IF YOU are looking to seal that purchase deal through a personal loan or by swiping a credit card where dues might have to be rolled over, both of which entail high interest payments, here's, perhaps, a better way.
Instead of the above options, you could look at placing a fixed deposit with a bank and availing an overdraft facility against the deposit to make that payment. This would mean that while your investment earns returns, the same money can be used to leverage funds with a low interest rate that can be used for the payment of purchases.
An overdraft facility allows you to borrow funds at 1 per cent to 2 per cent above the fixed deposit rates. Most banks are offering a deposit rate with interest rates ranging from 6 per cent to 7.50 per cent for a one to three years time horizon. SBI, ICICI Bank and HDFC Bank are offering fixed deposits at 6 per cent, 6.25 per cent and 6.50 per cent, respectively for a one-year period.
If you pay for your purchases through your credit card that is split into equated monthly instalments for over a period of one year, then you could be paying interest of 36 per cent to 45 per cent per annum. If you take a personal loan, which is an unsecured loan, it will have an interest rate of about 16 to 18 per cent.
It is always better to take an overdraft facility against a fixed deposit than pay through a credit card for long-term repayments' because it will carry a minimum interest rate, even lower than personal loans.
During the time when interest rates were very high, many customers who had placed their long-term fixed deposits managed at a very low rate to take the advantage by financing their purchase of cars.
During an emergency, it (overdraft) is the best source for financing, but one should also have the capability to pay money quickly.
