Personal Finance: Sniffing Out The Best Loans

PERSONAL FINANCE
Sniffing Out The Best Loans

Driving through the crowded alleys of consumer finance is easy once you know your need well enough to get the best bargain. Here's how to go about it.

By Shilpa Nayak

Perhaps things were better in the days before the consumer finance business became as commoditised as the soaps one. There were few companies, and fewer offers, to pick from then. And banks still hadn't come around to dispensing with loans freely, at least, not without asking for a few kilogrammes of documentation. Today, a customer looking for a loan will likely find her senses assailed from all directions. One finance company promises '100 per cent finance'. Another offers a free holiday in Goa with every car loan. And still another claims its emi (Equated Monthly Installments) are the lowest.

Interest rates have plummeted over the past few years, but it still takes a keen eye to spot a great deal. We set out to find, not the cheapest loans, but the best ones. The reason? The consumer finance industry is commoditised. That means, there is little difference between the cost of one loan, and that of another. If you wish to be driven purely by cost, the tables on the facing page should help you make up your mind. If you don't, and you truly seek a great bargain, read on.

Check for hidden costs: Processing and administrative expenses charged by the lender could increase the effective cost of the loan. If three finance companies quote the same interest rate, choose on the basis of who charges the lowest processing fee.

Pick the optimal repayment period: The longer the tenure, the higher the amount, but the lower the EMI. But, there's more to this. For instance, if the tenure of a home loan increases from 15 years to 20 years, the EMI does come down a bit, but not by enough to justify the corresponding increase in the loan amount.

Read the small print: There's enough small print in the documentation to protect the interests of the lender. Some insert a clause to the effect that the borrower may have to repay the entire amount at short notice. Others have provisions that let them change the interest rates even in fixed-interest
loans. Our recommendation: sort everything out with your loan officer before you sign on.

Explore the customisation option: Some companies structure loans to suit individual customer needs. This typically takes the form of a step-up (your EMIs keep increasing) or a step-down (your EMIs keep decreasing) plan.

Don't hesitate to bargain: Interest rates may be fixed, but companies may be willing to write off processing charges. Better still, in the case of car loans, dealer-financiers offer discounts and free accessories.

SNIPPETS

For The Benefit Of account-holders

Just a fortnight back, we reported the war brewing between ICICI Bank and HDFC Bank on the retail turf. Well, we did end on the note that the winner could be no one but the retail consumer. Now, HDFC Bank has fired a new salvo by launching a loan privilege card for its select set of corporate salary account holders. The new cards will carry preset and pre-approved loan limits that will enable customers avail personal loans, consumer durable loans, and new/used car loans. The interest rates on these loans will be lower than normal interest rates offered by the bank to other customers. This facility will be available to HDFC Bank's corporate banking customers in Mumbai, Delhi, Kolkata, Chennai, Pune, Hyderabad, and Ahmedabad. Watch this space for ICICI's response.

Yours Truly, Morgan Stanley

With dizzying valuation-highs gone for good, the market seems to be coming home to the retail investors. JM Morgan Stanley Retail Services, the retail financial services arm of JM Morgan Stanley, has now extended its investment advisory service, JM Morgan Stanley Direct, to retail investors. The services on offer were previously available only to high networth and corporate investors. The product range of JM Morgan Stanley encompasses the entire range of capital market products including mutual funds, direct equity, government relief bonds, company fixed deposits, and bonds. It also plans to introduce insurance and derivative products shortly. JM Morgan Stanley already boasts over 50,000 retail investors and is now projecting a growth of over 50 per cent in assets under management from its existing customer base.

That Name This Week

Well, there's lots to a name, or so it seems. Close on the heels of Alliance Liquid Income being renamed as Alliance Income Fund, Kothari Pioneer Mutual Fund is becoming Pioneer ITI Mutual Fund. The change in name is on account of the H.C. Kothari Group (which was one of the founding partners of the venture) being no longer associated with the firm, having sold their stake in ITI (The Investment Trust of India) in October 1999. For those inclined towards trivia, Kothari Pioneer was also India's first private sector mutual fund.

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