Self Employed Loan Rejection: 7 Most Common Reasons

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Salaried individuals are always liked by financial institutions. Because when they offer any credit to this category of individuals the repayment is expected to be done – fully and on time and risks involved are less.

However there is another category of individuals – self employed who have equal rights to get credit but are most often denied. Even if their earnings are higher than salaried individuals, getting loan approval is difficult because of following reasons:

Risk: Not all businesses will continue to remain in profit all the time. There would be times when business may drop impacting the revenue. In such cases, repayment of loans often becomes difficult for the borrower. So basically, risk is a crucial factor which banks assesses before approving any loan application. Although banks take into consideration long duration financials for tracking business performance, a frequent loss creates doubt to the bank. Afterall if such an individual or business turns out to be a non-performing entity then losses would be high, impacting the profitability of the bank.

Income: Since ups and downs are part of business cycle, the current account held by the owner may not have sufficient balance all the time. Also there is a possibility that transaction history of such account may not be at its best. Also many customers still prefer paying in cash rather than online transfer/cheque/demand draft. So such transactions do not make entry into the account as mentioning the source of income cannot be considered as a valid proof.

Read more on personal loan for self employed.

Multiple business owners: In case of a partnership firm, the chances of loan approval are further grim. This mostly happens when one of the partner has poor credit score impacting the credibility of the other partner.

Business address: It is quite common that in the initial phase of the business, individual starts working from home and mentions his/her personal address as business address. This is disliked by the creditors as they generally offer loans to well established or with location operating from a commercial space. Although this ideally is the last factor taken into consideration.

Check out details on getting credit card for self employed.

Income tax: Typically banks asks for last two years income tax to judge the risks. However if the business is newly started then providing the income tax related documents is impossible. In such cases, banks will scrutinize the application more minutely. If business is running into losses, then banks will review IT returns of couple of more years.

Documentation: For self employed individuals documents required for loan application is little different and includes business continuity proof, last 6 months bank statement, income tax return of last 2 years, certified financials. All these documents may not be available with everyone especially when the business is newly started. So it takes personal visit to the bank to support your loan application.

CIBIL score: The most important decisive factor taken into consideration by financial institution is the CIBIL score. A poor score has higher chances of credit denial whether the applicant is self employed or salaried. However in case of self employed especially those who freshly start a business and has no CIBIL score the possibility of getting a loan is low. This is because, lenders have no way to judge the credit worthiness of the applicant.

Other options for self employed to get loan:

Even if banks reject personal loan application, it’s not the end of the world. There are other options available in the market to get loan which includes:

  1. Co-operative banks: Compared to commercial banks, co-operative banks do not have strict guidelines and have easier terms and conditions. Although the quantum of money granted is less. But on the other hand the interest rates are better. Another benefit is that processing fees or prepayment penalty is NIL or very less.
  2. Peer to peer lenders: Short termed as P2PL, this is a fairly new concept in India. Read more on P2PL here. The benefits offered are attractive rates, faster processing, speedy disbursal and easy application process.
  3. Local financiers: Borrowing money from these private financiers should be your last option as the interest rates are very high. Although they do not check CIBIL score and have very simple eligibility criteria.
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8 ways demonetised notes were used to launder money

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Not later than hour after Prime Minister announced demonetisation of Rs. 500 & Rs. 1000 notes on November 08, 2016; an illicit business of converting these two currencies into jewelleries gold, diamonds & silver, forex had started. And this business started spreading across India.

Let’s check out the ways money laundering business rapidly started spreading:

Foreign exchange: Individuals who’d good amount of black money, converted crores of demonetised notes into forex especially USD. This is due to the fact that dollar is the most sought currency across the world including India. A dollar typically costs around Rs. 120 – Rs. 140 in old demonetised notes.

Hawala: Black money stashers made hawala their favorite money transfer option. People started sending their black money abroad through hawala dealers also called as agents. These middleman charge a very high premium to park the money in foreign currency in Arab and South Asian countries which mainly includes Dubai, Singapore and Malaysia. Hawala has traditionally considered to be a channel to transfer funds.

Bullion: One of the most easiest and convenient option used to launder money was the bullion. From the night on which currency ban was announced, people started investing unaccounted wealth in buying bullion, jewelry and diamonds. Other options were buying expensive luxury stuffs such as watches, etc.

Read more on effects of currency ban

Petrol pumps: Since they were allowed to accept old currency notes till 24th November, several petrol pump owners across the country assisted in cleaning the black money by accepting old notes but in return of smaller sum.

Hospitals: Surprisingly hospitals were also involved in laundering black money by accepting demonetized currency notes.

Check out positive impact on Indian economy due to demonetisation.

Nepal – Bhutan: Since Indian government allowed old notes can be exchanged in these countries, individuals created opportunity to park their money via smuggling to these countries. Since border vigilance is poor in these two countries, transfer of money seemed very effortless.

Tribal areas: This includes Northeast areas such as Nagaland, Manipur and Arunachal Pradesh since they are tax exempted. No transaction related questions are generally asked in these places. So disposing of cash took place through this channel as well.

Jan Dhan Account: Started in the year 2014 for poor people by making one bank account for each family in India, rich people made poor people become rich for a while by depositing banned currency notes in JDY account holder. So accounts which are ideally dormant started seeing lakhs of rupees. Income tax department is now going to scan every such suspicious account.

So post the currency ban, the most critical question still remains unanswered – Will the poor get poorer and the rich richer post demonetisation? Please spare some time and share your valuable thoughts in the comments section below.

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Return of Premium Term Insurance Plan: Features, Benefits, Cons

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There are many policy holders who look for returns when they invest money in insurance policy.

Term insurance which covers life and offers GUARANTEED death benefit to the beneficiary of the policy holder is largely opted by individuals especially tax payers in India. The top most reason is the low premium compared to other types of life insurance policies available in the market.

Term plan also has a sub-type called as return of premium (ROP) term insurance plan. This type of term plan returns the premium paid, if the insured person survives full policy term. The reason to launch such kind of policy is to make life insurance affordable to everyone.

Read about the differences between term & life insurance.

Benefits & Features of term insurance plan with return of premium:

  • As the name indicates, the premium paid till the policy term is returned to the insured at the time of maturity. In comparison, standard plan does not offer guaranteed maturity sum assured. So basically ROP term insurance offers twin advantage – maturity + death benefit. Both these options eventually helps in securing financial future of the policy holder and the dependents. However return amount varies for each insurer. Check the return amount and associated terms and conditions before buying such policy.
  • There is an option for continuing the policy, if insured person does not pay premium after three successful year premium payment.
  • TROP offers higher sum assured.
  • Insured person also gets option to choose the term for which he/she needs protection for by paying premiums for a limited period.
  • Multiple payment options – monthly, quarterly and annually. This gives flexibility especially to self earning or business people with irregular income. Also individuals earning low income can benefit from this payout option.
  • TROP also offers policy surrendering feature.
  • Paid up value option is also offered wherein if the insured person is unable to pay premium, the policy will continue to be in-force. However in such cases coverage offered is low.

Check out 6 types of life insurance in India.

Inbuilt cover or riders:

Such return of premium term plan also offers following riders or has inbuilt cover for:

  • Accidental death or disability
  • Critical illness
  • Hospital daily cash
  • Premium paid and returns are tax free under section 80C of income tax act.

Disadvantages of TROP:

  • Higher premium
  • Reduced sum assured to the nominee in an event of death of the policy holder.
  • Short term pay option i.e. policy term is between 20 – 25 years
  • Cover offered is for a period of less than 25 year only.
  • Surrender value is low and varies depending on the payment option used. For policy holders opting for annual payouts, this amount will be higher than the ones opting for others.

Who offers such money back term plan in India?

ROP plans are offered by many life insurance companies in India. Few of them are:

  1. Max Life Insurance
  2. HDFC Life
  3. LIC’s Jeevan Mangal
  4. PNB Metlife
  5. Aegon Religare
  6. Birla Sunlife
  7. ICICI Prudential
  8. Bajaj Allianz
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ELSS Vs. PPF, NSC, Tax Saving FD – Differences

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Every year tax planning season begins in January-March. It is the time of the year when investors put their hard earned in investment instruments to save taxes. However many individuals make a mistake of keeping their objective to just save taxes and end up investing in products that do not generate enough wealth in the long run. This usually happens when financial goals are not set.

For those who want to save taxes and at the same time create wealth there are multiple options available in the market. And ELSS is one excellent product which stands out in comparison to other tax savers.

Here’s the table showing comparison of traditional tax saving instruments with ELSS on the basis of following key parameters:

  • Tenure of the product
  • Minimum investment amount
  • Risk involved
  • Most importantly the potential returns
Investment ProductLock-in Period (in Years)Returns CAGR per annumTax Status of ReturnsRiskPartial Withdrawal
Public Provident Fund150.081Tax FreeZeroPossible
National Savings Certificate50.081TaxableZeroNot Possible
5-Year tax saving bank deposit50.07TaxableZeroNot Possible
Equity Linked Savings Scheme319.68**Tax FreeHighNot Possible

The above returns from ELSS are as on November 2016.

The only risks associated with ELSS are:

  • Since the investments are market linked, the risks are higher as returns are not guaranteed. So past performance may not continue in the future. However it depends on the fund invested in. Check out zero risk investment options in India.
  • It carries a lock-in period of 3 years, so there is no way out to exit i.e. withdraw money from the fund if losses are predictable. Although the lock-in period is lowest amongst other tax saving investment products.
  • The diversification offered by these funds is across sectors and market capitalization. This allows your hard earned invested money to greatly benefit from the stock markets in terms of returns.

In addition to the above comparison table, ELSS offers multiple advantages over other tax savings instruments as follows:

Free insurance cover: Many ELSS funds free life cover to the investors. The premium cost is bourne by the MF company. And in the event of death of the investor, the insurance cover is used to pay the SIP amount.

Read about benefits of ELSS.

No cap on investment amount: Unlike few other tax saving instruments there is no limit on the maximum amount that can be invested in ELSS.

Ease of performance tracking: Every month the AMC releases the fund performance. So investor can track the minute details of how their hard earned money is invested and the returns generated at a regular interval. This helps investors to regularly track the list and type of stocks their money is invested in, sectors, and exposure in debt and cash.

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Tax Payers Love these 10 Benefits of ELSS – Returns, Lock-In, Tax Free & more

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In India, there are bunch of financial instruments in which money can be parked to claim tax deductions under section of 80C of the Income tax act. Although the advantages of investing for a long term cannot be emphasized more, there is an investment gem for tax payers – Equity Linked Savings Scheme – ELSS.

ELSS stands out in comparison to other tax saving instruments and is recommended for everyone. As the name suggests, ELSS is the only tax saving option with significant equity exposure.

So what are the benefits of ELSS funds?

Let’s get to know:

Highest Returns: ELSS is one of the very few investment products promises to beat the inflation, when invested in funds with a proven track record. Few of the top CRISIL ranked funds which has given highest returns are:

Name of Fund1 Year (% Return)2 Year (% Return)3 Year (% Return)CRISIL Ranking as on Dec-2016
(Source: CRISIL Website)
DSP Black Rock Tax Saver Fund (G)36.211.926.61
Birla Sun Life Tax Plan (G)21.17.124.51
Birla SL Tax Relief 96 (G)22.17.725.52
Kotak Tax Saver - Regular (G)32.9825.62
L&T Tax Advantage (G)31.99.623.32
Sundaram Tax Saver (G)35.49.723.83
Reliance Tax Saver (ELSS) (G)31.74.5303
Franklin India Tax Shield (G)22.86.8243
Axis Long Term Equity Fund (G)14.45.124.74

The 3 year return on all ELSS ranges from 23% to 26.5% as on 10th Feb 2017.

This clearly proves that even the average performing equity linked savings scheme fund has tremendous potential to grow your wealth which is higher than any of the guaranteed return tax saving options available in the market.  Check out zero risk investments in India.

Over years equity as an asset class has proven to be beat the inflation.

Dual benefits – tax saving and grow money: ELSS is an open ended equity mutual fund offering twin advantages – saving tax and long term wealth creation.

Shortest lock-in period: ELSS has a lock-in period of 3 years, which is lowest in comparison to other tax savings instruments.

Fundamentally, this 3 year period has advantage to the involved entities i.e. investor and fund manager. Both of them have necessary time to counter market volatility by assessing the risk. Since ELSS invests most of the corpus in equities, the investor has an edge to generate higher returns. And this benefit has been proven to beat inflation as shown in the above table. Note that 3 years starts from the day respective units are allotted and not from the day you start making investment.

So if anyone is planning for retirement or create wealth for child’s education 3 years ahead, then ELSS is worth recommended.

Read about high risk – high return investments in India.

Tax Saving: Investments made through ELSS funds qualify for tax deduction under section 80C of income tax act. At the highest tax bracket, Rs. 46,350 can be saved when investor plans to maximize the section 80C benefit.

Multiple funds to choose from: There are multiple ELSS funds available in the market. So investor gets multiple funds to compare and invest.

Ease of investment: Investor gets two options to invest in ELSS – lumpsum or SIP. Although lumpsum is not recommended as there is no option for purchase cost averaging and beat volatility. However SIP mode i.e. at a regular interval helps in disciplined investment approach. And most importantly risk can be tackled as you can stop yourself from entering into the downward moving market at the wrong time.

100% tax free returns: There are many tax free investment products whose returns are taxable. But this is not the case with ELSS, as the dividends and long term capital gain is completely tax free.

Free insurance cover: Many mutual funds companies have been recently launching schemes offering free life insurance cover with no additional cost. Premium is bourne by the MF company. The cover normally a certain % of the SIP account. In an event of demise of the investor, the insurance cover shall be used to pay the SIP amount. However there is a cap on insurance cover which is less than 20 lacs. Although small, insurance linked funds are worth to look at, if you do not have insurance policy.

No cap on investment amount: You can invest in ELSS through lump sum or SIP returns. And there is no ceiling on the upper limit on the investment amount. It basically means that an individual can invest beyond the Rs. 1, 50,000 limit.

Ease of performance tracking: Every month the AMC releases the portfolio in which the fund has invested. This helps investors to regularly track the list and type of stocks their money is invested in, sectors, and exposure in debt and cash.

Although appetite risk is a crucial factor separating ELSS investors. According to Association of Mutual Funds on India (AMFI), MF industry has been adding average 6.19 lacs SIP accounts each month; which is a huge number making ELSS a definite addition into the investors kitty.

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SBI Credit Card with 25, 000 Limit: Low Income, No Credit History Check

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Post demonetization, there have been instrumental rise in efforts for making India a digital economy. Various businesses or service providers who were once accepting only cash are switching to cashless transactions. And banking on this golden opportunity are obviously the banks and wallet companies such as Paytm, PayU, MobiKwik and others.

However the biggest beneficiary has been bank as there has been a huge deposit of cash in their pocket and at the same time, they have witnessed a significant surge in card usage. And to benefit from this further and at the same time generate new customers – SBI will be launching credit card for low income earners with a monthly credit limit of Rs. 25, 000. This card would be available in the market in 2-3 months.

Features of 25, 000 limit card:

Since this is happening for the first time in the history of Indian banking that such as card will be launched. Let’s look at the features of the card:

  1. No strict income criteria: The first eligibility criterion for getting card is monthly income of the applicant. If income is low then chances of getting a card is bleak. However the most striking feature of this card would be that the income cap will be largely reduced. Check out credit cards for poor earners available in the market.
  2. Low credit limit: Since the target audience of SBI is low income individuals; the credit limit available would obviously be very low. And it would be capped at Rs. 25, 000 per month. Normal credit card has limit of minimum Rs. 50, 000. But this should not be a problem for the users of the card, since they get free money for a month to spend in addition to the following exciting feature.
  3. No credit history required: In the current market scenario, any credit approval is granted on the basis of thorough back ground check of the applicant. From fetching the financial transaction history from CIBIL to social profile check; banks are evaluating applicant in every possible way before approving any application. However this card for lower income earning, will require no credit history check.
  4. Fast Delivery: Card would be delivered in a short time period compared to normal card which typically takes average 10 – 15 days to receive by the applicant. The reason for doing this is to tap large prospects base.
  5. Interest rate: It is expected that this card will carry a very low interest rate.
  6. It is also expected that this card will have zero annual and joining fee.

Benefits:

Three entities would be straight away benefitted through this would be the: card user, SBI, and India. Let’s see how:

Card user:

  • Get credit: For honest individuals who were earlier not getting card will now easily get it.
  • Build Credit History: Although there are credit cards for low income earners, not everyone gets card approval. This is due to lack of credit worthiness. However with this card, any person with no credit history but who actually has a capacity to repay money can get the card. Once they start using it and repay the due amount on time, their credit history will start to build. And this directly will increase their likelihood of getting access to higher credit limit cards and loans such as personal, car, home loans and others. Check out personal loan for low income earning individuals.
  • Money saver: In the age of cash backs and reward points, people with no cards were not getting any of these. However once this minimum income requiring card is launched more and more people will get various discounts and eventually they can save money, as they start spending more.

For the bank:

  • New customers: Since the main objective is to make people use card and switch to go cashless, SBI will get new card customers.
  • Profits: As more and more people start using this card, bank will start making profit through the interest earned. Moreover bank can cross-sell more services to these customers. So more service mean more revenue for SBI.

For India:

  • Promote digital economy: The whole objective of currency ban was to push people to transact digitally and rely less on cash. As such card reaches to more and more people, the vision of making India a less cash economy will definitely get a boost.

Once the card is launched, more banks will pitch in to generate more customers and launch such cards.

Eligibility:

  • It is expected that State Bank of India will provide this card for their existing bank customers. They will look at the transaction history and based on that this low income card will be given.
  • Even honest Jan Dhan Account users will get this card based on their financial history and subject to bank’s decision.
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Save Money on Electricity Bill – Refrigerator, AC, Geyser

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We often end up spending more on stuffs or unknowingly waste money on utilities which could be controlled. However if you start saving money through following listed ways, it will surely guarantee in making you rich. Some of these options will help in saving you small amount of money or some will help in saving thousand of rupees in a year.

Let’s look at tips on how to save money on electricity bills:

Refrigerators, air conditioners, geysers are the amongst the most power consuming electrical appliances. However you are unknowingly burning money on using them incorrectly which is resulting in higher electricity bills. Let’s consider ways to save money on each of these one by one.

Refrigerator:

  • Never keep refrigerator in a place where it doesn’t get sufficient air. Atleast keep it in a position where it gets sufficient air from atleast two sides.
  • Also make sure there is no direct sunlight hitting the refrigerator. This results in refrigerator utilizing more power and hence more bill.
  • Never overload fridge. Over crowded space result in insufficient circulation, leading to more energy consumption. Moreover, it will also cause food spoilage.
  • Do not make defrosting a regular practice.
  • Do not keep hard plastic sheet at the base of any object. For e.g. to keep refrigerator away from dust or spills, we often make use of plastic sheets or mats. However if the sheets are very thick, the fridge will consume more energy for cooling the product. So make use of very thin mat.

Air conditioner:

  • Another pocket burner as it consumes highest energy, yet it cannot be avoided. However there are small tips which can help in saving money by reducing electricity bill due to AC.
  • Do not let direct sunlight to directly fall on the outer part of the air conditioner.
  • Regularly clean AC filters.
  • When AC is switched ON, keep doors and windows closed.
  • Many people use blankets or thick bedsheets to prevent themselves from cold temperature due to AC. Such people should switch the AC off for certain time and use fan. The room will continue to give a feeling of coolness. Another option is to set a timer.
  • Another way to reduce electricity bill caused to heavy usage of air conditioner is to increase the temperature from 22 degree to 25 degree. Not everytime you will need cool temperature. This will save good amount of energy.

Health Tip: Remember that prolonged use of AC results in dry and flaky skin problem. This is because AC removes humidity from the room resulting in skin to loose moisture and making it dry. This cause itchiness. And in the long run, lack of skin elasticity due to moisture loss causes wrinkles, giving it an aging appearance. Skin problem is one of the health hazard AC poses besides fatigued body, breathing problems, joint issues such as arthritis, and intolerant to heat.

Interesting read: How to save money on medicines in India.

Water heater or Geyser:

  • We often keep geysers ON until the bucket becomes full or till you bath if if taking shower bath. This results in higher energy consumption and also loss of water. If you have a habit of using bucket full of hot water, then switch the geyser OFF once the bucket is 60%-70% full. The hot water will continue to flow despite of it being OFF. This will definitely save electricity.
  • There are also auto off feature geysers in the market whose main purpose is to automatically switch the appliance OFF when someone forgets to do it.

All the above listed tips will definitely help in decent amount of money every month. And the same can be invested to grow your wealth.

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Switch ELSS Fund, Direct Equity Vs. Mutual Fund, Balanced Fund Importance & More

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Here are few questions commonly asked by mutual fund investors.

Can you switch from one ELSS fund to another with same or different fund house?

Switching ELSS is not allowed to different fund house. However if you want to move from one ELSS fund to another within the same fund then you will have to stop making contribution in the existing fund and start new investment in another.

Also be noted that ELSS funds have a lock-in period of 3 years.

If I plan to invest in multiple SIPs for a longer duration, what date should I start putting money?

There is no golden rule for investing on any day or date to start SIP. There is no return differentiation as in the long run, returns won’t change drastically if they are invested in a same month but at different date. But experts always recommend to invest in the first week of any given month.

Why investing through mutual fund is recommended over direct investment in equity?

Although anyone has an option to investing in equity directly, but investing in it through mutual fund is recommended especially to those who are not enough knowledgable or have time to track market. Reasons are fund managers and their team who manages respective funds are highly skilled and knowledgable. Decisions on what to invest in, when and how much to invest is taken by these managers and their team. It is their job. Investors only role is to go through all the terms and conditions of the fund and select the fund house and put money. Not everyone has time and especially knowledge of selecting best stocks from plethora of options, analyse, when to invest and exit, keep track of economy, market trends to name a few. So for such individuals investing through MF is worth recommended. Basically MF route minimizes losses, as careful evaluation is done before investing. And that’s what makes them easiest and safest way to invest in equity.

Why balanced funds should not be ignored over tax saving funds?

Compared to tax savings ELSS funds, balanced fund offers lower returns. However the risks involved are lesser in case of balanced fund also called as hybrid fund. The reason they are called hybrid is because investment is done in equity and debt in a certain ratio through asset rebalance, which is not possible in case of pure equity funds. The fall in market will not lead to higher losses in case of balanced fund. So for low risk investors, balanced funds offer higher returns compared to traditional options such as PPF, LIC, etc. but lesser returns compared to equity oriented funds which involves higher risk.

When should you invest in short term debt fund?

If your investment horizon is very short e.g. 3 months, then you should opt for short term funds. Other option is liquid fund which is tax efficient. But both these avenues involve risk. So in such case, bank fixed deposit is also a recommended solution.

Is there any mutual fund with zero risk involved?

Answer is NO. Every MF carries risk. So if someone who wants to play completely safe bet then public provident fund, bank fixed deposit, recurring deposit, Sukanya Samriddhi yojana, etc. are worth recommended. Check out zero risk, high return investment options in India.

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How Budget 2017 was different from Earlier Budgets

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By now everyone must be knowing that Union Budget for 2017-2018 was presented by Finance Minister Shri Arun Jaitley on 01st February 2017. However very few of us know that how this budget was different than all the budgets which had been presented over years in India.

Let’s have a look:

Union and railway budget presented in advance: Budget in India were normally announced in the last week of February or in the month of March until the year 2016. However this year, for the first time, announcement of the budget took place in the 1st week of February. One of the objective is facilitating the development work.

Railway budget and union budget presented on same day: The largest transport company in India had a history of presenting the rail budget before the union budget. But in 2017, both these budgets were announced on the same day.

Railway minister did not present the rail budget: Until 2016, the railway budget was presented in the parliament by the Railway minister. However this 92 year old tradition was changed in 2017 budget, as the presentation of rail budget was given by Finance minister Shri Arun Jailey and not Shri Suresh Prabhu, who is the current railway minister.

Economic survey: Since union budget was presented nearly a month in advance, the economic survey date was also preponed and was announced on 31st January 2017.

Read interesting facts on Indian budget.

Digital budget: This year’s budget was presented in a paperless format. Every year hard copies of the circulars are released by the government in paper format and passed on to all the member of parliaments. However in 2017, all the important documents will be made available through Union Budget Information System (UBIS).

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Close HDFC Car Loan in 3 Steps: Visit Bank, RTO & Insurer

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The most important part in fulfilling your dream of owning your favorite car is – getting a car loan and closing the car loan as early as possible. There are multiple banks offering vehicle loan in India and HDFC bank is one of them. It offers various types of loans including car loan.

Most borrowers think that paying last EMI means you are all done. There are steps involved which are equally important before car loan account status can be said to be completely CLOSED.

The three steps for HDFC bank car loan closure are as follows. Each process is explained below in the article.

  1. Visit HDFC bank and get No Due Certificate (NDC) or No Objection Certificate (NOC) and form 35.
  2. Visit regional transport office (RTO) to remove and update the hypothecation in RC book.
  3. Get hypothecation removed from the insurance company record.

Step-1 – Visit bank:

HDFC car loan can only be closed by personally visiting the bank. You cannot close it online or over phone. But before going to the bank for closing the car loan; you need to ask for the loan account balance statement. If there is any balance remaining, you will have to pay the due amount. If you opt for foreclosure, then you will have that amount along with prepayment charge, if any, and then close the account.

You need to carry loan approval letter while visiting the bank. Once the bank verifies the loan account, they will grant approval for a closure. Post approval, they will issue you loan closure/termination letter i.e. NOC or NDC along with the RC copy and Form 35. This form is basically a notice of termination of the hypothecation agreement between the borrower and HDFC bank.

Check out car loan for low income earners.

NDC or NOC: It is the only legal proof that states borrower is free from obligation. Once loan is closed or terminated, it is actually the HDFC bank’s responsibility to provide NDC or NOC to the borrower. Non-availability of this most important document can hinder in following ways:

  • In case of any loan related dispute with HDFC bank, you won’t have any proof showing loan has been completely closed.
  • For any claim to be made to the insurance company, this document is required.
  • If your CIBIL record states that loan is still active, then NDC or NOC will come to your rescue.
  • You cannot sell the car against which loan was taken in the absence of this document.

Step-2: Visit RTO

Once all the formalities are done with the HDFC bank, you will have to visit regional transport office (RTO) where the said vehicle is registered and carry following documents:

  • NOC and/or closure letter issued by the bank.
  • Form 35
  • Photocopy of RC
  • Photograph
  • Receipt showing charges for hypothecation removal
  • Photocopy of vehicle insurance

When you take car loan from HDFC bank, the legal owner of the car owner becomes HDFC bank. But after closing the loan, you will have to remove bank’s name and update your name on the car’s registration certificate (RC). And RTO is the authority to do this. Once RTO verifies all the documents provided by the bank, they will provide a new RC book with hypothecation changed to the new vehicle owner i.e. YOU in this case. Once name is changed, the car finally becomes legally yours. Other option to get hypothecation updation is through agents. But this might incur additional costs but will save your time.

Read more on how to get car loan if you are a CIBIL defaulter.

Step-3: Removal of hypothecation from the insurer:

Finally you will have to get hypothecation removed from the record of insurance company. For removal; car owner i.e. you in this case; will have to provide following documents for verification:

  • NOC or NDC
  • Form 35
  • RC copy bearing your name

Congratulations – the car is completely yours now. Now after a month, check CIBIL records and verify whether bank has updated the records of loan account as closed. If not, immediately ask bank to do so. Pending status in CIBIL record will create problem in getting any type of credit in the future.

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