Non-resident Indians (NRIs) are eligible to procure loans in India, from both banks and Non-Banking Financial Corporations (NBFCs). As an NRI, you are permitted to obtain all categories of loans in India, including home loans, car loans and personal loans. Before learning about the process to procure loans, let us understand more about the types of loans available in the Indian loan market.
Home Loans/Mortgage loans – This is a secured loan which is disbursed for the purchase or construction of a house in India. The interest rate is the lowest for this loan and the loan repayments are eligible for tax exemptions. Pre-closure and advance principal payments are allowed by all the lenders without any penalty.
Car/Auto Loan – This is a secured loan which is disbursed for the purchase of a car or any vehicle for personal use. The interest rate is higher than that of home. Though the pre – closure is allowed, the interest calculation is at a flat rate.
Personal Loan – This is an unsecured loan which, as the name suggests, is for personal use, which need not be declared to the lender. The interest for these loans is the highest in the category. Pre-closure is allowed, but the interest amount as calculated for the initial term, is payable. However, very few banks lend personal to NRIs due to the risks involved in providing an unsecured loan to a resident of another country.
Though you are eligible to procure the aforesaid loans, most NRIs avail only the home loan facility. The car and personal loans are availed only by those, who intend to stay here for few years and return.
Overseas Citizens of India (OCIs) are also considered as NRIs and the same loan facilities are extended to them, irrespective of their country of citizenship.
Minimum eligibility to procure loans in India
The loan eligibility of NRIs is mainly decided by the income and educational qualifications. Most banks set the minimum criteria of education as a Graduate degree and a minimum work experience of three years abroad. The maximum loan that can be given is decided by your income abroad.
Tenure of loans
The tenure of NRI loans varies depending on the type of loan availed. The term of a home loan for NRIs can vary from 5-15 years. The term of a personal loan may vary from 1-5 years. The term of a car loan can be between 3-5 years.
The interest rates for loans varies depending on the monetary policy of Reserve Bank of India (RBI). Typically, banks offer loans at a few basis points higher than the base rate set by the RBI. For home loans, you can opt for either fixed rate loan, in which the interest rate remains constant throughout the loan tenure or floating rate loan, in which the interest rate varies according to the monetary policy of RBI. The interest rates for personal and car loans are fixed when the loan is first sanctioned and remains constant throughout the tenure.
The repayment of the loans has to be done in Equated Monthly Installments (EMIs). The EMIs have to be compulsorily paid in Indian Rupees from your Non-Resident External (NRE) / Non-Resident Ordinary (NRO) account through remittances from abroad.
Loan To Value (LTV) for Home loans
For home loans, even if you are loan eligibility exceeds the total cost of the chosen property, lenders will only disburse 80-85% of the property value as the loan. You have to bear the remaining cost of property purchase, by your own funds.
Documents required to procure a loan
You are required to furnish the below documents for loan procurement:
- Copies of a valid
- Copies of valid visa and work permit.
- Proof of employment.
- Proof of work experience.
- Salary certificate.
- Bank statements of NRE/NRO accounts.
Additionally, many banks request NRI borrowers to provide a Power of Attorney (PoA) to a known person in India. It could be a blood relative or friends or any person whom you trust. This additional document is required by the banks, so that they have a local contact in case need arises. Some banks avoid this and insist on having a local co-applicant for the loan.
To get a loan sanctioned, you need not visit India. You can approach branches of any of the Indian banks in your country, where you can apply. However, for executing a PoA in favor of a resident Indian, you have to sign in front of an embassy official.
If you have income in India and paying taxes, then repayments on your home loan are eligible for you to claim tax exemptions. Both the principal and interest paid on the loan, qualify for tax benefits.
However, there are no tax exemptions for repayments of car loan and personal loan.
Tax status changes from NRI to Resident
When you move back to India from abroad and still have an ongoing loan as an NRI, then you have to inform your bank about the changed status. The bank will rework your loan according to your revised income and issue a new loan schedule letter with applicable interest rates and tenure.