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| TIPS: CONSUMER LOAN |
1:Getting it right
2:The Loan ranger
3:No moans and groans just plain loans
4:Norms for availing the loan
5:Shopping for that loan
6:Calculate EMI
7:Processing and other fee
8:Prepayment penalty
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| Getting it right: |
So, Mrs. Gupta has a new 3D cooling, superfast ice making fridge while you have your old
but hey, dependable fridge (burn, burn). And Mr. Chaman (the old so and so codger) got the
Surround Sound, PIP, Super bazooka Plasma TV with 124 channels while you have just your 64
channel TV (more heartburn)? Before you reach out for the antacid pills for your ulcers or
call the IT officials to raid your neighbour (where did he get the money, huh, huh?), hang
on to your horses folks. Keeping up with the Jones~R, Guptas et al ain~Rt very trying
nowadays. Think no more of the sweat and toil of saving up for ages to get the desired
gizmos to grace your kitchen and sundry other rooms.
Go in for a consumer loan from any non-banking finance company (NBFC) and banks. Bring
home your manpasand gizmos and having the fun of seeing your neighbours, colleagues,
friends turn a delicate shade of green. Do you want to hear more?
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The site is structured in various sections so that you get all your fundamental queries
on of where and how to get a loan.
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| The Loan ranger: |
With the section that deals with getting the loan for the entire range of white goods.
The Loan Ranger Consumer loans probably encompass the widest range of good ~W your TV,
fridge, washing machine, microwave oven, dishwashing machine and loads of other gadgets
which we missed out on. Getting a loan for these goods is many respects very different
from that for getting loans for a car or home. Here~Rs what you have to watch out for
while on the prowl for consumer loans.
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| No moans and groans just plain loans
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The best thing about consumer loans is that you don’t even need a guarantor or
collateral. The only criterion the bank must be assured of is your ability to repay the
loan. Save money by avoiding bulk payment. If you're unsure about whether or not to take
out a new consumer loan, this basic calculation can be helpful.
i) Add all sources of income for a month.
ii) Total all monthly living expenses and your savings requirements, debt, and insurance
payments.
iii) Avoid a loan that requires monthly payments that are bigger than the balance left
when you subtract expenditures from monthly income.
Banks can give loans upto Rs.1 lakh. The extent of funding depends on the product,
model that you wish to purchase and the repayment period you are opting for. You can get a
loan upto 85 per cent of the product price for consumer durables and upto 70 per cent for
two-wheelers. You can choose your repayment tenors from 6 months to 60 months.
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Norms for availing the loan |
The ability to repay must be justified in your loan package. Since this loan doesn’t
require any collateral, banks want to see sources of repayment. For this you have to
produce proof of your income. If you are salaried you would need to produce: Form 16 (Tax
Deducted at Source) and/or income tax returns for the last two years; Last two salary
slips from the employer; Bank statements for the past 6 months. If you are self-employed
you would need to produce: Income tax returns for the past two years OR an assessment
order Computation of income OR balance sheet and profit & loss account for the past
two years OR A bank statement for the past 6 months
You should also satisfy the age criteria of being within 21 to 58 years.
You should also reside within the prescribed city limits of the banks
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Shopping for that loan:
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Ideally, you should find a loan when you start looking for your product. This will help
in speeding up the delivery of the product to your home. Much like the best bargain being
around the corner, there is scope for reducing your loan costs further, if you spend some
time shopping around for them.
Keep these points in mind while shopping around for the loan:
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Calculate EMI
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EMI is the first scale on which you should measure different loans. Don't get swayed by
the interest rate quoted by the lender, instead look at the EMI for the same repayment
tenure. Besides the quoted interest rate, the effective interest rate depends on the
reducing balance method used. Reducing balance is the method of reducing the principal
amount repaid, from the outstanding loan amount. Every time you make a payment, the
interest you pay is calculated on balance outstanding principal.
The reducing balance can be of 4 types: daily, monthly, quarterly and yearly.
Daily reducing: The principal is reduced every day as if you were making
repayment of the principal on a daily basis.
Monthly reducing: In this system the principal on which you pay interest
reduces every month as you pay your EMI.
Quarterly reducing: On a quarterly basis.
Annual Reducing: The principal is reduced at the end of the year. You
thus continue to pay interest on a certain portion of the principal, which you have
actually paid back to the lender. This simply translates to this: the EMI under the
monthly reducing system effectively being a smaller amount than under the annual reducing
method.
The catch lies in the method of computation. The more frequently the rate is
calculated, the better the deal. Going by this principle, a daily reducing balance
calculation is better than a monthly, which in turn is better than a quarterly and so on.
There are also different EMI finance options available:
Margin money scheme: In this kind of scheme, the financier finances upto
75-90% of the cost of the product. You have to repay it back in equated EMIs’.
Advance EMI scheme: In this scheme, the financier provides upto 100% of
the cost of the product but you would have to pay anywhere between 2-7 EMIs in advance.
Indirectly you are paying the financier margin money as the EMIs paid in advance which is
deducted from the loan amount.
Deposit scheme: In this kind of scheme, the financer provides 100%
finance but you have to provide the financer with 15-35% of the loan amount as a deposit.
Your deposit will earn interest for the loan tenure while you repay your loan in EMIs.
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Processing and other fee |
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While applying for a loan, you have to pay a certain charge on the amount applied for. The
charge is calculated on the amount of loan applied for and not on the amount actually
sanctioned. This charge varies with the lender and may be a fixed amount irrespective of
the amount applied for or may be a percentage of the loan applied for. This amount, paid
upfront, effectively reduces the money you get.
If the processing charge is 2% of loan applied for, and you apply for Rs. 10,000, you
will have to pay Rs. 200 as processing fee upfront. And if the loan sanctioned is Rs.
8,000 , the money you actually receive is 7,800 (8,000 minus 200 processing fee you paid),
but you have to pay the interest on Rs 8,000.
This can make big difference in the real cost of the loan. Look for the lowest fees
lenders. Use our tools for finding the actual cost of a loan
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Prepayment penalty |
Try to get a lender who doesn't charge a prepayment penalty. This is a great way of getting rid of your debt in case your fiscal fitness improves. Also if the interest rates fall, you can go for replacing the higher cost loan with a lower cost one.
Also keep in mind that when the bank offers you the option of pre-payment, it does not give the flexibility of part payment .If you decide to repay the loan earlier than the pre-determined period, you have to pay the whole outstanding principal. So perish the thought of paying a part of your loan when you have a surplus as the bank does not allow it.
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