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

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...
Read more

Short-Term Bond Funds

These are schemes that invest in fixed income instruments of short durations. Short-term bond funds with less than one year duration are good investment options provided you have a one-year investment horizon. Lower average maturity of the fund ensures that the fund NAV is not hit much when short-term interest rates move up. We expect the RBI to hike the policy rates by 50 to 75 basis points in this calendar year. That makes it a bit tricky for short-term bond fund investors. Check the average maturity and exit load before you invest in a short-term bond fund. As a rule of thumb, the average maturity should be less than your investment time frame. Some funds do charge an exit load if you log out early. To avoid such a cut in the returns earned, it is better to check at what threshold of time the fund charges an exit load. The funds have a wide range of 'exit load' thresholds. Some charge an exit load if you were to redeem units within 90 days, while there are some that let ...
Read more

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
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