The lockdown has pushed us to do many things while staying at home. Our needs have increased substantially. This has led to replacement of old household items, repair, and purchase of new electronics. The demand for consumer durable loans has increased significantly since the advent of COVID 19.
Understanding Consumer Durable Loans
Consumer Durables is a form of loan used to finance consumer goods, washing machine, refrigerator, air conditioner, smartphones, generator, water purifier etc. This loan covers items and appliances which come with a warranty period. This finance is an adept solution for anyone looking for an upgrade in lifestyle but facing a shortage in liquidity.
CIBIL Score and Consumer Durables Loan
CIBIL score is an indicator of your credibility, it accounts your credit history, as a borrower. This helps lenders to determine your loan eligibility. Consumer durables loan is a type of an unsecured loan; it does not carry any form of collateral as a security against repayment of the loan. The CIBIL score and the annual income are the focus of scrutiny while sanctioning these kinds of loans to borrowers.
This is the reason one should check their CIBIL score frequently. In addition, it is a mandate to pay your EMIs on time, this will ensure your score to be high and this will make you eligible for future loans.
Furthermore, having multiple loans and no credit cards adversely affects your CIBIL score. This then threatens your eligibility for a consumer durable loan.
Pointers on Consumer Durable Loans
Interest Rate: The cost of availing the loan is a prime factor to be taken into consideration while applying for a loan. There are two types of consumer durable loans: Interest free and Interest laden loans.
- Interest free: As the name suggests these are loans which are provided on only selected consumer items and are not able to purchase any other product.
- Interest laden loans: These are loans carrying varying interests, the rate of which depends on specific bank’s terms and conditions.
Unsecured loans have an interest rate as low as 12% and as high as 22%. The fee charged on acquisition of this loan is approximately between 1% -3%.
Instalments: Loans are repaid in instalments and Consumer durable loans are no different. The only differentiator being the right to choose the number of instalments and the EMI rate borrowers have.
Naturally, the tenure of the loan is affected by this choice. However, it is advisable to get the maximum number of instalments allowed, to better manage your finance.
Processing fee: It is strongly advisable to evaluate the processing fee before acquiring such a loan. Ensure that the processing fee is constant throughout the life of the loan. A variable fee will not only affect your finances but also put you under financial stress.
Down-payment: Financial institutions and Banks rarely give an option of 100% loan. In majority cases the borrower must pay a partial amount in advance before the loan is availed. The rate of down-payment varies between lenders but is mostly between 10%-25%. It is best to go for a down payment option between 205-25% as this will help the borrower stabilise their financials in the long run.
