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8 questions for checking your loan eligibility

Personal or secured loan? What will the fees be? Make the right choice when applying for a loan by going through this checklist.

The type of loan you apply for depends on your needs. It will also determine the length of the loan and repayment option.

1. Do you have other options if you need money?

Taking out a loan isn't the only option. Perhaps you don't meet the eligibility requirements. Delaying the expenses and making little changes to your spending habits can help you grow your savings. Even if you aren't able to save the entire amount, putting aside some money will mean a smaller loan if you go that route. 

If the amount you need is relatively small and you're confident you can pay it back quickly, a credit card with an interest-free period on purchases might suit your needs. Another option is to transfer your current credit card balance to an HSBC Credit Card and repay it in easy monthly installments at a lower interest rate. 

2. What will your repayments be?

Taking out a home loan? Use our loan calculator to look at how much your repayments could be and how that may impact your budget. 

If you're looking at a loan with a variable interest rate, keep in mind that the rate of interest could go up or down. Ask yourself: could you still afford the repayments if the interest went up? If not, you may want to consider reducing the loan amount or extending the loan term.

3. Do you know what type of loan you need?

A secured loan is a loan taken out against an asset, such as property or a car, as security for a reduced interest rate. Different types of secured loans include those for:

  • Home loans
  • Loans against property
  • Insurance policies
  • Gold, mutual funds and shares

You risk losing your collateral if you're unable to make the payments on a secured loan.

Unsecured loans include those for:

  • Personal borrowing
  • Education

Because you're not providing any collateral on an unsecured loan, the amount you can borrow is usually smaller. HSBC offers both secured loans – in the form of mortgages – and unsecured loans, such as personal loans.

4. How long will you be paying the loan back?

Personal loan tenures can range from 6 month to a maximum of 60 months (5 years). Most homeowners in India prefer to pay off their home loan in 10 years, but these could go up to 30 years, in some cases.

The length of your loan impacts the amount of interest you'll pay and the overall cost of the loan. The longer the term loan the lower your regular equated monthly instalments will be. Our loan calculator will show you what your repayments would be with a one-year home loan, all the way up to 20 years. 

5. What will the loan fees be?

The representative APR (annual percentage rate) is what you'll be looking at to compare the borrowing costs of different loan products. However, the final interest rate you're offered will be determined by:

  • Your financial history
  • Your personal circumstances
  • The loan amount
  • The loan tenure

Excluding personal loans, the interest rate for floating rate loans is linked to HSBC's Repo Linked Lending Rate (RLLR). The RLLR is pegged to the benchmark repo rate of the Reserve Bank of India (RBI). 

Look for any additional charges associated with taking out the loan. You may also incur charges for switching rates, delayed installments or late payments. These, together with the interest rate, can make a big difference to the overall cost of the loan.

6. Will you have flexible repayment options?

Some lenders will allow you to repay your loan early but may charge you an early repayment penalty. This could be around 2-3% of your outstanding loan amount, excluding interest.

The RBI has stipulated that banks are not allowed to charge early payment penalties on any floating rate term home loans.

If you feel you may want a flexible repayment option, see if you can avoid any fees when choosing your loan.

7. Do you have a good credit score?

Your past borrowing and financial history can determine whether you're approved for a personal loan, as well as the amount of money and interest rate you're offered. Credit reports detailing your financial history are held by the 4 major Credit Information Companies (CICs) in India:

  • Experian
  • TransUnion CIBIL Limited
  • Equifax
  • CRIF High Mark

When calculating your credit score, CICs will typically look at:

  • Any transaction defaults, like missed or late payments
  • Good payment history, like staying below your credit limit and paying your debt on time
  • Searches or enquiries on your credit report

You can request one free credit report a year from each CIC. It can be a good idea to check your report regularly to make sure there are no mistakes on your file. 

8. Have you applied for too many loans recently?

Getting a quote for a loan won't usually appear on your credit report, but making a lot of applications often will. Lenders will think you're having trouble managing your money and this can affect your report.

Apply for a loan after you've done your research and feel that it's the right one for you. 

You might also be interested in

If you're applying for a loan, give yourself the best chance for approval with these 4 tips.
We explain the different types of personal loans and how to choose the right one.
Financial planning, saving and budgeting are all part of managing loan repayments.


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