By Vaibhav Aggarwal
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Loan foreclosure

This is a tricky proposition. If you took a loan for 6 years and three years down the line, you feel confident that you have enough savings to pay back the entire money, then what should you do? Interestingly, bankers differ on this issue. There are two opposite plans of actions suggested by Kotak Mahindra Prime CEO, Sumit Bali and ICICI’s Narayanan.

While Bali feels, "It all depends on case to case. If you feel that you are getting higher returns on your savings or investments that you make with those savings, then do not foreclose your current loan. However if it's vice versa, it might be a good idea to pay off your loan." On the other hand, Narayanan supports the foreclosure of the loan no matter what the case is. He feels that given the current scenario of unstable prices, inflation and further hike expected, its better to get rid of the whole loan as soon as possible. He adds, "If you have, for instance, an amount of Rs 1.5 lakh to be paid in the next 2 years. But you feel you can pay it immediately, your bank would usually charge a penalty which usually works out to be 3-5% of the principal or outstanding amount. In this case its likely that your bank would charge Rs 7,500 extra for foreclosing your loan. However, you would be paying 12% interest every month on the loan for the next 2 years. Don't think twice, just pay off your loan now," he said. He also echoed his belief that paying of the loan earlier is always a better idea rather than paying off hefty interest every year.

Hence, we suggest that the final decision be made on one's individual loan terms.

Remember the ownership and maintenance costs

This point has been iterated time and again, and generally, Indians consumers are good at calculating this. However with a change in the generation buying and driving the cars today, this point needs to be restated. "It is very important to keep in mind the ownership cost rather than the money that you are paying for buying the car," says Mr. Bali.

So what really needs to be kept in mind?

Both Bali and Narayanan agree on this one. Its of penultimate importance to know abt the fuel efficiency of a car before buying it. Also, doing a realistic calculation of servicing costs and the distance you travel on an every day basis helps a lot. One calculation often missed out by many buyers these days is that they forget to calculate the resale value of the car, as also the life cycle of their model. If the company is coming out with a new model in a few months, do not buy the model even though it might be on a huge discount.

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