Loan zone : Can there be more than one co-applicants?

Q.I am planning to take a home loan. Can there be more than one co-applicants? What are the rules for adding co-applicants while applying for a loan? Narender Kumar, Panchkula

A.A home loan can have up to six co-applicants, who can be family members, friends, or relatives. However, there are some restrictions on who can be a co-applicant:

• You can choose members of your family to co-apply for a home loan. When such members act as co-applicant, their income is computed when assessing your eligibility for taking a home loan. Members of the family usually refer to relatives bound by blood or marriage and not distant relatives and friends.
• Minors cannot be co-applicants.
• A brother cannot be a co-applicant for a sister, and vice versa.
• A friend cannot be a co-applicant.

A co-applicant can help the primary applicant repay the loan if any issues arise. A co-applicant’s income can also supplement the primary applicant’s income, which can increase the eligibility for the loan.

Benefits:

Tax deductions: Co-applicants who are also co-owners can claim tax deductions on the principal and interest payments.

Higher loan amount: A co-applicant can make you eligible for a higher loan amount.

Before applying for a loan, it's a good idea to check the CIBIL scores of all co-applicants to make sure they have a good credit profile and repayment history.

Difference between co-applicant and co-signer

A co-applicant is the one who applies with the primary borrower for the Home Loan and accepts to share the EMIs and other responsibilities. A co-signer is the one who needs to pay, only when the borrower fails to repay.

Choose right EMI options

Q. What is the difference between monthly reducing balance and daily reducing balance in home loan account?

Harpal Singh, Chandigarh

A. The difference lies in the way interest is calculated. Technically, in a daily reducing method, the interest is calculated on the outstanding principal on a daily basis. i.e. for the purpose of calculating interest for the month, the average daily outstanding principal amount is considered.

In monthly reducing method, balance at the end of previous month is considered for interest calculation. From the perspective of the borrower, it will seem that daily reducing balance is better. Basically, daily reducing method means that EMI is calculated on the outstanding balance each day. But since most people do not make daily payments, it effectively translates into a monthly reducing balance.

Nevertheless, daily reducing cycle does come with its own benefits, particularly if you want to prepay a loan. For example your due date for EMI is on the 10th of each month. If you would like to make a partial prepayment for the next month on 15th of the same month then you have opted for a daily reducing balance, you will get the benefit of the prepayment immediately. The outstanding balance of your loan will get reduced on the 15th of this month instead of the 10th of the next month. In the monthly reducing cycle, your prepayment will be taken into account only when the next EMI is paid.