Money Talks # 45 ???? - Buying on cash or loan ?

We have clients who has Fixed Deposit and still they buy things on loan. Why people do that ? even NRI’s who is not eligible for any tax relief on their Home loan’s as well buying Home loan when they have FD in their bank.

I got answer for this from one my clients. He says, having investment is a feeling for safety. ‘Loan payment happens automatically via EMI without my knowledge and it reduces my monthly spending too’.

There are other reasons too, Advertisement for loans and investments also another reason for people to turn towards loan. Loan is a big business for banks. When they sell loans, they have an emotion edge over you. Your relationship manager may suggest an insurance policy to cover your life and investment. Actually it is not mandatary, you need only a term insurance (which has low premium) but a person receive loan can’t say no to the policy they are referring. As a result, you bought 4 products, Savings Account, Fixed Deposit, Home Loan and Insurance.

It is a big income business for the loan industry. They will make you feel that loan is better for you even if you have money in hand or even if you can delay that shopping.

There is no hurry for your shopping, you can set a goal for purchase, accumulate monthly saving and buy later. Or if you have money in hand or bank, you may use that and buy without any loan.

Just understand, loan interest rate could be 8 to 12 % depends on the loan and bank. Your Fixed Deposit earn you interest of 7 % or your investment in market earn you 10 to 12 % per annum return with market risk. Which means, Against FD Vs Loan, you are still paying extra 2 – 5 % interest. Totally unnecessary !

Now, you can decide – Do you want to buy on cash or loan ?

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