Top Tips for Taking Personal Loan and Management of Home Loan

Why Personal Loan ?

In this day and age of internet everything you need is just a click away. And so are loans. The loan process has also become more easier and more customer-friendly. Consumerism has increased to such extent that it makes us want things NOW rather than wait for months or even years to save enough money to buy things we want.

Therefore, today we don't think twice before committing ourselves to indebtedness. The personal loan schemes are quite promising today, no doubt. But we need to be extra careful.

Unsecured loans, such as personal loans are usually very expensive. While availing a loan has become affordable and simple, it does have its drawback.

The personal loan banks may not always tell you the full story. Therefore it is important for us to delve deep into any loan offer and make the right choice.

Fund Management When Carrying a Home Loan

As a fund manager of the house, one has to find ways to maximize the benefits of the cash flows. Make a list of all the loans and savings/investments that you have made. Do you find places where the savings/investment is giving lesser returns than the loan rates? This can typically be seen with your endowment insurance plans, your EPF and PPF, the postal deposits, sometimes-even ULIPs. Why should you be invested in something when you are paying higher interest to somebody else? It is better to close all or most of these lesser returns savings/investments and divert the funds to close the home loan.

Care should however be taken to replace an endowment insurance plan with a term plan of higher cover. Your employer and your EPF officer will allow withdrawal of funds from the EPF account for buying and closing the loan of a house. The PPF is not so flexible with letting go of your money. ULIPs and the postal deposits can be closed only after the stipulated 3 years of lock-in.

Ways to repay your debt quickly:

There are ways to come out of the EMIs and make your loan tenure shorter:

Partial pre-payment

Switching to a lower rate

Increasing the EMI

Now let us look at the options in more detail. The best part is that, the options do not in any way add to your existing budget.

Partial Pre-Payment

This is the easiest way to close a housing loan faster. The method is to make use of any one-time income like a bonus, salary arrears, gifts from friends/relatives, any wind fall gains from shares, property sold, deposits closed, tax saving investments maturing, closure of savings that are giving you lesser returns than the housing loan, etc. to partially close the housing loan.

Switching To a Lower Rate

The interest rates current are in a rising trend. There are times when the interest rates start going down too like NOW! Based on the interest rate reset period, different banks will reduce their rates at different times. If the reset interest band of your lender is a wider band, you may be at a higher interest rate for a long time after other banks have started to reduce their rates.

Increasing the EMI

This is another option to close the loan faster. If you can spare a portion of an increment to increase the EMI, considerable saving could be made. For example a Rs.30,00,000/- loan for 20 years will need an EMI of Rs.28,950/-. If you can spare an additional Rs.2,300/- per month, the loan can be closed in 15 years itself.

Summary

Only after closing the home loan does one really become the owner of the house. Closing the loan as soon as possible not only relieves the mental strain of carrying a debt but also releases more money into the family budget.

Posted in: loan,personal loan,Personal Loan Managment