Using Credit Wisely – How to Track Repayment Obligations

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Why is it important to spend within your means and track repayment obligations closely?

Credit is an activity widely used and well understood by all sections of society. The neighborhood store-keeper is glad to defer your payment since he is familiar with your residential and personal habits. (Note – do not try in organized chains, where credit cards work better; this is best suited for mom & pop stores!) . Electricity and telephone suppliers provide you with a month of free utilization in-between billing cycles. A cab-service or a restaurant measures you at the time of entry – they have their collection methods clear, if you don’t pay up at the end of the activity!!

Put simply, credit in the financial world, is nothing but an extension of the above into a structured format.

  1. You identify an asset or a need that is urgent
  2. The capital cost of the same is beyond your current budget
  3. To bridge the same, you consider financing options

Once you have narrowed the best option, the doubts start coming up

  1. Should I borrow at all? Yes. You deserve it. No – unless you are already over borrowed.
  2. Have I borrowed too much? Not if your existing repayment obligations are within 50% of your net monthly earnings.
  3. What if I am unable to repay on time – this is usually a sign of impending trouble. It is best to take a hand-loan from a friend, parent or relative and meet the outside lender’s obligations. Sometimes lenders offer skip-payment if a locality is affected by a calamity (or) an individual faces unforeseen emergency.
  4. Will lenders take me to court if I don’t repay. Yes, they would. However this itself is only a headache compared to the larger problem. Your future borrowing would be hamstrung by this blot. This is because, post 2000 all lenders participate in credit bureaus. By law, every lender needs to submit details of all loans granted (including periodic repayments) to at least one bureau. Since all details of your monthly repayment behavior are fed into an analytical system, your credit history is visible to the organized lending community.
  5. What if I repay all obligations on time? As with many things, the rewards for punctuality and obedience come in surely but a little later, once you complete 6-12 months of good repayment. Your existing lender could offer you an interest or tenure break. Other lenders could offer higher loan amounts. In short giving you better financial flexibility.

Equally, a spotty credit history considerably reduces your chances of future borrowing.

In a nutshell, borrowing is an excellent tool – be it for student loans, first automobile or wowing an identified life partner. It is a bad idea if you are not serious about the partnership and its purpose – be it university, a vehicle or life’s journey itself. Commitment to timely honoring of obligations is valuable anytime, anywhere across time and situation. In the world of financial credit, the positive and negative effects are visible, starkly & promptly. A nice approach would be to bite this in small chunks – borrow progressively larger amounts up on settlement of a prior loan.

The Author, Kalyanaraman M, is the Chief Operations Officer of TVS Credit Services

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Bike Safety Tips For Beginners

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Two-wheelers are exceptionally useful on the road. Right from the ease in navigation in traffic-filled roads to the ease of available parking slots as opposed to the situation for cars, there are plenty of benefits to riding two-wheelers. As much as there are benefits, there are also cautionary factors to keep in mind. Given the speed and agility of the vehicle as it exists, there is the regularly looming threat of accidents, maintenance needs and even safety while navigating on the road for your own well-being. With all of these things in mind, here are ten things for first time bikers to take in their stride for a comfortable ride!

  1. Invest in a bike that you can handle. The performance of a bike is something that plays a very important role in the way you navigate the roads. Today’s bikes are a lot speedier and a lot more powerful with their small-displacement engines, so be fully aware of the kind of vehicle you will be investing in.
  2. Always make sure to use a bike that fits you. Sit on the bike you intend to buy. Make sure that your feet rest flat on the ground and that you are not on tiptoes. Your hands should be able to reach the handlebars and all the controls easily. You should be able to get on and get off easily, on the centre stand. It shouldn’t feel too heavy, and too light.
  3. Antilock brakes are the thing to have. They are tremendously useful tools in preventing fatal accidents and keep you safe on the roads. By locking up a brake, the rider loses control – so antilock brakes help buoy a bike and keep it afloat.
  4. Practice and ride often. Bike riding is really not a textbook study subject. You need to be out there on the roads to get your game in order.
  5. Never bike without a helmet. True, there is some fun in dare-devilry. But it really helps nothing if you’re out on the streets, cruising at top speed without a helmet. Your head is precious, and it needs protection. Many different studies have reported that riders without a helmet are 40% more likely to suffer a fatal head injury in a crash than those with helmets.
  6. Dress comfortably when you’re on a bike. Don’t use heavy clothing and open shoes. Use a good leather jacket, a pair of full pants and over-the-ankle footwear, along with a comfortable pair of eyeglasses that can help keep dust at bay.
  7. Understand your routes well. Bike rides can be pleasant if you know where you’re going and how to get there, and how to make those roads work for you. Riding over roads that are precarious by their very nature is ill-advised.
  8. Always make sure that you keep your bike clean. Dust, dirt, water and even little rodents can make your bike completely incapable of proper use. Make sure to treat your bike with the care and love it most needs.
  9. Don’t ride during bad weather unless it is absolutely necessary, or you have the confidence of practice. Riding in the rain is a dangerous thing to do – what with slippery roads, sudden manoeuvres and even potholes aplenty.
  10. Never presume skills, knowledge or even a sense of direction on behalf of others around you on the roads. Make sure to create a sufficient leeway to overcome any uncertainties – avoid that sudden swerve or that sudden braking, by understanding that your fellow roadsters may not be up on their game

The 3 pillars of a Financial Plan

Protection is an umbrella – inconvenient to carry around, but handy during any sudden or intense shower. Protection is a moat – it surrounds you as a shield from enemies, whether visible or not.

Enter the world of Insurance – there is something for your every need. Be it life, health, wealth or something more customized. By law, motor vehicles are always purchased with insurance – considering the mobile nature of the asset, this gives a cover from accidents to those involved in the same. Should God have made a law to compulsorily issue life covers for all human beings? How much preservation and protection do we give to our bodies? Leaving aside insurance, that is.

To summarize, you protect what is most important to you – and an insurance policy provides just that kind of protection to handle specified eventualities.

Savings are what you put away for a goal, be it short term or long term; For example, that annual holiday, or an exclusive spa treatment or even a gift for a loved one. In today’s day and age, it could even be an expensive wear-able that’s beyond your present budget. Making savings a habit is as important as earning your first paycheck. An interesting tidbit is about how Indians are one of the highest savers in the world. Buying gold is still viewed as a saving by many communities. Bottom-line, spending within your means is the Old Aunt’s advice. Saving for a specific goal or purchase is the Agony-Aunt’s mantra.

Remember the piggy bank from childhood? Once you grew up, the coins changed to notes – higher value, lower noise!

Savings come in handy during rainy days as well – for example, when a planned expenditure goes slightly beyond budget, or that portion of an emergency expense, that wasn’t covered by insurance.

Growth primarily comes out of investment – by borrowing to finance growth, one experiences the higher power of growth. The most classic eventuality of the same is in mortgage – affordability is enhanced by borrowing to purchase the property. Assuming that the property value grows faster than the interest paid, the net difference adds to your bottom-line. Else, the borrowing does not yield a financial healthy asset. (From your perspective – never mind the base-case for other parties involved: buyer, seller, lender and manufacturer).

So make sure that all of these three aspects are covered in YOUR Financial Plan!

The Author, Kalyanaraman M, is the Chief Operations Officer of TVS Credit Services

10 Things To Keep In Mind While Buying A Second Hand Car

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Very often, as is common in the Indian middle class, the first car one opts for is a second hand vehicle. More often than not, purchasing a second hand vehicle brings with it a whole lot of concerns – right from whether you’re paying an appropriate amount for a used car, to the functional utility of investing in a vehicle. You wouldn’t be gaining anything if your resources went into funding a vehicle that is faulty or simply doesn’t suit your needs. To help you through the big decision that it is, we’ve thought of ten things you should keep in mind whenever you’re up to buying a used car!

#10: It’s all about the Money, Honey!

Start with identifying how much a reasonable market rate is for a second hand car. This will help you plan your budget, and keep an eye out for any potential ripping off you might encounter. While there is no singular scale like first-hand cars have for their pricing, an estimate of the way the market prices second hand vehicles is always around. You can do your research online, or ask around with credible sources and make your notes.

#9: Study, study, study!

Used cars come to a second hand owner after, well, being used. It is important to understand what condition the car comes to you in. You can’t really get answers for these questions except if you ask the owner, so go equipped with all the right information: Are all the parts in working condition? What kind of service rounds did the car go through? Were there any issues in its functioning?

#8: Understand your needs

Once you figure out the cars that are available, take a moment to understand what your needs are. Look at the utility you have planned ahead of you, with the car. See what extent of use your car will be put to. With that in mind, compare your needs with what a given car can offer, and then consider making your decision. If you are looking for a vehicle that will help you commute to work every day, you’re getting nowhere if the vehicle sputters to a stop more often than you can manage!

#7: Look, Feel, Drive

Understandable, that a second hand car is not going to show miraculously in mint condition. But at the same time, you cannot afford to own a vehicle that looks like it has seen the back of beyond and borne meteor showers in its journey to the present. Make sure that the car is aesthetically acceptable to say the least, and also functionally aesthetic with all the parts working fully. Take it for a test drive, and experience what it feels like to be behind its wheels.

#6: The credibility of your seller counts!

So you’ve got to know about the car, you’ve understood that you need it for certain purposes. Great! It doesn’t stop there though. You need to know who you’re buying it from, and by know, we mean an ascertainment of their credibility. There are many occasions where naive and unassuming buyers have been taken for a ride by people who professionally deal in faulty second hand cars, to the point that the vehicles they sell are completely faulty and cannot be serviced.

#5: Ask, and it shall be given.

It is important to ensure that you go into purchasing a second hand car with all the information that you need. You cannot be walking into buying a car with grey areas so far as facts go. It is important to understand why the seller is selling the car, how long have they had the car, if it has ever been damaged, what condition it is in and if there are recurrent issues with the vehicle or not.

#4: Look for loans, mortgages and charges on the car

It is very important to understand that your prospective vehicle is being sold free of any encumbrances, whatsoever. There are scores of instances where a car may have originally been bought on hire purchase, and before the instalments due are discharged, may have been sold to unassuming buyers who have thence been forced to bear the burden of the payments due. Similarly, outstanding loans are also possible encumbrances on a car. Make sure to get your car free of any encumbrances whatsoever.

#3: Clean chits

The history of the prospective car is absolutely significant in any purchase decision. You need to make sure that it is not a stolen car, or one that is subject to the burden of a previous write-off. Make sure to look at the documentation chronicling the servicing of the vehicle.

#2: Check the car’s history

No matter how genuine the seller seems, you should check the history of the car to make sure it’s not stolen, encumbered by an outstanding loan, or even a previous write-off. The history of a car makes a big difference: you should be getting exactly what you’re being promised.

#1: Negotiating the price and arranging the paperwork

As a buyer, you have a right to negotiate the price for a second hand car. If there are obvious faults and flaws in the vehicle, work that might need doing, efforts and monetary expenditure that needs to be incurred to set the vehicle in order before it can be used, it is imperative that the seller account for these factors while calculating the price. Remember, you can’t pay him a price and then some, to set things in order.