Banking: Mohan Jayaraman

Readers' Corner

Today, Mohan Jayaraman, managing director, Experian Credit Information Company of India & country manager of Experian India, answers your questions

I have three loans to pay off a home loan, a car loan and a credit card loan. I want to start lowering the dues. Where should I start from?

Credit profile evaluation considers minimal unsecured loans to be a more significant indicator of credit discipline. While home loans and car loans have underlying assets as collateral, credit card dues are predominantly due to lifestyle and operational expenses. Non-repayment of credit card dues for more than a month indicate some imbalance between inflows and expenses of an individual, in this case, you. Hence among the three, repayment of credit card loans should be first on your priority list.

Considering home loans have a much larger repayment tenure as compared to car loans, full repayment of car loan should be given preference next, as opposed to part payment of a home loan. Additionally, there are benefits to a home loan. You get tax benefits up to Rs 1 lakh for repayment of the principal portion and up to another Rs 1.50 lakh for interest repayment. And if you had taken a home loan for a house bought anytime in the last financial year, you will get tax benefit of another Rs 1 lakh for interest repayment.

Another reason for prioritising early repayment of a credit card loan followed by the car loan and then home loan is the interest rates payable on each. Interest rate for a home loan is the lowest among the three. It is followed by the car loan rate and then the credit card loan rate which is the highest (even up to 50 per cent in many cases).

My son has got admission into an engineering college this year. I am confused between opting for a loan against a fixed deposit (of Rs 10 lakh) and taking an education loan. What would you suggest? I don't want my son to start his career with debt.

It is a good thought to enable your son to commence his career debt-free. Both types have pros and cons. The decision between these instruments is typically a function of interest rates and the tenure of the loan. Both factors have a bearing on the equated monthly instalment (EMI) outflow. Generally, loan against bank deposits have a better approval pace, since lesser due diligence is involved. Also, the interest rates are likely to be lower than educational loans. However, educational loans have a tax advantage.

The views expressed are expert's own. Send your queries to yourmoney@bsmail.in