Saturday 6 June 2015

Beware! Banks are spying on your spending habits

Ever wondered why you are getting calls offering personal loan? Why personal loans are being sanctioned to you instantly? Or why you get inundated with calls for a credit card even if you don't need them?

The answer is banks are engaging in data mining, where they analyse customer's profiles and behaviour. They even track down your favourite restaurant, your eating habits, shopping preferences, movies you watch, books you read, the hospital visits you made; in fact, just anything about you.


Your loan repayments too are intensely scrutinised. These informations help banks take a quick call whether to offer you a loan or deny one, and effectively check bad loans. It also helps banks frame a strategy to sell financial products, have tie-ups with retail stores or simply entice with a good deal so that a good customer transfers his/her loan account.

A senior SBI official said, "We compile such customer data which help us decide on how to sell our insurance, mutual fund products or lure one customer to bank with us or have more than one relationship with an existing customer. Suppose a customer has a savings bank account with us and a home loan with another bank we try to woo the customer to shift his loan account."

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According to Harshala Chandorkor, senior vice-president, Consumer Services and Communications at Credit Information Bureau (India) Ltd (CIBIL), "Banks are engaging in data mining to understand the profile of their customers and understand the health and behaviour of their portfolio. It helps them to deepen their relation with existing customers, enhance credit limits on your credit cards, deny credit cards if your credit history is poor and have tie-ups with retailers. We at CIBIL undertake data mining to understand the profile and behaviour of the customers which help banks to define their strategies."

The bank has a data mining centre in Belapur, Navi Mumbai. With strict KYC (Know your customer) norms in place, banks get all the basic information from the customers themselves. And often customers with a savings account will be having a debit card, a credit card, a home loan or a car loan. Each time your card is used your bank gets a feedback of what you do with your money.

All banks, especially those in private sector, undertake data mining to understand the customer better before marketing various financial products to them and to avoid bad loan decisions. Tie-ups with online retailers are also undertaken considering the customer profile. HDFC Bank debit card has offers on various travel portals, and jabong and ebay. Banks like ICICI and HDFC are active in making calls to sell credit cards and personal loans.

For example, SBI debit card has tie-up with LG and other traders that the bank markets it as a 24x7 market place; ICICI Bank has tie-up with Shoppers Stop, Flipkart etc. Thus, each bank, depending on the kind of customer profile, will go in for tie-ups with merchant establishments who, in turn, will give discounts on the bank's credit, debit cards.

A senior banker with Union Bank of India said, "We regularly monitor our savings bank customers to find out from where they may have taken a home loan or a car loan. And try to find out how the bank could not have caught the customer. His relationship with the bank cannot just be a savings bank account. It makes sense for the bank to have more than one relationship with the customer."




Tuesday 2 June 2015

Should I Use a Personal Loan to Pay off My Student Debt?

With large student debts, many graduates are seeking new ways to pay off their student loans. An emerging option is the use of small personal loans to pay off and save on high-interest loans.

A personal loan can be a quick way to pay off your financial expenses under new, hopefully more favorable conditions. The loan has a set term and fixed payment throughout the life of the loan. Personal loans typically do not have any prepayment penalties and they affect your credit the same way a student loan would. Overall, a personal loan is not drastically different from a student loan – you are just using a new loan to pay of an existing student loan.

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Advantages:

There are many benefits to using a personal loan to pay off student loans.

You may have access to a lower fixed rate loan by using a personal loan.
Personal loans usually have shorter payoff periods if your goal is to pay off your loans as fast as possible.
Your student loan can be combined into one convenient payment.
You can release any cosigners you have on your student loans. If you qualify for the personal loan on your own, the person who cosigned for your student loans will not be obligated on your new loan.
Unlike most student loans, a personal loan is dischargeable in bankruptcy.




Disadvantages:

One drawback to using a personal loan to pay off student loans would be that you could lose the benefits of forbearance and deferment options on federal loans, or the reduced payments available with private loans. Check to see if your existing loans have these benefits and if you have a need to utilize them.

Another disadvantage is most lenders have a limit on loan amounts for personal loans. Since a personal loan does not have any collateral, lenders typically limit the amount that can be borrowed. Furthermore, if you still have new credit a lender may not feel like you have sufficient credit history to warrant a high loan amount.

So if you are a borrower with a large amount of student loan debt you may not be able to pay off all of your student loans utilizing a personal loan. Also, there aren’t any tax benefits on a personal loan. Each year borrowers can utilize a tax deduction for up to $2500 paid in interest on their student loans, but this is not extended to personal loans.

Should I get a personal loan?

A personal loan is one of many options worth considering when trying to reduce your student loan interest rates. There are several lenders on the market that offer personal loans to pay off student loans. Alternatively, refinancing lenders will pay off your existing loans for you as well as typically have lower rates than personal loans. Depending on your financial situation there are pros and cons to both refinancing and using a personal loan to pay off your student loans. Figure out what your repayment goals may be and explore your options.