The 90’s has changed the Indian landscape. The India growth story and rising consumption across the spectrum, has increased the aspirations levels. Owning a product or an asset is just a phone call away.

While our parents would have worked hard for more than half of their career for owning a house, today you can aspire to have your own pad before 30. Majority of us would have borrowed money for this at one point or the other. It could be a Home loan or a Car loan or may be a Personal loan.

Few more would have also borrowed money through credit cards. While a few more would have tapped the chit funds. However, in this plethora of choices, we need to use this option (of borrowing), astutely. Smart choices here can substantially the reduce the strain on income. Lets discuss the strategies, while borrowing or taking the loans available today :

Home Loan

With the mandatory disclosure of base rate by the banks, as mandated by RBI, one could use this to look at getting the best possible interest rate. There are teaser loans available, which basically charges a lower interest rate in the initial 1-3 years, and going forward charge a higher rate. Also few of the banks waive the processing fees, which again is a huge plus. You could also have your spouse as a co-borrower and increase the borrowed amount and also try and bargain for a lower interest rate. Keeping the above points, you need to shop around with few institutions and get the best deal. It pays to have a good look at the multiple options And do ensure that the EMI is in the range of 35-40 per cent of your income.

Auto Loan

A home loan goes about in creating an asset. Do remember that an auto loan is an extension of lifestyle. So you need to look into the budget and ensure that not more than 15-18 per cent go in servicing the EMI. It is advisable to have a fixed rate of interest during the loan tenure for an auto loan, as against either a fixed or floating rate, for a home loan. Also a new vehicle, the dealer also offers the preferred loan provider. It’s suggested that one also look into the rate offered by other provider, before taking up the dealer offer.

Personal loans

Another favourite borrowing tool is the personal loan, which is much easier to get as compared to the earlier categories. Do look for the charges and shop around. Do go for this only if all other methods of borrowing are not available. As this is a consumption loan and not asset backed, the interest rates are higher than the other categories.

Credit Cards

This is basically a unsecured pre-approved loan. If used wisely, (ie payments made on time), it can give you benefits like airline mileage point, no-fuel surcharge, reward points, retail discount.

Do look at the purpose of the card, say, to be used for fuel bills, or airline tickets or retail buys and accordingly choose one. Also go in for a credit card which has no joining fees or annual fees. Importantly, have the limits in the card which one can easily pay-off, else one is getting into a debt-trap. There are a few more loan types,viz, asset backed loan; educational loan, loan against gold, which we’ll cover in the next edition. Borrow — only if you can repay them.

(Brijesh Damodaran
Founder — WealthWays Private Wealth Management and can be contacted at brijesh@wealthways.in.)