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Enjoy responsibly

Masoom Gupte  |  Mumbai 

The festive season spells cheer, but also expenses. Some consider it to be an auspicious occasion to buy a house or a car. Others indulge themselves by buying a camera or a mobile handset. To help you loosen your purse strings freely this season, financiers are lining up various offers.

Umpteen festive-bonanza offers on home and car loans are being launched by public sector banks, including Punjab National Bank (PNB), UCO Bank, Indian Bank, Corporation Bank and Allahabad Bank. The offers will be in effect till the end of the year. Also, zero per cent finance schemes on the purchase of consumer durables are being offered by non-banking financial companies such as Bajaj Financial Services, Future Money and Sriram City.

Interesting times
Banks have sweetened their home and car loan offerings by reducing the interest rates by 0.5 to one per cent. For example, UCO Bank will offer car loans at a 10.5 per cent interest rate for the first three years under its festive-bonanza offer, instead of the current 11 per cent.

The interest rates would be fixed, or linked to the base rate for the initial two-three years. Thereafter, floating rates would be applicable for these schemes. Banks have also waived processing and documentation fees, amounting to one per cent of the total loan amount sanctioned, either completely or partially.

The festive bonanza will also provide you some solace in margin requirement. You may have to put up only a 15 per cent margin amount, instead of the required 20-25 per cent. This will allow you to avail of a higher loan amount.

The offers may seem attractive, but borrowers need to be careful. The interest rates are mostly linked to the base rate, the minimum rate banks can lend at. A rise in the same will affect the interest pay out. For instance, PNB is charging interest at 8.5 per cent for the first three years of the tenure.

Recently, the bank revised its base rate from eight to 8.5 per cent. Any further hike in the base rate will up the interest rate payable for you, as well. It is because the fine print in the bank’s loan agreement says a rise in the base rate will lead to interest-rate revision in the future.

Nirav Panchmatia, founder and director, AUM financial advisors, explains, “People opting for such loans should plan their equated monthly instalments (EMIs) by factoring in a higher interest rate of one-two per cent. EMIs will rise dramatically after the fixed tenure is over, and you may shift from the fixed rate to the floating rate.”

Zeroing in
Consumer-durable financiers are letting you live it up through their zero per cent finance schemes at retail chains like E-Zone, Croma and Vijay Sales, as well as the neighbourhood dealers. Under these schemes, you do not pay an interest amount. It is absorbed either by the manufacturer or the retailer. You only pay 20-25 per cent of the cost as the down payment. And, the remaining must be paid in instalments over a 12-month period.

“Even the processing charges for the loan are waived in 70 per cent cases. A charge of Rs 500- 600 may be levied for select product categories,” says Devang Mody, business head-sales, finance and cross-sell, Bajaj Finserv Lending.

A loan approval takes 10-30 minutes, or even less. “If a customer makes the down payment by a credit card, we approve the finance instantly, as it is an indicator of his healthy credit history,” says Rakesh Makkar, CEO, Future Money.

While zero-interest loans sound good, it may lead you to over-stretch your finances. Besides, a cash payment at your neighbourhood retailer may get you products at a discount.

First Published: Thu, October 07 2010. 00:25 IST
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