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Kolkata: The festive season in India, roughly between September and December/January every year, is a time of heightened consumption. Perhaps the single biggest act of consumption in the life of a common person is the purchase of a house or a flat, which involves the biggest transaction in the life of most. Like most marketers, lenders -- banks and NBFCs -- offer special offers during the festive period on loans.
But the moot question: how useful or beneficial are these festive offers on loans really? Are they really beneficial? Low interest rates, EMI cashback and free processing fees appear quite lucrative. Listen to this expert to know more.
Atul Monga CEO, Basic Home Loans, says it is believed that making a big purchase on Diwali can usher in happiness and prosperity. Several banks and lending institutions offer benefits on home loans for a 'limited period' during these times. The benefits are quite a mouthful -- nil processing fees, low interest rates, cashback on EMIs and even insurance.
Experts point out that there is no blanket rule that is applicable to all. The utility of the offers depend on how a prospective borrower treats the offer from the lender. There are some tips on festive home loan offers for borrowers. The first rule is, set aside the offers and calculate the actual interest rates applicable on the loan. Most of the lenders offer reductions of 15 to 30 basis points as a means of luring borrowers and take advantage of the festive spirit. The expert view is while it could seem significant, it will mark a small savings when compared to a standard home loan.
One should remember that the effective cost of borrowing will also depend on a few other factors such as processing charges, insurance costs, administrative cost and prepayment terms. All these charges must be factored in when calculating the effective cost of the loan. This is important before signing for any loan deal.
It is seen that some lenders, during festive offers, stretch the loan tenure to make EMIs look affordable. However, if the period of repayment is increased, the total amount that a borrower has to repay goes up significantly. Therefore, an apparent reduction might not be always beneficial to the borrower. Also many borrowers might not be comfortable to keep paying EMIs for a very long tenure. Thus, one could explore offers for flexibility in payments terms which includes step-up EMI options. This feature allows a borrower to quickly extinguish the loan by raising the amount of EMIs down the years.
One should also consider whether the offers during festive seasons will remain valid if one terminates the loan prematurely or transfers the loan to another borrower. There are situation where some banks later recover all benefits of discounts by charging heavily for foreclosing a loan. One should insisit n full transparency, experts state.
The morale of the story is: Don't blindly follow festive offers on loans but discuss threadbare all terms and conditions especially if you later foreclose the loan and shift it to another bank.
