A Brief Guide On Step-Up Loan: A Way To Get Loan On The Basis Of Future Income
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Written by: pankaj
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Date: Tue, 31 Jan 2012 |
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Banks/financial institution give step-up loan to the borrower on the basis of his future or expected salary. It means, lender will take the decision on the basis of the professional growth of the person and as a result, eligible loan amount will be calculated on the basis of it. It means, borrower has an option to leverage his /her potential increase in income for getting the high loan amount. It is the main factor on the basis of which you can distinguish the step-up loan from the plain vanilla loan because in latter, current earnings of the person is taken into consideration while deciding the loan eligibility. As per the market information, with the help of step-up loan, a borrower can increase the loan eligibility by anywhere between 5 per cent-30 per cent. Few examples of step-up loan in Indian market are Corp Flexi home loan by Corporation Bank, SURF (Step up Repayment Facility) by HDFC and many more.
What is the eligibility criteria for getting the step-up loan?
Here, the strong contenders for step-up loan can be classified as double income earner, young working people, who have just started their career. It is due to the reason on which the product functions which says that the cash flow of borrower will be increased in sync with a rise in salary. Usually, such loans are not provided by all financial institutions and therefore, it is given on a case-to-case basis.
What are some of the features of step-up loans?
• Here, the step-up loan is designed in such a manner that the amount of EMI’s gets increased with the loan tenure. It means, during the initial period, EMI will be low and when the home loan will progress, the EMI amount will also rise in the same proportion. It means, during the initial phase, a large EMI proportion will go towards loan servicing and later when the EMI amount will increase, the principal amount will also get covered.
• In comparison of the plain vanilla loan product, step-up loan can be considered to be costly as here the repayment of principal takes place only after stipulated time duration.
• Under Section 24 of the Income Tax Act, the rate of interest on home loan is deductible to the extent of Rs 1,50,000. It becomes important for a step-up loan borrower because here the large part of EMI payment goes towards in payment of interest, which in turn proves useful in maximizing tax benefits on the rate of interest element.
Home loan | Canara bank home loan | Citibank home loan
Source: A Brief Guide On Step-Up Loan: A Way To Get Loan On The Basis Of Future Income
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