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Mr. Sunil Chachlani is a AFP with almost 2 decades of rich professional experience backing his financial advisory practice. He has also undergone multiple international professional certifications including AFP, C.P.F.A., Diploma in Financial Management and many more. He has worked at various management positions in distinguished MNC’s throughout his career and has gained high competency in human relationship skills and people development. His leadership is proving to bring quantifiable results in the lives of his esteemed customers. Mr. Chachlani strongly believes in the importance of nurturing relationships and respecting human bond. His close friendly association with his customers has helped him propagate the importance of wealth building quite successfully in his clients lives. He loves carrying out complete Financial Planning for his clients by going through their lifestyle with respect to their expenses & income. Advising the method and type of investment to achieve Financial Freedom and goals for various events in life.

Wednesday, 11 July 2012

KEEP OFF PERSONAL LOANS - LOOK FOR CHEAPER LOANS


Loan against assets is a cheaper alternative to personal loans that charge you anywhere between 16% and 24%

    A personal loan is the easy way out for many individuals. Stuck with a small mismatch of funds, many people don’t think twice before applying for a personal loan. The money may be used for something big like bridging the gap for a house purchase or unproductive purposes like a vacation or a grand wedding. But the trouble with personal loans is: they are very expensive. Banks charge around 16% to 24% on these loans. That is why it is imperative that you should explore other avenues before settling for a costly personal loan. If you don’t have the option of a soft loan from friends or relatives, you should consider taking a loan against your assets. 
“Asset-backed loans such as loan against securities, loan against gold and loan against property help you cut down the cost of borrowing,” says Madan Mohan, a Mumbai-based independent financial counsellor. A loan against shares is slightly cheaper at around 12.5%, and a loan against property would be available at around 14%. 


LOAN AGAINST PROPERTY 
To begin with, banks offer a percentage of the market value of the asset as loan to you. For example, suppose you are offering your house as a security to the bank. The bank will assess the market value of the house and your loan repayment ability. If the assessed market value of the house stands at . 1 crore, the bank may consider offering a loan of up to . 60 lakh. The bank will also consider factors such as residual life of the property and the maximum tenure it can allow to repay the loan before approving you the loan. If you have bought a house using a home loan, you can still get the additional loan. Banks offer such “top-up” loans to their home loan customers. The maximum loan amount under this product is around 70% of the market value of the property less the outstanding loan and is subject to the current loan eligibility. 
Apart from the lower interest, loan against property also comes with a longer repayment tenure. A bank typically allows a maximum repayment term of five years for personal loans. Loans against property, on the other hand, come with a longer repayment tenure of up to 10 years. Banks also allow higher amount of loan under loan against assets. Personal loans are generally capped at . 20 lakh, but one can get as high as . 5 crore under loan against property. But obtaining loan against property takes time. “A loan against property involves valuation of property, legal and technical checks from bank, which consume some time. If you are in a hurry, opt for loan against movable assets such as gold and shares,” says Harsh Roongta, founder & CEO of Apnapaisa. 


LOAN AGAINST GOLD & SHARES 
Banks offer loans against gold, shares, mutual fund units and insurance policies. In case of loan against gold, you will come across banks offering as high as 70% of the gold value. NBFCs will restrict the loan amount to 60% of the value of gold. For shares and mutual fund units, banks apply a haircut of around 50% of the market value. Most of the banks will allow loans against liquid shares – read “A” group shares. If you have a single-stock portfolio, banks apply higher haircut than for a diversified portfolio. If you offer shares of only one company, banks may apply 60% haircut and you may get a loan of up to only 40% of the market value of these shares. As single stock means higher risk for the lender; so it is better to approach the bank with a diversified share portfolio or mutual fund units. In such cases, one may get up to 50-55% of the market value. 
Even in case of diversified equity portfolio, banks assess weight of each share. If one company’s share has more than 60% weight in the portfolio, the bank may prefer to cap the loan to 40% of the market value. In case of life insurance policies, you can get up to 50% of the surrender value of a policy. That means your term insurance policies with no surrender value are not eligible for loans. 
Interest rate on a loan backed by movable asset, such as gold, is generally lower by around 150 to 200 basis points compared to a loan against property. Also the interest rate depends on the loan to value ratio – the extent of market value of asset that the bank is offering as loan. “If the bank is offering higher loan against the value of the asset, it may charge higher rate of interest too, to compensate for the high risk it takes,” points out Harsh Roongta. Processing fee on a personal loan is generally around 2-3% of the loan value, whereas for a loan against property it stands at around 1%. 
The borrower has to bear the valuation expenses, stamp duty payable toward mortgage and other legal charges too, which are one-time expenses. It is better to think for a while before choosing a loan.


Source – Nikhil Walavalkar - The Economic Times – 28/6/2012

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