Few decisions are as difficult as choosing the right lender for your first home loan. With a large number of home loan plans available, it is easy for a non-financial person to get overwhelmed. One such housing option is Dewan Housing Finance Limited (DHFL). DHFL is the second largest Housing Finance Corporation (HFC) in India and it provides housing and property loans. Taking a home loan with DHFL has its own set of pros and cons which is why, we decided to create a comprehensive overview of the DHFL home loan, so you can make an informed decision about your financial future.
How is a Housing Finance Corporation different from a Bank?
As we said before, DHFL is an HFC i.e. it is not a bank. While both HFCs and banks disburse loans, there are multiple differences that exist between the two:
1) Type of loan provided
HFCs only provide housing-related loans like home loans, loans against property and construction loans while Banks provide different types of loans like personal loans, auto loans as well as home loans.
2) Generation of funds
Banks lend loans by using the money deposited in Current and Savings Account (CASA) by their customers. The same money that you deposit in your Current/Savings account is disbursed by the Bank as a loan. This is profitable for Banks because the interest they pay customers on CASA deposits is lower than the interest they receive on loans. Reputed HFCs like HDFC, LICHFL and DHFL raise funds from the public as well as by borrowing from banks. Smaller HFCs mainly rely on borrowing money from banks.
3) Regulating authority
HFCs and Banks are governed by two separate authorities – Reserve Bank of India and National Housing Bank respectively. NHB is a part of RBI.
4) Calculation of Rate of Interest
Banks calculate something called Base Rate. The method of calculating the Base Rate is decided by the RBI. Loans are hardly ever given on the base rate. The interest rate is generally higher than the Base Rate. To calculate the interest rate, Banks add a Spread on top of the Base Rate. Interest Rate = Base Rate + Spread HFCs: HFCs raise funds from the market and by borrowing from banks. These funds are generated at a certain cost to the HFC. Based on this, each HFC decides its individual ‘Prime Lending Rate’. Interest Rate is calculated by reducing PLR by a Discount. Interest Rate = PLR – Discount.
Note of Importance
Previously, if you compared HFCs and banks, the biggest advantage of HFCs like DHFL was that they included Stamp Duty & Registration Charges in the loan amount. However, this is no longer true. On 8 April 2015, NHB released a circular (http://www.nhb.org.in/Regulation/NHB(ND)-DRS-Policy-Circular-69-2014-15.pdf) which stops HFCs from increasing the loan coverage by including Stamp duty and Registration charges for properties over Rs.10Lc in value. If you are reading this for the first time, it might be a little difficult to grasp the concept in one read. We recommend reading The Difference between HFCs and Banks for a clearer picture about how the home loans will differ. Whether you take a home loan from an HFC or from a Bank makes a large difference to your finances in the long run.
What are the benefits of a DHFL home loan?
1) DHFL is lenient about your CIBIL score:
DHFL generally shows a leniency in the evaluation of a loan candidate’s CIBIL score (credit score). DHFL has been known to approve home loans for CIBIL scores as low as 640. In comparison, most Banks are quite rigorous in their requirement of a 750+ CIBIL score before approving the loan. However, there is no specific range of credit score for which DHFL approves loans as this depends on a case to case basis.
2) DHFL is lenient about document requirement:
DHFL is one of the few loan providers which disburses home loans even when the customer does not have access to all the required documents ex: DHFL approves home loans without Occupancy Certificate which is mandatory for almost all other loan providers.
3) DHFL offers higher loan eligibility:
Loan eligibility is calculated after evaluating your income, previous loans, credit score etc. This is the maximum amount that a lender is willing to loan you. For the same customer profile, DHFL generally offers higher loan eligibility as compared with banks. Due to these reasons, a DHFL home loan can be a good fit for you if you are in immediate need of a home loan and your loan application is not strong enough for a loan from a bank. However, these benefits come with a cost attached to them. While it is relatively easy to get a home loan from DHFL, you may face many problems in the long run.
What are the issues with a DHFL home loan?
Here’s the story so far – DHFL exhibits leniency in terms of credits score, documentation and loan eligibility. But it is far from perfect. After taking a home loan, DHFL customers are generally plagued by two major problems:
1) High Rate of Interest:
During the floating rate period, DHFL has some of the highest interest rates in the market, ranging from 10 to 13% of the principal amount. Because of high interest rates, DHFL customers often find that their EMI has drastically been increased which completely throws their monthly finances off track.
2) Poor Customer Service:
DHFL customers often face frequent service issues like hidden charges and an unresponsiveness to queries and complaints. This is why sooner or later, most DHFL customers ask the following question.
How to Switch from a DHFL home loan?
If you have taken a DHFL home loan and are facing these issues, there are two solutions to your problems:
1) Internal Switch to lower interest rate within DHFL
Speak with the Relationship Manager at your home branch. Tell them that you are unhappy with your current interest rate and are considering switching to another home loan provider. If you have been regular with your payments, there’s a good chance that DHFL will reduce your Rate of Interest for a processing fee of approximately Rs. 6,000.
2) Switch your loan to another Loan Provider
A loan transfer or balance transfer as the name suggests is the process of switching your loan from your current provider to a new provider. Transferring a loan to the right lender can result in significant long-term savings for you. For many DHFL customers, switching to another lender is generally the best option to remedy these issues. While switching is a recommended option, it might not be immediately possible for many DHFL home loan customers because of their low credit scores or imperfect documentation. In this case, you can improve your CIBIL score over time and obtain the documentation required by your target bank. Since the fixed-rate period of a loan is generally 2 years, you can use this time to improve your profile and apply for a loan transfer when the loan enters the floating-rate period. Read in detail about How you can switch your DHFL home loan An important thing to understand before taking a home loan from DHFL is that it is a good tool to meet your housing needs while you are stuck with an inadequate profile. Once you have strengthened your profile, you should switch to another lender and minimize your interest repayment amount. After all, why should you suffer through a bad loan when you can simply switch to a better future?
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