Buying furniture on equated monthly instalments? Interest rates are as high as 18-20 per cent. Buying a car on EMI? Be ready to shell out 9-11 per cent if it's a new car and well over 13 per cent if it's an old one.
Want to do this in a much cheaper way? Go for a home loan. Yes, that's a serious answer.
Home loans today are more than just the means to buy a house. Offered at the lowest possible interest rates -- 7 to 8.5 per cent -- home loans can effectively be used to purchase anything, or even invest in the stock market. The only catch is that one has to purchase a home first and finance the same with a home loan.
Today there are two products in the market, which offer this facility. One, called home savers, is offered by foreign banks such as HSBC, Citibank and Standard Chartered. The second, called 'top-up loans', is offered by housing finance companies and banks.
A top-up loan essentially allows customers to take a mortgage against his existing property from the same housing finance entity, which offered the home loan in the first place.
It helps in leveraging the investment in a house without having to dispose it off to fund various needs related to expenses such as higher education, purchase of furniture, business requirements. All this at almost one-third of the rate of a personal loan, which varies with rates as high as 19-21 per cent.
The Housing Development Finance Corporation offers top-up loans where the maximum money disbursed is 70 per cent of the market value of the property minus the outstanding loan. This, of course, is subject to the eligibility of a customer.
For instance, if one has an existing outstanding loan amounting to Rs 3 lakh, and the current market value of the property stands at Rs 8 lakh, the maximum loan amount eligible is 70 per cent of the market value.
In this case, it would work out to Rs 5.60 lakh. As he has an outstanding loan amount of Rs 3 lakh, he is eligible for a loan amount of Rs 2.60 lakh.
"Our home saver product integrates a home loan with a transaction account, and in the process helps minimise the interest cost as an individual can deposit surplus funds as and when he gets them," points out Vishnu Ramachandran, regional head consumer banking, Stanchart Bank.
With Diwali just round the corner and a hefty bonus expected, one can reduce the tenor of one's loan. "This is the biggest advantage and an efficient means to manage finance, as one can again withdraw the funds when required," adds Ramachandran.
HSBC has seen about 25 per cent of its customers opt for the home saver, christened Smart Home. One can operate the scheme as a normal bank account: deposit money and withdraw the same without any charge.
In fact, one can save interest on the home loan because the principal on which the loan interest is calculated, is the principal outstanding minus the savings one has deposited in the account, over and above the EMI.
The interest will be calculated on the debit balance in the account on a daily basis, that is, if one pays an excess amount over the EMI, the amount will remain available for your use in the Smart Home account but helps save on interest cost.
For a 20-year loan of Rs 10 lakh at the rate of 7.5 per cent, the Smart Home loan EMI works out to Rs 8,144. If a customer deposits a sum in excess of the EMI, ie, Rs 5000 more than the EMI, the tenor gets reduced by 135 months with a net interest savings of Rs 5,65, 998.
The bank has kept an eligibility norm of Rs 20,00,000 for applicants from Mumbai and New Delhi, and Rs 10,00,000 for applicants from other cities.