In India, middle class people and working professional thinks that PPF and fixed deposit is best and risk free investment. These highly recommended investments return 9% per annum. But the worst part of this story is the same category of people use credit card which is 30 – 45% interest per annum or personal loan which is 12- 24 % interest per annum. This post we would discuss on different loan types and interest rates.
Home Loan:
If you are looking money to buy a home or home renovation , avail loan in home loan category. Home loan is lowest interest loan in india. Currently interest rate for home loan is 8.65% per annum. We can avail maximum 90% of home price as loan. But we are suggesting to avail maximum 60% from home loan and 40% from your saving/investment to buy a home. It would greatly reduce paying interest for the home loan. Home loan can provide you tax benefit as well.
Home Loan Consideration:
1). Avail max of 60%.
2). Home loan EMI should not exceed 50% of your monthly income or take home salary.
3). Keep Tenure as short as possible.
4). Never ever miss your EMI.
5). Know tax benefit from home loan in 80C and principal repayment.
KEEP TENURE AS SHORT AS POSSIBLE
Car Loan:
Bank and financial institutions provide loan to buy car. Maximum 85% of on-road price can be get from car loan. Car loan interest rate is 9.25% to 15% based on loan tenure and your credit score. Try to keep the loan as short as possible to save money in interest.
Car Loan Consideration:
1). Avail max of 70% of car price.
2). Car is not an asset, do not think car as investment.
3). Car loan is EMI + fuel expense + maintenance cost in each month.
Loan From Fixed Deposit:
Loan against fixed deposit is given in the form of an overdraft against your deposited amount. This is an alternative given to you instead of breaking the deposit prematurely. The interest is 1.5 to 2% more on fixed deposit interest.
Consideration :
1). It is loan from saving and need to pay 2% interest extra.
2). Easily available with minimum documentation.
3). Can avail in case of emergency.
Gold Loan :
Gold loan is provided against gold in bank and financial institutions. Gold loan interest rate would be 11% to 17%. It is a secured loan and as a result has emerged as a preferred alternative option for short-term loan seekers. On top of interest, we have to pay valuation charges and other processing charges.
Consideration:
1). Know the interest rate of the gold loan.
2). Know the interest calculation tenure and compounding effect.
3). Monthly interest would be added to loan amount and it would become lump sum at the end.
4). Maximum 75% of the total value of gold can be availed as gold loan.
5). Pay the loan on monthly basis.
Loan against Property:
Loan against property is another form of secure loan and is available for both salaried and self-employed borrowers to help them fulfil their business and personal needs by mortgaging their property. The interest rate of property loan is 12% to 17%. With low EMIs and speedy loan approvals, loans against property are the ideal solution to meet your immediate financial needs.
Consideration :
1). Can avail 60% of property value
2). EMI payment option.
3). Simple documentation.
Loan against Insurance :
Life insurance is a far saving option nowadays, also giving policyholders the benefit of availing a loan against the life insurance policy. Loan against life insurance is a lower rate of interest is charged in comparison to a personal loan. The rate of interest of bank loans are between 10-14%, based on the type of insurance and tenure of the loan.
Consideration :
1). Interest is less than personal loan.
2). Maximum 70% of policy paid amount can be availed as loan.
3). Simple documentation and secured loan.
Personal loan :
Personal loan is easy and simple to get this loan as it is an unsecured loan so you don’t need to give any guarantee or any collateral against the amount. As it requires minimal basic documents to process the same, within a 1 week or 2 gets disbursed into account, you get 1-5 years to repay. Personal loans can be helpful when you require some urgent cash or want to pay some higher interest debt, but today personal loan promoted to you for every need. The interest rate between 13% to 20%. It is highest interest loan.
Consideration :
1). Check the interest rate of the personal loan.
2). Keep tenure as short as possible
3). Check pre-closure and part payment charges.
Secured loan are lowest interest loans. Unsecured loans are high interest loans.
Credit Card :
Credit cards are higher interest loans. it cost interest from 24% to 40%. Try to avoid credit card loan. It is costlier loan in india. Understand credit card traps and manage the credit card payments properly. Credit card would seriously affect your financial planning.
ENSURE TIMELY AND REGULAR REPAYMENT
Middle class people avail personal loan and credit card loan for their expenses. So middle class continue as middle class even after get more than 50000 monthly income. Change your income to investment to become rich. The final note is secured loans are cheap and unsecured loans are costlier. Avoid personal loan and credit card loan to save money. If 9% return investment is good investment then loans above 10% considered worst financial decision. Try to avail lowest interest loans and save money. Happy investing:)
In India, A Card runs 5 crore people lives. Credit Card.
Banks are smarter than you. Credit Card is 36% interest. Credit card Traps.
Banks are smarter than you. Credit Card is 36% interest. Credit card Traps.