### Is it good to take a personal loan and keep the amount in FD for duration of highest interest rate?

POSTED BY ON March 12, 2014 10:22 pm COMMENTS (13)

Is it good to take a personal loan and keep the amount in FD for duration of highest interest rate?

## 13 replies on this article “Is it good to take a personal loan and keep the amount in FD for duration of highest interest rate?”

1. Ravi says:

Hi,
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%.

Thanks
Ravi

2. ashalanshu says:

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.

thanks

Ashal

3. Hemanth Chandra says:

Hi Amrutha,

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.

Regards,
Hemanth.

4. Amrutha says:

Its the worst case scenario. But profitable for those who fall in 10% and 20% tax slabs.

5. ashalanshu says:

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.

Thanks

Ashal

6. NitinW says:

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

7. NitinW says:

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

8. Amrutha says:

I got your point.
But even if you consider the 30% tax slab still there is a profit of around 9ooo Rs.

9. ashalanshu says:

Dear Amrutha, what’s your own tax slab? Post tax the profit ‘ll not be same 13000 Rs. that’s my point.

Thanks

Ashal

10. Amrutha says:

i have considered 10% tds in the above calculation.

11. ashalanshu says:

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?

Thanks

Ashal

12. Amrutha says:

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.

13. ashalanshu says:

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.

Thanks

Ashal

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