FINANCE SPECIAL...Don't Get Carried Away by Discounts on Loans

Don't  Get Carried Away by Discounts on Loans 

More than the concessions on offer, your decision to avail the loan must be based on your requirement and affordability

    Festive season favours both spenders and borrowers alike. Spenders are always waiting for the season for the best bargains; borrowers too get their share of the booty: zero-percent loans, waiver of processing fees and so on. This year is no different. Several banks, including State Bank of India, ICICI Bank, Vijaya Bank and Corporation Bank, have lined up offers to woo borrowers planning to buy houses or cars.
IT’S RAINING INCENTIVES
SBI has halved its processing fee on home and car loans last week, while ICICI Bank reduced rates on housing loans. Similarly, many other banks also have either slashed interest rates or waived off processing fees on loans on both auto and housing loans.
ICICI Bank is offering floating rate home loans at 10.25% for ticket sizes under . 30 lakh and at 10.50% for amounts above . 30 lakh and up to . 3 crore until the end of the calendar year. The rate is around 0.25% to 1% lower than the normal rate on housing loans.
HDFC, too, has followed suit by reducing its rates. For loans of up to . 30 lakh, the effective rate is now 10.25%, while it is 10.5% for loans above . 30 lakh. Vijaya Bank has also announced its festive scheme, valid till January 31, where it is charging between 10.5% and 11.5% on home loans. Interest rates on car loans, too, have been reduced by 30 basis points to 11%. Similarly, Bank of Baroda has slashed interest rates on home loans by up to 1.50% and auto loans by up to 1.75% in addition to waiving off processing
charges. These concessions
are on offer till November 30. Union Bank of India’s offer period — processing fee waiver for home and vehicle loans – extends till the Republic Day, January 26. Corporation
Bank is offering a concession of 0.25% on interest rate for vehicle loans, if the borrower avails of both home and car loans. It has done away with the processing fee as well. Both these offers will be valid only if the borrower applies for a loan before November 30. Similarly, UCO Bank offers a ‘combo’ proposition to its borrowers taking both car and home loans, albeit in the form of waiver of processing fee on the latter. The reduction in interest rates may be a reflection of a softening interesting rate scenario. In that sense the rates may remain lower or go down further even after the festive season. However, the discounts on processing fees are available only for a limited period. For instance, SBI’s reduction in processing charges will be valid till December 31. During the period, SBI will charge a minimum of . 1,000 and a maximum of . 5,000 as home loan processing fee.
ASSESS YOUR PERSONAL SITUATION
The incentives may seem tempting to many borrowers. “I don’t think it makes sense to take up a huge liability such as a home or an auto loan just because of discounts. Taking a loan and servicing EMI payments is a responsibility that one needs to be comfortable with. A missed payment on your loan can harm your credit report, thus jeopardising the chances of securing a loan when you really need one,” says Rajiv Raj, co-founder and director, Credit Vidya, a loan consultancy firm. It is also important to make a distinction between home and auto loans. Home loans fall in the ‘good’ loan category as they aid the creation of an appreciable asset, apart from offering tax benefits. Moreover, it is not possible to make an impulsive house purchase, thanks to the huge amount and the down payment requirement, besides long-term commitment. However, ensure that you borrow within your means. For instance, do not opt for a 3-BHK when a 2-BHK is all you need, simply because of your higher loan eligibility. A larger loan translates into a higher EMI, and you may find it difficult to bear this burden for 10-15 years. Cars or two-wheelers, on the other hand, are depreciating assets and auto loans do not fetch any tax relief either. Hence, stick to the one that fits into your budget rather than the one you have always dreamt of.
“It is not advisable to opt for a loan just because of discounts in the rate of interest or concession in processing charges. After all, technically, this would amount to only a few thousand rupees, whereas the loan that is to be repaid runs into lakhs of rupees,” advises VN Kulkarni, chief credit counsellor with the Bank of India-supported Abhay Credit Counselling Centre.
Preeti Kulkarni ET121025