowing student loans. This can result in more competition and lower rates, which can benefit consumers. It also means that – through student loan refinancing – you can continue to refinance student loans and may receive a lower interest rate.

Next Steps

At the federal and state levels, there’s no guarantee that any changes become policy or law in the near-term.

That’s why it is imperative for you to take action on your student loans – regardless of what politicians do.

[“source=cnbc”]

Defaulted on home loan EMIs: Know your rights in case debt collectors knock at your door

In 2016, Jayesh Mathur residing in Delhi purchased a home by taking a loan from PSU bank. At that time he had over-stretched his financial capability while buying this property. Nowadays, with ease of getting loans from banks, housing finance companies and NBFCs there are several millennial like Mathur who opt to purchase a home at start of their professional life. They enjoy to the fullest while paying partly through EMIs. However, with other prior financial commitments towards his family and rising children education expenses he started defaulting on home loan EMIs from following year. This led to face-off with debt collectors (recovery agents) from bank at his door step very often.

Impact of defaulting on home loan EMIs

Amit Wadhwani, Co-founder, Sai Estate Consultants said, “If the default continues for six months, banks give the borrower a two month grace period to regularise the repayment. Failure to do so will result in banks declaring the loan a non-performing asset (NPA).” Bank can auction the property/collateral to recover its debt and reduce their NPAs.

Banks are primarily interested in getting their money back than in taking legal recourse. A legal recourse involves auctioning a house which is time consuming. Hence, banks follow up the matter with the borrower through debt collectors for at least six months before taking any legal action on property.

Rights of borrowers while face-off with debt collectors on default of home loan EMIs

i. Right to check the identity

With increasing number of frauds roaming around in the city, borrowers are provided with the right to ask and check the ID cards of recovery agents as issued by banks and NBFCs before starting with the conversation about pending dues.

ii. Right to privacy

As per this right, agents can’t share or discuss the issue of your impending debts with other people. Rachit Chawla, Founder and CEO, Finway said, “If you found them doing so, you can file a complaint against him with banks and NBFCs and can even take a legal action.”

iii. Right to humane treatment

Chawla explained, “According to this, recovery agents need to be decent and civilized in their approach. Respecting your personal space, the recovery agents are clearly directed to contact the borrowers between 7 am and 7 pm.” On violation, borrowers are free to take legal action supported with all the valid proofs.

Things that should be legally pursued by the borrower on default of home loan EMIs

i. Approach your lending bank on default of loan

Inform your bank about the current financial situation, this will act as a proof for the recovery agent to know the borrower well.

ii. Apply for restructuring of home loan

The borrower has an option to restructure his loan when there is a financial crunch. Wadhwani said, “In many cases the banks offer the borrower a flexible and easy option to repay the home loan while restructuring.” After checking the restructured proposal from bank and understanding details the borrower can then decide to accept it and continue to repay outstanding loan instead of defaulting.

iii. One time settlement

The borrower can be in a dreadful situation when he cannot pay any amount to the bank or NBFC. Wadhwani suggested, “You can settle the loan via a small payment where up to 90% of the principal and 100% interest amount is waived off.” However, in this case if the borrower has accepted to do so, the credit report will reflect the fact that you could not repay the loan amount completely and it was settled with one time payment. This will henceforth, affect your credit score while borrowing.

[“source=cnbc”]