Which is the best consumer loan? :: Business Line

Borrowing from an NBFC works out to be the cheapest route to finance durable purchases, followed by bank loans.

Planning to buy durables in the ongoing Christmas and New Year sale? Shopping on your credit card is going to be expensive. Banks have stopped zero interest EMI schemes on credit cards following RBI instructions. While you can consider loans from PSU banks after the recent reduction in interest rates, they are still a high-cost option.

We compare choices before consumers on credit purchases and zero in on the best option.

Credit cards

After the recent regulatory change, credit card EMI schemes carry an interest. This interest is about 12 per cent for three/six months and 15 per cent for nine/12 months. However, if you choose this mode of payment, you can be free of hassles as there is no requirement for a down payment or the need to provide proof of address and identity. But, note that you can’t use just any credit card. It should be a provider whom the retailer has a tie-up with, or else you don’t get to avail the EMI scheme.

If not, you have the option of swiping your credit card for the full amount upfront and later convert it into an EMI. Converting credit card dues to EMI would reduce your monthly financial burden, but here again there will be an interest of 12-15 per cent per annum. The EMI amount gets added to the minimum amount due every month in your credit card bill. If you pay, then no trouble. If not, be prepared to pay interest at 24 per cent per annum on the EMI.

Loan from banks

Recently many PSU banks including State Bank of India, Punjab National Bank and IDBI have reduced their interest rates on consumer durable loans by around two per cent. The interest rate is currently 12-12.75 per cent per annum. But, for a bank loan, you have to do a bit of running around. First, you would be required to provide your income proof and bank statement and prove your eligibility for the loan. Second, the banker will also require you to put some margin money for the loan and if need be ask you to bring a guarantor.

NBFC finance

Non-banking finance companies such as Bajaj Finserv, Shriram City Union Finance and Tata Capital, still run zero interest EMI schemes in the name of ‘Easy EMI’. Here, you will be required to provide identity proof, address proof, one cancelled cheque leaf and bank statement of last three months along with your photograph for a loan. You would be required to make a down payment of normally, the first four instalments and also pay a processing fee. These schemes are the cheapest of the credit options before a consumer today.

This is the math: Say, you want to buy a Voltas 1.5 tonne air-conditioner that is priced Rs 31,990. If you go for the EMI scheme from Tata Capital, for example, your monthly instalment will work out to Rs 2,666. Rs 10,914 (four instalments) has to be paid as down payment; the remaining settled in eight months. The processing fee here will be Rs 250 flat. So, Rs 250 is the amount you shell out for the loan and this works out to an interest of around 1.4 per cent per annum.

Had you used a credit card for this purchase, your EMI would be much higher. Opting for 12-month tenure where the interest is 15 per cent per annum, the monthly instalment would be Rs 2,887. At the end of the twelve months you would have ended up paying Rs 34, 644.

Had you taken a consumer durable loan from a bank where the interest is 12.75 per cent per annum, the monthly instalment would be Rs 2,854, slightly lower than the credit card EMI.

So, borrowing from an NBFC works out to be most economical. But, those who don’t have enough money for the down payment can look for bank loans where the margin requirement is lower. Credit card EMI should be your last choice.

Tax talk: 26 Dec: Business Line

During the current fiscal (2013-14), I incurred a short term loss of Rs 1,80,000 by selling shares. I also sold a flat which was in my name and made a long-term capital gain of Rs 11,00,000 (after indexation). Can I adjust the short-term loss incurred during the sale of shares against the long-term capital gains made by selling the flat?

— R.V.R.K. Raju

According to the provisions of the Income Tax Act, 1961, adjusting loss incurred from one source is allowed with income earned from another source/ head, subject to specific conditions. Short-term capital loss incurred during a financial year can be adjusted against any capital gain (short-term or long-term) arising during the same year. However, long-term capital loss can only be adjusted against long-term capital gains. You can, therefore, set off the short-term capital loss of Rs 1,80,000 against the long-term capital gain of Rs 11,00,000 earned during the same year.

I am renting a house for Rs 19,000 per month. This house is on company lease. My company pays the rent directly to the owner, but after TDS of 10 per cent. The company states that it will give Form 16A and based on this the landlord can get refund. This is the landlord’s only income. So, can she submit Form 15G asking the company not to deduct TDS? Does she have to submit this to the company or I-T department?

— Lydia

Form 15G is a self-declaration form to be made by a resident individual/ person (not being a company or a firm), claiming certain receipts without deduction of tax. However, rental income does not fall under the purview of the said form. Therefore, even if your landlord submits Form 15G to your employer, the company would remain statutorily bound to deduct tax at source from the rent payments as the amount of rent paid exceeds Rs 1,80,000 in a financial year.

Please note that your landlord can make an application in Form 13 to her assessing officer, for grant of certificate for lower/no deduction of tax at source. The said certificate can then be submitted to your employer and he will not deduct tax at source from the rent payments made till the validity of that certificate. This would help your landlord get the income with no or limited deduction of tax at source.