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

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...
Read more

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...
Read more

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...
Read more

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...
Read more

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
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