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

POSTED BY Amrutha 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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