Striking a fine balance

First car at 25, a home at 30 and a second car at 35 are no more just plans on a sheet of paper—these are all realistic financial goals, which are realisable with a little help from the various loans that can help you achieve your dreams. In 1994, as a 40-year-old, Col. Arun Bala took her first loan to realise the great Indian dream—to own her own house. “I took Rs.5 lakh loan for a ten-year period for my first house,” recounts the now retired Delhi-based colonel.

A lot has changed in the two decades— loans are no more a taboo, they are easy to get and are a way to achieve your financial goals. In fact, for a generation of middle-class Indians, the desire to own a house of their own has been possible with pethe availability of loans and the government’s push to provide tax benefits when you borrow to purchase a home.The flexibility with the structure of loans is another factor that makes it possible to not only opt for a home loan, but also manage servicing it conveniently.

Options galore

There is plenty to choose from if you are looking for a loan to fund your dream. And with a little bit of balancing, you can plan your financial life with loans. Take the case of Navi Mumbai-based Vivek Parab (40) who has taken a loan for a house and is also in the midst of setting up his business. Though it is not easy for him to service his loan and also take care of his day to day expenditure, he has hopes that in coming years earnings from his business will help him close his loan. Taking a loan helped in putting his savings in the business and at the same time build a long-term asset. Similarly, Bala took a loan to buy a car in 2004 and a home loan in 2009 to buy a bigger house. “I repaid my debts three years ago and am enjoying my retirement,” beams Bala. Taking out a loan is a commitment—you’re agreeing to pay the money back within a certain period—and you need to be prepared.

“There are various kinds of home loan schemes. A few options are for purchase of a ready property, purchase of under construction property, self construction, purchase of plot, renovation or extension of existing property and loan against existing property,” says Harshil Mehta, CEO, DHFL. For borrowers, the variety presents an opportunity to take a loan to meet their respective needs. The factors that determine how much a home loan costs depends on: the sum you borrow, the period of the loan and the prevailing interest rates.

Loans are not just from banks, the NBFCs are big players, too. Says Rakesh Singh, CEO, Aditya Birla Finance: “Our frontline teams are trained to spend the necessary time understanding the consumers’ earning model in detail and ensure that the loan we sanction is of a value reflective of the inherent strength.” The NBFCs are helping several among the unorganised workforce, with little or no credit history to create one with loan offerings. Yes, the cost of such lending is higher, but so is the risk taken by the lender.

For 31-year-old Ramesh Kumar, living in a rented house in Delhi is about to end with the allotment of a DDA flat. “I was eligible for a loan which will make my dream come true. Else, the lucky draw would have just been a cruel joke,” he says. Kumar has a loan from Reliance Home Finance as banks insisted in a lot of documentation which he was unable to furnish. It is for this reason that today that several NBFCs are entering the home loan space. Housing Finance Corporations have risk measures which help them lend to everyone. almost every house purchase is on a loan, with the exception of non-loanees being a rare aberration.

The rise in consumerism is being aided by lending portals, which have a loan for almost anything that you want. “There is a loan for emergencies, marriage, vacations or just about anything else,” says Adhil Shetty, CEO and co-founder, Bankbazaar.com. And for families with two incomes, the going gets a lot more better if the combined earnings are used to seek a loan.

Living off EMIs is a reality that cannot be shunned, but make sure you are not overdoing it by staying within means to achieve instant gratification; else you are a potential candidate to fall into a debt trap.

olmdesk@outlookindia.com