Hyderabad: We take loans to buy a house or a car or to overcome a financial crunch. A whole variety of loans are there - home loan, car loan, personal loan, loan against property, educational loan, credit card loan, etc. We have to keep a close watch on all these loans and manage them properly by chalking out a plan. If not, we are sure to end up paying more towards the interest component and without any additional advantage.
After the RBI (Reserve Bank of India) hiked Repo rate, home loan interest rates started rising once again. Many banks have already revised their Repo-based lending rates. Due to this, the loan period for many has changed drastically. A loan taken for a term of 20 years may now take 27-28 years to settle. That is why borrowers are preparing to pay off their home loan as fast as possible. On the other hand, those who have home loan, vehicle and personal loans are in doubt as to which of them to pay off faster.
Financial experts always advise borrowers to pay off high interest debt first. Interest on personal loans is around 16 percent. Interest paid is not tax deductible. The situation is the same even if you take a loan on a credit card. At the same time, interest on home loans is currently 8.75-9 percent.
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Borrowers should cultivate a good practice to make small payments every now and then to pay off personal, vehicle and credit card debts as quickly as possible. Many might have taken loans on gold. Try to pay off this debt as soon as possible.
Many advantages come with a home loan. As it is a long term loan, it is natural for interest rates to rise and fall periodically. The interest paid on this loan is exempted from income tax up to Rs 2 lakhs. Exemption is given subject to the limit of Rs 1,50,000 under section 80C. Those who took home loans when the interest rate was under 7 percent now have a sudden increase in tenure. Experts suggest that there is no need to worry about this. If the interest rates decrease in the future, this period will decrease to that extent.
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It is very important that those who are still 4-5 years away from retirement should review their home loan once. Check how long it takes to settle the amount. Depending on that, a decision should be made as to how much to pay. As people in this age group pay more tax, if they pay the whole amount at once, the tax burden will be higher. The interest may not be high as the loan tenure is nearing its end. Advance payment should be made only after considering these two factors.
Experts suggest that new borrowers should deposit some amount towards the principal. This would help them to reduce the burden on account of rising interest rates from time to time.
