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A resident individual is permitted to provide a rupee loan to any of their siblings in their NRO (non-resident ordinary) account under the LRS (Liberalized Remittance Scheme) framework. However, the loan arrangement is subject to certain conditions such as minimum tenure, end use negative list, mode of repayment, etc. One of the conditions also state that the loan amount cannot be remitted outside India.

Additionally, a resident individual is not permitted to lend to any person outside India in foreign exchange. Therefore, unfortunately you won’t be able to receive loan in any manner from your sibling who is a resident in India.

However, you may accept the funds by way of a gift from your sibling. Your sibling can gift the funds to you in your NRO account in India or in your foreign bank account whichever suits you. Either mode of receipt would come under the LRS framework that will be applicable to your sibling.

Also, the transfer of funds would be subject to TCS (tax collected at source) payment in India for your sibling and such TCS can be claimed by your sibling as a credit towards eventual tax liability.

The transaction would not be subject to tax in India for you since gifting between siblings does not attract tax in India.

Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.

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Published: 09 Apr 2024, 05:45 PM IST

• Non-transferable debt: Personal loans are typically non-transferable. The loan agreement you entered into is between you and the lender.
• Credit check and income verification: Lenders evaluate the borrower’s creditworthiness and income consistency before loan approval. The new individual would have to undergo a distinct credit check and income verification process to be eligible for a new loan.

However, some banks or NBFCs do offer loan transfer facilities. A loan transfer (also known as a loan assumption) can be possible under specific conditions. Generally, it occurs when the original borrower is unable to meet the repayment obligations. This way, the lender still has an alternative party who can fulfill the debt repayment.

A typical instance of a loan transfer is when the responsibility for repaying a personal loan is shifted entirely to a co-signer or guarantor due to the borrower’s default. If you have a personal loan, a loan transfer might be a solution to alleviate your debt burden, address financial challenges, or obtain more favourable loan terms. However, transferring loans to another party comes with various implications, so it may not always be the best option.

There are alternative options if you’re seeking to assist someone or to get out of a personal loan you can’t manage:

• Co-signing a new loan: The other individual can co-sign on a new personal loan. They should possess a good credit history to qualify for a competitive interest rate.
• Debt consolidation loan: You can consider a debt consolidation loan to merge your current personal loan and other debts into one loan with a possibly reduced interest rate. This could streamline repayment and potentially increase available cash flow.
• Loan settlement: If you’re having difficulty repaying the loan, negotiate a loan settlement with your lender. This could entail paying a lumpsum to resolve the debt for less than the total amount owed. However, settling the loan can negatively impact your credit score.
• Selling an asset (if secured loan): If your application for personal loan is backed by collateral such as a car, you may be able to sell the asset and use the funds to settle the loan. This would necessitate approval from the lender and could lead to a shortfall depending on the loan amount and the value of the asset.

Borrowers should be aware that the optimal course of action depends on their circumstances and financial objectives. Consulting with a credit counsellor or financial advisor can assist you in identifying the most appropriate options for your situation.

Frequently Asked Questions (FAQs)

Q. How can I assist a friend in obtaining a personal loan?

You can co-sign a new loan for them if you have a strong credit history. This means you become legally accountable for the repayment if they fail to pay.

Q. When should you consider adding a co-applicant to your personal loan application?

If you have a low credit score, you may also think about applying for a loan with a co-applicant or a guarantor. Applying for a joint loan with your spouse, a close relative, or a friend who has a strong credit score can help leverage their rating for approval. Additionally, with the consent of your guarantor or co-applicant, you will need to provide a few signatures and complete KYC formalities for the loan. Having a co-applicant is likely to improve your chances of loan approval and could even secure you a more competitive interest rate on the personal loan.

Q. How does failing to repay your personal loan impact your relationships?

Failing to repay your personal loan affects your credit scores, adds to your debt load, and makes it challenging to obtain new credit. Consequently, your repayment options become limited, and you may need to depend on financial assistance from friends and family to settle the debt. This can create additional tension in your relationships.

Q. What are the benefits of applying for a personal loan online?

Applying for a personal loan online can save you a significant amount of time and effort since you can do it from the comfort of your own home. Some third-party financial services websites also provide paperless approval, meaning you won’t need to submit any documents to the lender for loan approval. Additionally, the application process is entirely secure.

Q. What is the loan repayment period for personal loans?

Most banks and financial institutions permit borrowers to select a loan repayment period ranging from one to five years, depending on their preference.

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Published: 09 Apr 2024, 09:46 AM IST

For instance, if Mr Ajay pays his bills on time, never crosses 30 percent of his credit card limit, uses a diverse set of credit types, never defaulted on any bill, and has a long credit history – then the chances of a high credit score are exceptionally high. 

Conversely, if Mr Tommy often misses on his payments, used 80 percent of his credit card limit, defaulted a number of times on his loan EMIs, then the chances of his low credit score would be high. 

These are some of the indicators of a good CIBIL score:

Score range: CIBIL scores usually range from 300 to 900. A score higher than 750 is generally seen to be good.

Payment history: This is the most important factor. Timely payment of credit card bills and loan EMIs shows responsible financial behaviour and impacts the score in a positive way.

Credit utilisation ratio: It’s the ratio of credit used to the total credit available. Keeping this ratio below 30 percent is advisable since it shows responsible credit usage.

Credit mix: A healthy mix of credit types such as credit cards, personal loans, home loans can positively impact the score. It shows the ability to manage different types of credit responsibly.

Credit history: Longer credit histories usually show stability and responsible credit management. However, this is not as significant for those who have recently started using credit.

Number of hard inquiries: A lesser number of hard inquiries can positively impact the score.

Default: No instances of defaulting implies a good credit score provided other factors are positive too.

Credit limits: Higher credit limits and larger loan amounts with responsible repayment can impact the CIBIL score positively, as they show trust from banks.

Frequently Asked Questions:

Why should you check your credit report?

Monitoring your credit score regularly helps you stay informed about your financial standing and any changes that may impact your ability to borrow money or access financial products.

How often should you check your credit score?

Most experts recommend to check the credit score at least once a year. 

Can there be mistakes in credit reports?

It is not uncommon to spot mistakes on credit reports. So, regularly checking your credit score allows you to spot any errors, such as inaccuracies in personal information or incorrect reporting of accounts or payments.

Is it an individual decision to check your CIBIL score?

Yes, how frequently you check your credit score depends primarily on your individual financial situation and requirement.

When should you check the CIBIL score more often?

Before applying for a loan, mortgage, or credit card, it’s vital to know your credit score. Lenders use your credit score to determine your creditworthiness and the terms of the credit they offer you. 

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Published: 08 Apr 2024, 07:36 PM IST