4 replies on this article “Loan Burden”

1. Abhishek says:

   November 12, 2010 at 11:58 am

   Hello Shashank

   Thanks for the detailed reply. It was very helpful. To give you the details,

   1. I am 29 with 85K is my take home salary after tax and my yearly income would be 14LPA
   2&3. My home loan Interest rate is 10.75% with an EMI of 19,968.00 for 20 yrs and my Education loan is for 7 years with EMI of 37,500 and the interest rate being 13.75%. I havent tried asking for extension of the loan period. But will give it a shot.
   4. The international trip would bring in additional saving of 1-1.5 Lakh per month. Meaning I could save around 12Lakhs easily in an year.
   5. Salary rise would be around June (around 10-15%)
   6. Havent initiated enquiries on personal loan. Thought of checking with experts before I do so. But i guess no harm. Will do it asap.

   I do not think I would like being unethical. If it comes to loans being denied, I still have good friends who can back me but I want to consider that as my last option

   Additional life cover and Accident cover seem to be a good idea. Can you point me to good plans I should consider.

   Please advise.

   Abhishek

   Reply
2. shashank kashettiwar says:

   November 11, 2010 at 7:00 pm

   Manish,
   About point 1, I too don’t know whether lying about existing education loan is going to fool the bankers and they wouldn’t know about it. Question of ethics is involved here, no doubt. Also the issue of whether a planner should suggest such a remedy to an individual or client in such a tight situation that too is a tough question involving morality professional and personal as well. Plus there could be some implications for lying about loan liabilities in future, we wouldn’t know. So the very plain answer to point raised by you is – NO, it is not advisable to do so.
   We should search for other alternatives and if nothing seems to work then…………..???? leave it to Abhishek.
   But this type of dilemma of ethics and moral issues is faced by a financial planner everyday. especially in our society where unaccounted incomes, black money/cash transactions and tax evasion are prevalent.( Atleast compared to these situations this is much better.)
   Point2.
   Insurance planning should be comprehensive. The safety net being created should be spread widely at the same time it should be tightly woven so that there are no big holes in it. Because we do not know where we may fall!
   So apart from life insurance one must have adequate disability and health insurance. The disability scenario is even more fearsome than the untimely death situation. The financial burden, physical pain and emotional trauma demand that a person should have atleast equal covers on disability side, if not more than life covers. Because howsoever big cover or premium one might be paying for life covers; would come to a naught in case of disability.
   Now in India we do not have any standalone disability covers offered by life or general insurance companies. So this support has to be created somehow through by other surrogate plans and choosing proper riders in life plans. Typically these are accident policies from general insurers, waiver of premium riders in life plan(if for nothing else the savings plans of insurance are very crucial in the risk portfolio of a person as they would keep on building the capital incase of disability),and personal accident riders in life plans.
   So buying of term insurance-how can it replace accident covers? They are complementing the risk planning portfolio and cannot be neglected just because term insurance is there.
   Because life companies offer inadequate covers through accident riders and with restricted utility and features unlike a general insurer’s product, one has to resort to general insurance companies for a comprehensive and flexible product.

   shashank

   Reply
3. shashank kashettiwar says:

   November 11, 2010 at 2:16 am

   Abhishek,
   If you had provided some more details then it would have helped me to advice you in a better way. Still I would try. These details would be regarding-
   1)Is 85000/- your salary in hand after tax and other deductions?
   2) What is the tenure of the education loan, intt rate and can the tenure be extended if so wished?
   3)What is the tenure of the home loan whether 15 or 20 yrs?
   4)That international trip would fetch you how much extra money over and above current earning within coming 12 months, whenever the trip might occur after two months?
   5) What is the expected salary rise and when would it happen?
   6) Have you enquired how much max amount you can be granted as personal loan and the maximum tenure available?

   Now as I don’t have above mentioned info with me I’m going to assume some facts and base my advice on that.

   Recommendations:

   1) If the payment of friendly debt has to be done within three months, then you don’t have any choice but need to get a personal loan. How much amount you should take we will discuss but you must move fast to get that personal loan. Because once your education loan repayment starts and it gets reflected in your bank statement you will probably not get that personal loan as your total outgo for servicing the two loans would be almost 70% of your monthly salary( it’s take home I assume)
   2) Even if there was no repayment of personal loan, even then you were not going to have much surplus in your hand after EMIs and 25 k living expenses. A figure of 2500 or may be upto 5000-6000 if we account for deduction of education loan intt from your taxable income(you need to provide tenure, intt rate etc. for exact reading of situation). This situation creates a peculiar situation that after payment of EMI of personal loan you will not have enough to support monthly expenses. A personal loan of 6 lakhs for a tenure of 5 to 7 years and intt rate being 16 to 18% is going to demand per lakh EMI in the range 2200-2550. So for 6 lakhs the figure to be considered @ 14000-15000 p.m.
   So there is going to be short fall of 10000-12000 per month. This has to be filled up in eighter of two ways. a) Take loan from another friend amt 50000 to 100000 b) Take 6 lakhs loan but pay your friend maybe 500000 to 550000 only and keep rest with you c) take 7 to7.25 lakh personal loan and keep extra amt for living and servicing the loan also for one year.
   3) BUY A LIFE COVER OF 2 CRORE AND ACCIDENT COVER OF 1.5-2 CRORE.( I’m assuming your yearly gross salary @ 14-15 lakhs and you are not above 30 yrs of age). IF NEEDED THEN TAKE 30-40K EXTRA LOAN FOR EVEN PAYING THE PREMIUMS BUT DO IT MUST.
   4) A fine tuned set of recommendations is possible only after getting the info I asked for.

   shashank

   Reply
   1. Manish Chauhan says:

      November 11, 2010 at 8:10 am

      Shashank

      Thanks for the detailed answer . I have 2 questions here in this case

      1) Even if he takes the personal loan before starting his payment for educational loan , the company giving personal loan would enquire about the existing loans Or is it advisable to try to hide that part , can Abhishek do that ?

      2) Also why is it advisable to take accidental coverage of 1.5-2 crores ? Term insurance is fine, but accidental coverage of that high amount, why did you recommend that ?

      Manish

      Reply

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