Q/A - Personal Loan

Q - Planning to take a personal loan so as to build a house. Is it a good move?

A - Go for a home loan rather than a persona loan as a home loan is cheaper.

Q - Would taking a personal loan at the end of the financial year for tax planning and repaying it in the next financial year a good decision?

A - Personal loans can be pretty expensive and the repayment charges make them even more so. If the need is for credit is for few weeks, you may be better off by making the investment through a credit card rather than by taking a personal loan.

Q - I need Rs 20 lakhs for buying a flat. Since home loan processing takes time, I intend to take a personal loan and when the home loan is sanctioned, I plan to repay the personal loan with it. Is it a good idea? What are its drawbacks?

A - You need to disclose a huge amount of income for getting a personal loan of Rs 20 lakhs which is not going to be too easy as well.

Q - What should be done in a situation of over-draft?

A - In an unsecured overdraft situation, there is no such thing as a prepayment. Just pay up the amount and keep the account in positive balance and there will be no charge on you. Also inform the bank well in advance that you do not wish to renew the account, so that the renewal fee is not charged.

Q - In an ideal scenario what should be the maximum EMI percentage an individual should afford in percentage terms?

A - It certainly depends on the income; higher the income - higher would be the percentage to pay as EMI. However, as a general rule of the thumb, about 40 per cent of your net income is considered safe for paying as EMI. Anything above 55 per cent is in the red zone.