You probably know that Life Insurance Corporation Housing Finance Limited (LICHFL) is one of the biggest lenders for home loans. But did you know that LICHFL is not a bank? LIC Housing Finance Limited is actually a Housing Finance Corporation (HFC). If you are new to the world of housing finance, you should first read HFC vs Banks: Who Wins?. If you are already familiar with these concepts, read on! The reason that LICHFL is so popular for home loans is that it has understood its customers well and it is much easier to get a loan from LICHFL, as compared to other lenders.Let’s take a quick look at what benefits it offers:
1) It is flexible about documentation
LICHFL isn’t so strict about the documents needed for a home loan application. Consider this: most lenders are extremely rigid about the ‘Occupancy Certificate’ of the home. Also, the OC must only be taken from the Municipal Corporation or Magistrate’s office. In contrast, LICHFL gives out loans on the basis of Gram-Panchayat OCs and in some cases, the loan is sanctioned without the OC. This is a very rare thing for a lender to do and is one of the biggest reasons why people choose LICHFL.
2) It is not rigid about your CIBIL score
Credit score during loan approval is like your 10th Standard marks during 11th admissions: a low score is a nightmare. Most lenders ask for a score in the 700s without which they rarely approve the loan.One of SwitchMe’s customers, Rajesh Mandavkar, had a pretty complicated problem which was finally solved by LICHFL. Rajesh had taken a 12Lc home loan from IndiaBulls and when he requested a top-up loan of 13Lc, IndiaBulls rejected his application. The reason behind the rejection was his low CIBIL score – 650.He approached HDFC for a loan transfer and surprisingly, his application got approved. A loan of 25 Lc was approved by HDFC but at the last moment, they cancelled his loan due to a problem with the documents. Naturally, his CIBIL score dropped further and reached a number lower than 600. A 500-something score is considered very low and it is nearly impossible to get a home loan. Rajesh was in this grave situation when he got in touch with SwitchMe. Our Home Loan Advisor suggested transferring the loan to LICHFL and upon inquiry, LICHFL agreed to sanction his loan! Rajesh was elated beyond measure because he had started to believe that there was no solution to his problem. LICHFL gave him the desperate relief he needed.
3) LICHFL gives you a high loan eligibility
When you apply for a home loan, the lender decides your loan eligibility i.e what loan amount you qualify for. This amount is calculated by considering your salary, age, education, credit score etc. When it comes to loan eligibility, you will often find that LICHFL favours the borrower and approves a higher loan amount than most lenders.In general, we find that LICHFL is a good fit for first time home loan borrowers. However, our advice to you is to proceed with caution. While LICHFL can be helpful towards the borrower, there is a cost attached to it.
Short-Term Gain with Long Term Loss
A lot of people who need home loans are attracted to LICHFL because they see that it is giving a higher loan amount and is not even that strict about the application requirements. But generally, once the loan is given out and the repayment begins, these people find that the service quality has drastically reduced. They are asked to visit the bank to complete small processes, charged hidden fees and not given timely information regarding their loan. The mother of all problems is the Interest Rate. When the home loan enters the floating-rate period LICHFL’s interest rate can reach astronomical heights. Averaging 11.5%, the rate can go higher than even 12.5%!
So, how is your life affected by the interest rate?
While taking the loan, you plan your salary to manage bills, utilities, children’s fees along with EMI. When your loan enters the floating-rate period and the interest rate is increased, LICHFL increases your EMI. Imagine what kind of panic you would be in if your bank account is suddenly missing Rs. 5,000. Now imagine how you would react if you found out that the extra Rs. 5,000 will continue to be deducted every month. The inflated EMI completely throws your finances off-track and you might even struggle to make ends meet each month. The only way to get relief would be to Switch your loan from LICHFL. Staying with LICHFL in this situation can make impossible to manage your finances.Summing up, LICHFL does have some advantages that sets it apart from other lenders. There are many people who face issues with documents, credit score and eligibility when they are first taking a home loan and LICHFL is a big help for them. But when you enter the floating-rate period and your monthly expenses spiral out of control, is it really worth it to stay with the lender? Definitely not. Compared to LICHFL, there are many lenders out there who charge much lower rates of interest and allow you to regain control over your expenses.If you are applying for a loan and find that LICHFL is your only option, then go ahead and apply. But plan the first two fixed-rate years of your home loan in such a way that you can improve your credit score and get all the necessary documentation. Do your research, find the lender that offers you the most savings and once the home loan enters the floating-rate period, switch your loan to another lender. Quite simple isn’t it? You can take the help of our Savings Calculator or get in touch with our Home Loan Advisors for a free loan evaluation before taking the next step.After all, isn’t life too short to be stuck with a bad loan?
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