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A Brief History of Loans

No one can say for certain where the history of loans began… it's likely that people have been

practicing lending and borrowing for as long as there has been a concept of ownership.

The history of loans can be documented at least several thousand years back; forms of lending

were evident in ancient Greek and Roman times, and monetary loans were even mentioned in

the Christian bible.

The modern history of loans started much later than these ancient times, of course… it is,

however, important to realize that lending started much earlier than many people would

imagine and has its origin in much older times.

Indentured loans

One of the early forms of lending that should be explored in the history of loans is the

indentured loan (also known as indentured servitude.) Initially practiced in the Middle Ages

and through the 19th century by land owners and the wealthy, indentured servitude allowed

poor individuals to borrow the money needed for major expenses such as travel and real

estate.

Once the land owner or wealthy individual had secured a ship passage or piece of real estate

for an individual, that individual would then have to work off their debt over the course of 

several years… unfortunately, many times the land owner was very dishonest and would

greatly inflate the debt or would continue to add provisions to the debt long after it had been

repaid.

Indentured servants often had very few rights, and were seen by some wealthy individuals as

a way to maintain slave labor long after slavery had been abolished in both Europe and the

United States.

Banking loans

Luckily, legitimate banks were developing even as indentured servitude was rampant.

Individuals known as moneylenders played an important part in the history of loans… in fact,

it's from the Italian moneylenders of the Middle Ages that we get both the English words

 “bank” and “bankrupt” that we use today.

Italian moneylenders would set up benches in the local marketplace (with the word for bench

being “banca”, from which we eventually derived the word “bank”). The moneylenders would

charge interest on their loans at a rate that they set, and would sometimes be quite successful

and become very wealthy.

As an interesting sidenote to the history of loans, if the moneylenders were not successful,

though, they would break up their benches and pursue other venues. The Latin expression for

breaking up a bench in this way was “banca rupta”, which eventually became the English word

 “bankrupt” (which carries a much steeper connotation than simply a broken bench.)

Modern banking loans

Of course, the history of loans has progressed quite a bit since the days of the Middle Ages

moneylender. Interest rates are much more controlled, loan terms have a much higher degree

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of fairness to them, and the banks of our era aren't out to simply get as much money out of 

borrowers as they can.

The modern banks, finance companies, and online lenders that provide loans to the public and

private sectors provide a great service to the world economy, and are regulated by both local

and governmental policy so as to make sure that nothing interferes with that service.

However, if not for some of the oppression and misdealing that was present throughout thehistory of lending then the fairness and opportunity that exists in banking today might not be

possible… even the oppression that resulted from indentured servitude in the past helped to

establish modern banking by showing what factors needed to be eliminated so as best to

benefit both lender and borrower.

Home Loan: New customers

In case you have been planning to buy your dream home for very long and you are unable todo that because of the rising prices everywhere, here is some help for you. You can takea loan that will help you to buy your dream home. All you have to do is to save enoughmoney to make the down payment of your home that is 20% of the home value. Theremaining 80% of the home can be taken as a loan from a bank depending upon how much

loan you are eligible for. The bank will decide how much loan you are eligible for dependingupon your income and various other parameters. This home loan can be repaid to the bankevery month as equated monthly installments or more popularly know as EMI over the entiretenure of the loan. A part of this EMI goes towards repaying the principal component of theloan and the other part goes towards paying the interest. The EMI is calculated on areducing balance basis. A reducing balance home loan means that in the initial days of theloan, the interest component of the EMI is high as the loan amount is high. But gradually,when the principal amount starts becoming lesser and lesser as you keep on paying itthrough EMI, the interest component of the EMI goes down and the principal componentincreases.

Also, while you are going to take a home you need to decide, the type of interest rate youwant to pay to the bank. The banks will offer you with an option of a fixed rate or a floatingrate. A fixed interest rate for your home loan means that the interest rate is fixed for theentire tenure of the loan. But these days, most of these fixed interest rates come with a resetclause where the bank has an option to change the interest rate after a fixed period of timegenerally in a range of 3 to 5 years. There are also a few banks that give you a fixed interestrate for the entire term of the loan.

The other type is the floating interest rate home loan where, the rates will depend on thebase rate of the bank. As and when the bank will change their base rate, the interest rate willchange for the customers. The change can either be in terms of EMI or tenure. For example,if the bank increases their base rate, the EMI will increase if the customer chooses the optionto increase the EMI. Or in case the bank decides to decrease their base rate then the EMIwill reduce for the customer. Generally the floating interest rates are cheaper compared to

the fixed rates.

Looking at the interest rate scenario, this is quite an appropriate time to buy the home youwere always looking to buy. The interest rates are on a rising trend thus in case you canmanage to get a home loan right now, you can expect to get a better interest compared towhat you will get a few months down the line.

Home Loan: Existing customers

In case you have already bought a property and you are paying a very high interest rate,then you should consider shifting your existing loan from existing home loan lender to a newhome loan lender. This will decrease the monthly EMI you are paying towards your loan andwill save money for you. You should consider shifting from the old BPLR system where the

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interest rate changes according to BPLR to the new base rate system. The base rate systemis more transparent than the BPLR system. Thus the effort you put behind converting youreyour old home from the BPLR to the base rate system will be worth devoting.

Also you should act now as the interest rates are increasing and you may miss the bus incase you wait for any longer.

Home Loan: Eligibility

Home loan eligibility depends up on various factors. A few of them are listed below -

• Income - Your income determines the amount of loan you are eligible for. Banksgenerally keep the EMI to income ratio at 0.45 to 0.50.

• Tenure of the loan - The longer tenure you opt for, the more loan you are eligible for.

• Interest rate offered - If your interest rates are on a lower side, then the loan eligiblitywill be higer and vice versa.

• Existing loans - In case you have any existing loans, then the loan eligiblity amountwill come down to keep the EMI to income ratio around 0.50.

The lender will consider all these factors along with your credit history to determine howmuch loan you will be eligible for.

Read More >

 

1.Allahabad Bank 2.IDBI BANK.LTD 3.Andhra Bank 4.Bank of Baroda 5.Bank of India 6.Bank of Maharashtra 7.Canara Bank

8.Central Bank of India 9.Corporation Bank 10.Dena Bank 11.Indian Bank 12.Indian Overseas

Bank 13.Oriental Bank of Commerce 14.Punjab National Bank 15.Punjab & Sind Bank

16.Syndicate Bank 17.Union Bank of India 18.UCO Bank 19.United Bank of India 20.The surat

peoples co op bank 21.State Bank of India

Getting a home loan is a lengthy procedure. However simple it might look in the bank's

advertisement, the fact remains that there are a lot of hiccups in the entire process. Here are

the 7 most common problems faced by home loan borrowers in India. Each problem is

discussed in detail and appropriate remedies are mentioned along with it. The objective of this

article is to ensure that your home loan becomes a hassle-free experience.

1 Rejection at the first stage

Strange but true, many of the home loan applications do not pass even the first test. They are

out rightly rejected due to incompatibility between the borrower's qualifications and lenders

requirements. It could be the age criteria, income criteria, proper documents not being

submitted, the bank not being able to verify your details properly, not passing the field

investigations conducted by the bank and many more. The best way to avoid being rejected in

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this way is to check the eligibility requirements of lending banks carefully and apply only to

that bank which matches your profile. Keeping proper documents ready and providing

accurate, verifiable details to the banks will ensure that you sail through the preliminary

verification process.

2. Processing fee not refunded

With every application form for home loans, banks require about 0.25% to 1% of the loan

amount to be submitted as the processing fees. This processing fees is generally NOT

REFUNDABLE. In simple words this means that for whatever reasons, if the bank finds that

you don't deserve the home loan, this fees won't be returned. This is the cost of applying for

home loans. If in any case, the bank you have applied to states that it will refund the

processing fees in case the bank doesn't sanction you the home loan, it is better to get any

such declaration in writing and make sure that the clause is enforceable. A verbal statement

by bank authorities won't be of any use unless it is properly and legally documented. In all

other cases there is little remedy for processing fees being not refunded.

3. Desired loan not sanctioned

The loan amount sanctioned is based mostly on repayment capacity of the borrower. Many

things come into picture, when the bank decides how much home loan a person can get. The

monthly income, financial history, other unpaid loans with the borrower, past repayment

record, credit card usage history if any, bounced checks, average balance with the banks,

continuity in present employment, total years in employment, nature of employment etc.

These factors all clubbed together help the bank to decide whether it will be able to recover its

money satisfactorily or not. If you get rejected due to any such criteria, you can increase your

eligibility by clubbing together your spouse's, father's, son's, relative's income and make them

a co-borrower. In addition to it, if you have sufficient funds in NSC's, provident funds, LIC

policies etc. you can keep them as collateral and ask the bank to finance your home loan.

4. The interest rate dilemma

Whether to go for a fixed rate or floating rate interest for home loans is a dilemma which

almost every home loan borrower faces. Even after deciding on a particular loan regime, the

home loan terms and condition fine prints can create havoc with your interest rates. For

example even if a borrower has opted for fixed rate home loan and the bank has promised him

a rate which he feels is good, the catch is in the fine prints which authorizes the bank to vary

this fixed rate every 2 years, things can go worse for the fixed rate borrower. Similarly if the

bank doesn't pass you the benefit of lowered interest rates in floating interest rate regime, it

will be of a little value. Avoiding such a situation essentially means that you study the terms

and conditions of home loan carefully and clearly ask the bank about such things. In case of 

floating interest rates the facts can be verified by checking how the interest rates on home

loan dropped during low interest periods. Ask your bank for some historic floating rate

changes.

5. Difference in property valuation

The bank has its own experts for legal, technical and financial appraisal of the property in

question. It evaluates the property on its own established parameters and assigns a value to

it. This value can be significantly lower than the price you quoted for the property. Thus the

bank will only lend you up to the amount it valued. This can cause a significant gap between

what you need and what the bank is willing to lend. To avoid this situation the borrower can

get the property valued before applying for home loan from a bank approved valuator.

6. The down payment

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Banks require the borrower to fund at least 10% to 20% (varying from bank to bank) of the

entire loan amount as the down payment for the home loan. This amount has to be deposited

before the disbursal of the home loan. In the absence of such down payment the bank will

refuse home loan to the borrower. For a home loan of 10 lacs this could mean anything

between 1 to 2 lacs. This amount must be readily available with the borrower. In a scenario

where the valuation of the property by bank is considerably lower than the market price of the

property, the balance will also have to be paid by the borrower. This effectively increases the

down payment. The obvious remedy to this tricky situation is to get the property valued

beforehand and have the down payment ready. Some banks also allow NSC's, provident

funds, LIC policies etc for down payment. It is generally a good procedure to check the down

payment requirement of various banks and choose the one which requires the lowest amount

to be deposited initially or fits your budget well.

7. Title deeds and NOC Documentation Problems

The title deeds and NOC documents have to be furnished in the bank's format. Borrowers who

don't provide such documents in proper format, will ruin the entire exercise and won't get any

home loan. To avoid falling into such uncomfortable situation, enquire about all the documents

required by banks beforehand and take necessary steps to get them ready within the

stipulated time frame.

Conclusion

The above mentioned problems are very common, but can be easily avoided if the borrower

follows proper procedure, prepares adequately before applying and takes care of correct

documentation.