In keeping with the festive spirit, banks and financial institutions are outdoing each other with various loan offers, but don’t take any offer at face value. Carry out due diligence, ask relevant questions and do your math before rushing to accept it. Here are the key offers and what you should consider in each.
Zero or reduced processing fee
Some banks are waiving the processing fee or offering a discount on loans. For instance, the State Bank of India (SBI) and Bank of Maharashtra (BoM) have waived the processing fee on their home and car loans entirely till 31 December 2017. This fee is usually a percentage of the loan or a fixed sum, so you save the entire amount.
This means that if you take a home loan worth Rs 30 lakh from SBI, you will save Rs 10,620 (including GST) as processing fee. This may seem attractive, but don’t forget other fees, such as legal and technical ones. “These can go up to Rs 12,000, adding to the total cost of the loan,” says Gaurav Gupta, Founder, Myloancare.com. So consider all the charges and pick a loan with the lowest overall cost. Processing fee alone should not be the deciding factor.
Such offers reduce the number of EMIs. For instance, Axis Bank waives 12 EMIs, four each at the end of the 4th, 8th and 12th year in a 20-year loan period. The highest loan available is Rs 30 lakh, which means you can save a maximum of Rs 3.09 lakh.
However, there are strings attached. First, you cannot prepay the loan before four years. Second, the minimum tenure is 20 years, which means that to enjoy the full benefit, you will need to stay with the lender for 20 years. The processing fee is also higher, starting with Rs 10,000, and you need to have a clean track record. If you have pending dues for over 90 days and more than three instances of over 30 days, you will be disqualified. The offer is also available only on a floating rate basis.
Get 1% cashback on every EMI that you pay. Seems attractive? ICICI Bank has an offer where it gives you first cashback after completion of 36th EMI, and subsequently after every 12th EMI. The minimum loan tenure is 15 years and the maximum is 30 years. You can either get the cash back credited directly to your bank account or adjust the outstanding principal against the cashback.
The latter option could work better as it helps reduce the outstanding principal as well as the interest. So you could clear your liability earlier and save money, but need to stay with the bank for at least 15 years to enjoy the benefit.
No mark-up over MCLR
Certain banks don’t charge a mark-up or spread over MCLR (marginal cost of fund based lending rate). It may seem like a discount, but check the MCLR rate first. For instance, YES Bank’s MCLR is higher at 8.5% compared with 8.35-8.4% in the market. So, effectively, a mark-up of 15 points is included in the offer.
0% interest rate
A scheme offering 0% interest rate will be genuine only if there is no other fee or charge. If you are buying a phone worth Rs 20,000 on a 6-month EMI, with a down payment of Rs 5,000 and a processing fee of Rs 500, you are effectively paying 12.5%, not 0%. So, pay attention to effective interest rate, not the advertised rate.