Driven by liberalization of the economy and policies placing emphasis on consumption, the Indian consumer now has access to a glittering array of choices and the best products in the world. Be it the latest LED television, smart phone or luxury car, most are now available in India at the same time as the developed world. Easy availability of finance in the form of personal loans and credit cards too has fueled this consumerism since payment is spread over a period of time making the purchase look affordable.
Many consumers now find themselves in a sticky situation due to the burgeoning costs of the purchase owing to high finance charges. While the EMI for a personal loan is relatively smaller, taking many such loans add up to a significant amount of money that has to be repaid monthly.
The interest rate on a personal loan or credit card ranges from 16% to 36% p.a. making the debt expensive. Also, having multiple loans and credit cards from different institutions makes life difficult in terms of tracking the same and making sure that they are paid on time. If faced with such a situation a person may look at debt consolidation.
What it entails
Debt consolidation, at its most basic level, is simply the act of combining several loans or liabilities into one loan. Debt consolidation involves taking out a new loan to pay off a number of other debts and is usually done to attain a lower interest rate, greater ease in repayment or the simplicity of a single loan. In the Indian scenario a loan against property (LAP) is the ideal consolidating instrument due to the lower interest rate and longer tenure of repayment that it provides making the monthly repayment (EMI) lower.
How it works
To avail a LAP a person needs to mortgage his property to the bank and the amount of loan provided would be between 50 to 65% of the property value as ascertained by the bank. The funds made available should be used to close other loans i.e. the personal loans or credit card outstanding that are running at a much higher cost.
Be systematic
Whether a person decides to consolidate debt into a loan against property or work at eliminating it slowly, a plan needs to be put in place and has to be followed in a disciplined manner. Cutting back on lifestyle choices and changing spending behavior is tough but much more fruitful in the longer run.
Many consumers now find themselves in a sticky situation due to the burgeoning costs of the purchase owing to high finance charges. While the EMI for a personal loan is relatively smaller, taking many such loans add up to a significant amount of money that has to be repaid monthly.
The interest rate on a personal loan or credit card ranges from 16% to 36% p.a. making the debt expensive. Also, having multiple loans and credit cards from different institutions makes life difficult in terms of tracking the same and making sure that they are paid on time. If faced with such a situation a person may look at debt consolidation.
What it entails
Debt consolidation, at its most basic level, is simply the act of combining several loans or liabilities into one loan. Debt consolidation involves taking out a new loan to pay off a number of other debts and is usually done to attain a lower interest rate, greater ease in repayment or the simplicity of a single loan. In the Indian scenario a loan against property (LAP) is the ideal consolidating instrument due to the lower interest rate and longer tenure of repayment that it provides making the monthly repayment (EMI) lower.
How it works
To avail a LAP a person needs to mortgage his property to the bank and the amount of loan provided would be between 50 to 65% of the property value as ascertained by the bank. The funds made available should be used to close other loans i.e. the personal loans or credit card outstanding that are running at a much higher cost.
Be systematic
Whether a person decides to consolidate debt into a loan against property or work at eliminating it slowly, a plan needs to be put in place and has to be followed in a disciplined manner. Cutting back on lifestyle choices and changing spending behavior is tough but much more fruitful in the longer run.
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