1. In a Home Loan, "Pre-EMI" interest refers to:
Interest payable on the loan amount disbursed during the construction period, before the full EMI starts.
Interest paid before the loan is sanctioned.
Interest paid in advance for the entire tenure.
A penalty for early payment.
Explanation:
During the construction of a property, the loan is disbursed in tranches. The borrower pays only simple interest (Pre-EMI) on the amount disbursed until possession, after which regular EMI (Principal + Interest) starts.
2. For a Vehicle Loan, the bank's charge on the vehicle is noted in the RC (Registration Certificate) with the RTO. This process is creating a charge of:
Hypothecation
Pledge
Mortgage
Assignment
Explanation:
Since the possession of the car remains with the borrower but the bank has a right to seize it upon default, the charge is Hypothecation. The RTO endorses this hypothecation on the RC.
3. The processing fee for a retail loan is typically collected at what stage?
After the entire loan is repaid.
It is waived for all customers.
Annually.
At the time of submitting the application or before disbursement.
Explanation:
Processing fees cover the administrative cost of assessing the loan application (credit checks, verification). It is usually upfront and non-refundable.
4. If the loan tenure increases while the interest rate and principal remain constant, what happens to the EMI?
EMI becomes zero.
EMI Decreases.
EMI Increases.
EMI remains the same.
Explanation:
Increasing the tenure spreads the repayment over a longer period, reducing the monthly installment amount (though the total interest paid over the life of the loan increases).
5. For Housing Loans above ?75 Lakh, the maximum Loan to Value (LTV) ratio allowed by RBI is:
Explanation:
To mitigate risk in high-value loans, RBI mandates a lower LTV of 75% for loans above ?75 Lakh. (For loans up to ?30L: 90%; ?30L-?75L: 80%).
6. Sometimes, banks ask for a "Guarantor" for a Personal Loan. This adds which type of security?
Mortgage
Collateral Security (Third Party Guarantee)
Primary Security
Tangible Security
Explanation:
A guarantee is a personal security. It acts as collateral because if the borrower defaults, the bank can recover dues from the guarantor.
7. For Housing Loans between ?30 Lakh and ?75 Lakh, the maximum Loan-to-Value (LTV) ratio permitted by RBI is:
Explanation:
RBI guidelines specify LTV ratios: Up to ?30L = 90%; ?30L to ?75L = 80%; Above ?75L = 75%. This ensures borrowers have sufficient equity in the property.
8. In an Education Loan, the "Moratorium Period" is the period during which:
No interest is charged.
The loan is waived.
The borrower is not required to pay the principal or interest (though interest accrues).
The interest rate is fixed.
Explanation:
Moratorium allows the student time to complete the course and find a job. Repayment starts after Course Period + 1 year (or 6 months after getting a job). Simple interest usually accumulates during this period.
9. To be eligible for a Reverse Mortgage Loan (RML), the primary borrower must be a Senior Citizen of age:
There is no age limit.
Above 55 years.
65 years and above.
60 years and above.
Explanation:
The scheme is specifically for Senior Citizens. The primary borrower must be at least 60 years old. If a spouse is a co-borrower, they must generally be above 55 or 58 years (varies by bank).
10. Under PMAY-CLSS (EWS/LIG), what is the maximum annual household income to be eligible for the scheme?
?12 Lakh
?18 Lakh
?6 Lakh
?3 Lakh
Explanation:
EWS (Economically Weaker Section) is up to ?3 Lakh. LIG (Low Income Group) is ?3 Lakh to ?6 Lakh. Hence, the cap for the EWS/LIG category is ?6 Lakh.
11. The maximum Loan-to-Value (LTV) ratio for Loans against Gold Jewellery (for non-agricultural purposes) is currently:
Explanation:
RBI caps the LTV for gold loans at 75% to cushion against volatility in gold prices. (It was briefly raised to 90% during Covid but reverted).
12. The purpose of "Mortgage Redemption Insurance" (MRI) associated with a Home Loan is to:
Insure the property against fire.
Insure the builder against construction delay.
Insure the borrower’s life to repay the loan in case of death.
Insure the bank against interest rate risk.
Explanation:
MRI is a decreasing term life insurance policy where the sum assured reduces along with the outstanding loan balance. If the borrower dies, the insurance pays off the loan, protecting the family.
13. In a "Flat Rate" loan interest calculation compared to "Reducing Balance" method, the effective interest rate (EIR) is:
Significantly Higher.
Zero.
The Same.
Lower.
Explanation:
In a Flat Rate, interest is calculated on the full principal for the entire tenure, ignoring repayments. This makes the effective cost nearly double that of a Reducing Balance rate (where interest is on outstanding principal).
14. The monthly installment received by a senior citizen under a Reverse Mortgage Loan is:
Fully Taxable as Income.
Taxable if above ?50,000.
Exempt from Income Tax.
Taxable as Capital Gains.
Explanation:
Under Section 10(43) of the Income Tax Act, any amount received as a loan (lump sum or installment) under a reverse mortgage transaction is exempt from tax.
15. Loans against gold ornaments are generally sanctioned for a maximum period of:
10 years.
12 months (Bullet Repayment).
20 years.
5 years.
Explanation:
To manage price volatility risk, gold loans usually have a short tenure (e.g., 12 months) with a bullet repayment option (interest + principal at end).
16. Under PMAY-CLSS, the interest subsidy is calculated based on "NPV" at a discount rate of 9%. What does NPV stand for?
Net Principal Value
New Present Value
Net Present Value
Nominal Percentage Value
Explanation:
The subsidy amount is the Net Present Value (NPV) of the interest savings over the loan tenure (max 20 years), discounted at 9%. This upfront subsidy reduces the principal outstanding immediately.
17. The "Annuity" payments received by a senior citizen under a Reverse Mortgage Loan can be used for:
Any purpose including renovation, medical expenses, or daily sustenance, but excluding speculative/business/trading purposes.
Speculative trading in stock market.
Lottery tickets.
Starting a new manufacturing business.
Explanation:
The loan is meant for the welfare of senior citizens. Use of funds for speculative, trading, or business purposes is strictly prohibited.
18. The "Central Scheme of Interest Subsidy for Education Loans" (CSIS) provides full interest subsidy during the moratorium period for students whose parental income is up to:
?4.5 Lakh p.a.
?8 Lakh p.a.
?2.5 Lakh p.a.
?6 Lakh p.a.
Explanation:
Students from Economically Weaker Sections (EWS) with parental income up to ?4.5 Lakh per annum are eligible for full interest subsidy during the moratorium period for loans taken for professional courses.
19. In a car loan, "Hypothecation" means:
The borrower cannot drive the car.
The car is registered in the bank's name.
The bank keeps the car keys and the car.
The borrower keeps the car, but the bank has the right to seize it if the loan is defaulted.
Explanation:
Hypothecation creates a charge on movable property where possession remains with the borrower (owner) but the creditor has the right to take possession in case of default.