March 12, 2014 10:22 pm
Is it good to take a personal loan and keep the amount in FD for duration of highest interest rate?
I am planning to take a personal loan of 5 Lakhs for 3 years. The amount will then be fixed at the rate of 8.5% for 3 years. Will you guys guide me on this? I am in the tax slab of 30%.
Dear Hemanth, being a loan and regular paid EMIs, the total interest over the 2Y period’ll come to around 28000 Rs. not 53000 Rs.
The interest for the Personal Loan for 2 years for 2 L at 13 % interest around Rs. 53,000, but not Rs. 28,000. Correct me if I am wrong.
Its the worst case scenario. But profitable for those who fall in 10% and 20% tax slabs.
Dear Amrutha, in 30% tax slab, you need to pay 30.9% tax on 42494, hence net amount received from FD post Tax = 29363 Rs.
Now show me the money.
Sorry did not consider the PL interest, which comes to 28192
So now the calculation would be
42494 – 28192 = 14302 – 4290.6[tax @30%] = 10011
So yearly 5005.5 for reducing your credibility by 9508\month
Nice work Amrutha.
The catch here is you are losing out on your further credit eligibilty.
Should not go for this option if you are planning for a home loan or so 🙂
Also to get a loan for less tenure is a challenge at times
With this calculation you are actually getting an effective yield of 10.62%. The ROI is calculated on a compounded quarterly basis
And how the profit is 9000 post tax deduction?
The tax liability on 42494.43 would be 12748.2 @30%
So 42494.43 – 12748.2 = 29746.23
I got your point.
But even if you consider the 30% tax slab still there is a profit of around 9ooo Rs.
Dear Amrutha, what’s your own tax slab? Post tax the profit ‘ll not be same 13000 Rs. that’s my point.
i have considered 10% tds in the above calculation.
Dear Amrutha, show me the profit from the deal. How come there is no tax on FD interest? 9.75% FD qtly compounding the maturity value of 242494.43 Rs. What about tax liability on 42494.43 Rs. the interest part?
yes thats true. I have considered this point. But here the point is personal loan interest rates are applied on a monthly reducing basis which makes a difference.
A PL of 2 lacks for 2 years at 13% ROI(currentl some banks are giving at this rate) is costing an interest of around 28000.
But a FD of 2 lacks for 2 years at 9.75 ROI is giving 242,494.43 at maturity.
So there will be a profit of approx 13000 after deducting tax.
Please let me know your view on this.
Dear Amrutha if personal loan is available at 4% yly rate (I know it’s not as PLs are offered anywhere from 16-24% yly rate) and FD is offering 8-9%, it makes sense what you want to do.
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