Professional Documents
Culture Documents
A project submitted to
PERIYAR UNIVERSITY,SALEM
BACHELOR of COMMERCE(CA)
Submitted by
M.PANNERSELVAM
REG NO : C21UG105CCA054
NMID: 7E1A2BF8A94967D9BBC4B8E33E555721
COLLEGE
DHARMAPURI 105
MARCH/APRIL 2024
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NAME M.PANNERSELVAM
7E1A2BF8A94967D9BBC4B8E33E555721
NAN –MUDHALVAN ID
ROLL NO PER10521CMA44
DATE
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INDEX
01 INTRODUTION
05
02 PROJECT -01 06 TO 14
EMI Calculator
03 PROJECT-03 15 TO 26
Principles of Lending Application
04 PROJECT-05 27 TO 33
Debit Card
05 CONCLUSION 34
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Introduction
Running a business often involves lending credit, a task that is far from easy. To
safeguard this crucial aspect, most businesses design and build a credit evaluation
process. However, even seasoned professionals may face challenges in initiating
this process due to its complexity, planning, and organizational requirements.
Amidst these challenges, several strategies can prove beneficial, and one such
strategy is the “5 Cs of credit” framework. While not a new concept, these 5 Cs
serve as the foundational principles employed by many credit management teams,
often unknowingly. Understanding and embracing the comprehensive framework
of the 5 Cs of credit can streamline the planning of your next credit evaluation
process.
In this article, we will delve into the essence of the 5 Cs of credit and how they
assist you in determining whether conducting business with a borrower is a wise
decision.
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PROJECT-1
EMI CALCULATOR
How to use this EMI Calculator?
EMI or equated monthly instalment is the fixed payment that is made by the
borrower to the lender. EMIs pay back both the principal and the interest for each
month, and the loan is fully repaid within a specified number of years. Here, the
borrower could be you, and the lender could be the bank that has given you the
loan.
Take, for example, you have borrowed some money from your friend, but you are
not able to return the entire amount in a single attempt. You both then decide that
you would pay back a part of the amount every month, over a period at a specific
interest rate, until you pay him back in full. This is nothing but Equated Monthly
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Instalment or EMI.
An EMI Calculator is a utility tool, which helps you to calculate the amount you
repay each month towards your loan. You can use the EMI calculator and
calculate the EMI amount on a car loan, home loan, bike loan, or a personal loan.
You get an idea of the monthly repayments you make towards these loans.
The EMI calculator has three sliders in a box with the loan amount, number of
months, and the interest rate. After you fill-up the details using the slider, the EMI
calculator shows how much you must pay off each month, to repay the loan within
the duration you have selected.
An EMI calculator is a handy tool that calculates the monthly amount payable to
the lender, according to the following mathematical formula.
EMI = [P x R x (1+R)^N]/[(1+R)^N-1];
where, P, R, and N are the variables, which means the EMI value will change each
time you change any of the three variables.
‘P’ denotes the ‘Principal Amount’. This is the original amount lent to you by the
bank/lender. The loan amount will depend on your need and the purpose of the
loan. The higher the loan amount, the higher will be the EMI that you pay for the
loan.
R represents the ‘Rate of Interest’. This is the rate at which interest is charged on
the principal loan amount. The interest rate will vary according to the type of loan
taken and the lender (bank) from which you are taking the loan. The rate of
interest has a direct bearing on your EMI amount; hence, it is important to
compare interest rates across banks before opting for a loan.
N indicates the number of years for which the loan has been taken. This period is
known as the tenure. The tenure of a loan refers to the total period given for the
repayment of the loan. As the repayment is made every month, the tenure is
calculated in months and not years. So, a term of two years is equal to 24 months,
and so on.
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Take this example to understand how the EMI calculator works. You have
borrowed Rs 1 lakh for two years at an interest rate of 10%.
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
EMI = Rs 4,615.
Visit the ClearTaxInvest page and pick the EMI Calculator from the option of
financial tools.
You will be asked to input the following details: Principal amount, the rate of
interest, and the tenure.
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Once you enter the three components, the EMI calculator will generate the
EMI amount you must pay.
You may try different parameters as well to find an EMI option that best suits
your financial goals.
Even before you apply for a loan, you must know if you are eligible for the loan.
This can be done with the help of an EMI calculator. Calculating your EMIs will
help you prepare to make the EMI payments on time. The other benefits of the
EMI calculator include:
Accessibility: You can use the EMI calculator anytime, anywhere, and make your
budget calculations.
Financial Planning: EMI calculations must be done even before you start
applying for your loan. An EMI calculator can help you with this.
There are different types of EMI calculators, depending on the loans you plan to
take.
Home loans are one of the most common bank loans taken each year. They usually
tend to have a large principal and a longer tenure. This is why it is essential to do
all your calculations, well before you take a home loan.
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Car Loan EMI Calculator
Before buying your dream car, be sure to run the numbers through our car loan
EMI calculator. There are many loan schemes available in the market for buying
cars, which are quite tempting. However, it is important to remember that if you
are unable to pay your car loan amount in full, the bank could repossess your
vehicle.
Personal loans have become relatively common these days. You get a personal
loan for going on a vacation or renovating your house from various banks.
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We can help you estimate your loan details regarding how much EMI you’ll have
to pay to the banks. It is quick and easy with our personal loan EMI calculator
The cost of education is on the rise each year, and if you are planning to send your
child for higher education, you may need an education loan. Generally, these loans
come with a moratorium period, so that you can start paying off the loan only after
the education is complete.
You can use our education loan EMI calculator to find out the EMI amount you
will have to pay for this loan.
If you have any residential or commercial property or land registered under your
name, you can use this as collateral to obtain a loan against property (LAP). These
are secured loans, where you pledge the property as security. You can use our
Loan Against Property EMI Calculator, to understand how the EMI scheme
works.
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What is the Loan Amortisation Schedule?
An amortised loan is designed to allow the borrower to pay off the loan in full
over a certain time, in equal monthly instalments. Now, the EMI that you pay
against the loan you have taken is made up of two parts:
As you keep paying your EMIs, the original principal amount keeps reducing.
Over time, the interest on the loan amount decreases and the principal part of your
EMI increases. At the end of the tenure, you would have paid off the principal
amount in full.
A Loan Amortization Schedule keeps track of this EMI breakup, so you know
exactly what portion of your EMI has been used for paying interest and what is
used to reduce the principal. This schedule can be very useful in understanding the
prepayment of loans and for refinancing if required.
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Several factors affect EMI calculation. As the EMI depends on the principal
amount, tenure, and rate of interest, any change in these variables can result in a
change in the EMI amount.
Change in interest rate: Loan interest rates can be fixed, floating, or hybrid. In
case of a fixed interest rate, the rate remains the same over the loan period. A
floating interest rate is linked to the MCLR (Marginal Cost of Funds Based
Lending Rate) and can change multiple times over the loan period. This may
change the EMI calculation for your loan. A loan with a hybrid interest rate has a
fixed interest rate for a particular duration, after which the MCLR decides the
interest rate. The EMI can change even for such loans.
Change in tenure: If you change banks and carry over your loan to the new bank,
the tenure of your loan may change in some cases. This will affect your EMI
calculation. The EMI can decrease if the tenure increases and vice versa.
Prepayment of loan: If you prepay your loan, the prepayment amount will be
deducted from the original principal, effectively reducing your loan amount. If the
tenure remains the same, the EMI can either decrease or stay the same. In the latter
scenario, the portion of the EMI used for repaying the principal will increase, as
the effective interest would be lower than the original calculation.
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PROJECT-3
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1. Character
The first C of credit is Character, which refers to the customers’ reputation and
credit history. To assess their ability to repay a loan, credit teams usually use
popular credit bureaus such as D&B, Experian, and Equifax to look at the
following criteria:
Payment history
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Character is a critical factor because it helps organizations determine the level of
risk involved in extending credit. As a customer, if you have a good credit history
and a high credit score, your supplier will view you as less of a risk and more
likely to repay your debts on time.
2. Capacity
‘Capacity’ means whether the customer’s organization has enough funds to repay
the supplier team. If the customer has been experiencing unstable cash flows, then
the credit teams think twice before extending the line of credit.
When it comes to the investigation of cash flow stability, who could serve as an
alternative to a bank? Credit teams add mandatory fields in their credit
applications to extract information such as bank references and trade references.
Both of these vouch for the availability of funds and assure the credit team that the
customer will be able to repay.
Sometimes, credit teams also follow the news alerts to understand the customer’s
financial position, acquisitions, employee stability, etc.
3. Collateral
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Most credit teams demand 'collaterals' from high-risk customers to avoid incurring
bad debts for their business.
4. Capital
Capital refers to the assets owned and the amount of equity a customer has. Capital
includes financial and non-financial assets, and the credit teams get this
information through public financial statements. These teams will look at the value
of the assets to assess the customers’ net worth. They'll also take into account any
investments that could be used as collateral for the loan.
5. Conditions
Conditions encompass the current financial condition of the customer, which can
be measured by analyzing the company's financial statements, cash flow, balance
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sheet, and income statement.
Conditions play a crucial role as they impact the overall cost of credit.
Get Your Free Excel-Based Credit Scoring System with D&B, Experian and
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The 5 Cs of credit form the foundation for extending the credit limit for a
customer. These factors help lenders assess the level of risk involved in lending to
a particular business, which ultimately affects the interest rates, loan terms, and
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amount of credit extended to the borrower.
The 5 Cs of credit form the crucial foundation for extending the credit limit to
customers. These factors play a pivotal role in helping lenders evaluate the level of
risk associated with lending to a specific business, consequently influencing
interest rates, loan terms, and the amount of credit extended to the borrower.
Here are four key reasons why the 5 Cs of credit are important in the B2B world:
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1. Risk Assessment:
Lenders use the 5 Cs of credit analysis to assess the level of risk associated with
lending to a particular business.
2. Loan Terms:
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The 5 Cs of credit also play a crucial role in determining the loan terms offered to
a borrower.
A borrower with strong creditworthiness may be eligible for better loan terms,
such as lower interest rates, longer repayment periods, or higher credit limits. This
incentivizes borrowers to maintain good credit and financial health.
Business owners looking to borrow money can also benefit from understanding
the 5 Cs of credit management. By knowing the factors that lenders consider when
evaluating creditworthiness, business owners can take steps to improve their
financial condition.
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This may include improving their credit score, increasing capital reserves, or
providing collateral to secure the loan. This knowledge helps business owners
make better financial decisions.
4. Creditworthiness Monitoring:
The 5 Cs of credit management are not only important for initial loan approval but
also for ongoing creditworthiness monitoring. Lenders may use the 5 Cs to assess
changes in a borrower’s financial condition over time and determine whether the
borrower continues to meet the lender’s credit criteria. This monitoring helps
lenders to manage their credit risk and make informed decisions about future
lending to the borrower.
A careful analysis of these five factors – character, capacity, capital, collateral, and
conditions – empowers credit management teams to devise a strategy that
effectively assesses a borrower’s ability to repay, sets appropriate credit limits, and
ensures responsible lending practices.
Whether you are evaluating a new credit application, reevaluating existing credit
relationships, or optimizing your credit portfolio, the 5 Cs of credit serve as a
comprehensive guide for making data-driven decisions and safeguarding the
financial interests of your business.
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Challenges with Traditional Credit Risk Analysis: Why You Need to Rethink
Your Approach
They rely on historical data and manual processes to assess a borrower’s financial
health.
With that in mind, here are some of the challenges that you might face:
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Limited data: Traditional credit risk analysis methods rely on historical data,
which may not provide a complete picture of a borrower’s current financial
situation. For example, a borrower’s financial situation may have changed since
the last credit check, and traditional credit risk analysis methods may not account
for these changes. This can lead to inaccurate credit risk assessments and increase
the risk of default.
Slow and manual processes: Manual data collection and analysis can be time-
consuming and labor-intensive. This process can be particularly lengthy for large,
complex loans, resulting in a slowdown of the credit approval process and delays
in extending credit.
Moreover, traditional credit risk analysis methods can lead to increased costs for
lenders as they require significant investments in time and resources.
Lack of real-time monitoring: Traditional credit risk methods don’t provide real-
time updates on a borrower’s financial situation, leaving lenders vulnerable to
sudden changes in creditworthiness. For example, a borrower may experience a
sudden drop in income, which can impact their ability to repay a loan. If lenders
are not aware of these changes in real-time, they face an increased risk of financial
losses.
Inability to handle big data: With the increasing amount of data available,
traditional credit risk analysis methods may struggle to handle the volume and
complexity of big data. This can make it difficult for lenders to analyze and make
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informed decisions about credit risk. As a result, lenders may miss important
information that could impact their credit risk assessments, leading to inaccurate
credit decisions.
To overcome these challenges, you need to rethink your approach to credit risk
analysis. This is where technology comes in – by leveraging advanced analytics
and machine learning, you can overcome the limitations of traditional credit risk
analysis and improve your decision-making processes.
In the next section, we’ll discuss how technology is revolutionizing credit risk
management and how it can help us overcome these challenges.
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Faster customer onboarding: Automation can help reduce customer
onboarding time by providing customizable online credit applications. This
enables companies to capture complete and accurate credit data, leveraging pre-
filled applications from sales or auto-extracted customer data from CRM tools.
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What is the difference between credit limit and credit risk exposure?
The credit limit is the maximum amount of credit or the line of credit that supplier
AR teams extend to a customer after thorough analysis. Credit exposure is the
maximum amount of funds that your organization can lose if your customer cannot
pay.
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What are credit reporting bureaus?
Credit reporting bureaus are external credit agencies that generate credit reports
and scores for customers across the globe. These reports, and ratings help trade
credit teams conduct an objective credit risk analysis of the customer. Some credit
reporting bureaus include D&B, Experian, Equifax, CreditSafe, and Credit
RiskMonitor.
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PROJECT-5
Debit cards are issued by your bank and work as a combination ATM card
and credit card.
However, unlike a credit card, a debit card links directly to your bank account,
using the money you have on deposit to pay for your purchase or make your ATM
withdrawal digitally.
Debit cards partner with major credit card brands, such as VISA, Mastercard
and RuPay, to allow you to use your debit card for payment anywhere those
branded cards are accepted.
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When using your debit card for an in-person purchase, you’ll swipe, insert or
use contactless pay at the card terminal just like a credit card. You’ll then enter
your personal identification number (PIN) into the machine, although some
merchants allow you to use your debit card without a PIN. Your PIN is a security
measure that verifies your identity.
The key difference between the types is generally the entity issuing the card.
The characteristics of Visa debit card and Visa Electron debit cards are almost
the same. The purchases are more simple and faster with a Visa Electron Debit
Card.
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You cannot overdraft in case of funds shortage, which makes this card ideal for
students or people with limited budgets. Due to its minimum expenditure, there’s a
control over the money you spend, that makes the demand for this card high.
Maestro debit cards is a global service provider with a great security system. It
has around 1.5 cr point of sale outlets which makes it a popular debit card to use.
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It is fast, flexible, easy to use and has low transaction fees. Charges are applicable
after every eight uses of ATM transactions out of which five should be from the
same bank. It is available at most of the highly reputed banks except some like
theICICI Bank in India.
Contactless debit cards are super easy to access, transactions are done smoothly
by just tapping the card on the point-of-sale devices and time-saving. Most of the
payments done in Indian markets are less than INR 2,000, which makes it more
convenient to use. Up to INR 2,000 is done without a pin by just waving the card.
Financial institutions often issue debit cards automatically when you open a
bank account, but you may need to request one. After receiving the card, you’ll
activate it according to the instructions that come along with the card.
If you choose to use a prepaid debit card, though, be aware that some charge
monthly fees that can cut into your deposits.
It’s important to note that each bank sets minimum age limits for debit card
eligibility. However, depending on the bank and account type, there are options to
have a debit card issued to those as young as 7. These accounts are commonly
labeled as teen checking accounts and require a parent or guardian as a joint
account holder.
Once someone turns 10, they’re legally eligible to open a bank account in their
name without a joint account holder.
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Debit Card Fees
Debit cards won’t typically have fees for everyday use, but there are fees in
some cases:
Account holds. If you use your debit card to rent a hotel room or car, you may
have a hold placed on your card for more than the value of your transaction. This
hold will decrease your available account balance until the hold falls off your
account.
Credit Cards grant you an available credit line to make purchases. You can pay
back the amount of your credit line that you use over time in monthly payments.
The credit card company will charge you interest on your balance in exchange for
taking on the risk of your purchases.
A debit card isn’t a credit line. Instead, it uses the money you have on deposit in
the bank to pay merchants for goods and services or issue you cash from an ATM.
Two types of cards have names that are similar enough to confuse some
consumers:
A traditional debit card is issued by your bank and directly connects to your
checking account, using funds you put in the bank to pay for ATM withdrawals
and card purchases.
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With a prepaid debit card, also known as a prepaid card, you have to load funds
on the card before using it (as you do when purchasing a gift card). You can use
cash, electronic transfers or checks to add funds to your card. You can load funds
either online or by visiting a retailer that supports the prepaid card.
While both debit cards and ATM cards allow you to access funds in your
checking account, you can’t use an ATM card to make purchases.
If your card is lost or stolen, it’s essential to report it promptly to reduce your
liability for fraudulent charges. If you report your card lost or stolen within seven
days, depending on the banks’ policies, you’ll only be liable for a maximum of
INR 200 in unauthorized charges (and some banks waive that fee as a courtesy).
Bottom Line
Debit cards give you the flexibility of paying with a card instead of writing a
check, both online and in person. It’s important to match the cards in your wallet
with your spending habits, so take some time to compare your various spending
options like credit cards, debit cards and prepaid cards. A combination of the three
can help you gain the flexibility you crave with the seamless access to cash your
daily activities require.
Conclusion
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today. Our team of experts will be happy to walk you through the software’s
features and benefits and answer any questions you may have. So, take the first
step towards revolutionizing your credit risk management today!
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DECLARATION
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work done under the
guidance of
MOHANRAJ trainer
DATE: M.PANNERSELVAM
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