Skip to main content

Loans On Credit Cards – Say NO

Recently, a number of credit card customers received a pre-approved loan mail, from a leading private sector bank. The customer was entitled to a loan over and above his existing credit limit, at 15 per cent on a reducing balance.

Sounds too good to be true, especially in a market where interest rates are on the rise. Also, for those already burdened with expensive debt (such as credit card debt, which charges over 40 per cent annually), this could be a good way to reduce the burden.

However, if planning to use this debt for other purposes, like buying the latest iPad or mobile, things could go very wrong. The equated monthly instalments (EMIs) are added on the card, escalating the bill. And, the loan is over and above the credit limit. One will over leverage himself/herself. That is, the loan will be treated separately but come as a part of the monthly credit card bill payment.

Bankers said they typically target rotators – ones who pay the minimum or slightly more every month – with such schemes, as it helps such customers reduce their dues at one go. But, if misused, this would worsen your credit score, limiting future chances of securing any credit.

There are similar products in the market which offer a personal loan at a lower rate within the credit card limit. Under one such scheme, if your credit limit is `30,000, you can avail a loan of `15,000 at 17 per cent for one year, 16 per cent for two years and 15 per cent for 36 and 38 months.

Though such schemes can be used to reduce the interest burden and retiring high cost debt, financial planners are not enthused. There are other ways of raising cash. A loan against fixed deposits, which cost two per cent above the deposit rate, can work out cheaper. He even advises using the gold loan route if one does get the right rate. At present, gold loans come at 12-24 per cent.

In the worst case scenario, it is better to retire investments and use the proceeds. Once the debt is paid, you can restart your investments. Ideally, your total instalment-to-income ratio should not be more than 4050 per cent. Many exceed this limit; as a result, they keep on borrowing to retire earlier loans, a classic debt trap.

Once caught in a debt trap, clearing the clutter isn't easy, as you will have little or no cash in hand. You would have spoilt your track record as well.

Loan on credit card is a pre-approved personal loan

Interest charged is 15 per cent and more

Processing fee is minimum sum or a portion of the loan amount

Many banks give prepayment facility but at a cost

The EMIs will be billed to the credit card every month
 

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
Read more

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...
Read more

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....
Read more

Some tips for individual investors for investment planning

These days, the stock markets are quite volatile in nature with a bearish bias. Rallies do not last long in the markets and peaks of market rallies are reducing. The markets are hitting fresh lows in every fall. Many blue chip stocks are trading 50 percent lower than their high levels. Many stocks are currently trading at their year's low prices or all-time low prices. Many investors have lost their hard-earned money and many others are stuck with stocks that have corrected heavily in the last few weeks. Here are some tips for investors already invested in the stock markets: 1) Hold fundamentally strong options The domestic macroeconomic fundamentals are strong. The GDP growth rate is expected to slow down slightly from the nine percent last year to around 7 - 7.5 percent this year. This is still quite good and encouraging in comparison to other developed countries. The current market crash can be attributed largely to foreign institutional investors' ( FIIs ) outflows but...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now