Conserve first and spend later
By Joseph Samson
Dec 31, 2008
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Although declining interest rates in the economy may be attracting you to make all your pending purchases but industry experts feel that this may not be the right time to do so. They believe that conversation of cash is what people must look forward to at this moment and as interest rates are expected to come down further, borrowers should defer they plans for now.

An Executive Director (Wealth Management) of Angel Broking, Hitungshu Debnath said, "I would hold back on any asset creation, whether it is a car or house, for now. Conserving cash should be the motto."

In the past few months, both the RBI and Government have announced measures that have eased liquidity crunch in the system and made efforts to make cheap credit available to the borrowers. However there are hopes that interest rate would decline further in the New Year and therefore it will pay to the borrowers who behave patiently.

Recently on government's behest, banks have reduced home loan rates to 8% and 9.5% for loans up to Rs 5 lakh and those between Rs 5 lakh and up to Rs 20 lakh respectively. These rates are fixed by the banks for a period of 5 years with zero processing fee and free insurance cover. However loans above Rs 20 lakh remain excluded from the package, but there are expectations that this band of loans would now experience a rate cut.

Also as the inflation rate is cooling, RBI is likely to reduce its key policy rates again, thereby encouraging banks to cut the interest rates. Head of FCH Centrum Wealth Management, Sriram Venkatasubramanian said, "In the next three to six months, floating interest rates are likely to fall further. It could be a better time to buy a house." Moreover there are expectations of further cut in the property prices and therefore it would be best for the borrowers to wait for sometime.

Similarly auto loan buyers should also determine the overall financial situation before taking a loan. It might prove helpful to notice that recession has caused various job cuts in the recent past and above people are witnessing a cut in their salaries. Hence it would not be wise to take a loan for which you are unable to make the EMIs in the future.

"Defer the decision because of both interest cost and car rates could come down further," said Venkatasubramanian.

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