Plan Repayment Before Taking Loan

Somit Basak, Durgapur

I have a home loan running but need a loan of around `10 lakh for renovating the house. I am thinking of taking a gold loan, but my gold jewellery constitutes only 50 per cent of the required amount. I have Public Provident Fund (PPF) also, but it is only four years old and I have no other investment. My bank is suggesting a personal loan or loan against fixed deposit (FD). Please suggest what could be the best option to get the money.

As you have no other investment, it is recommended to not take a loan against your FD and PPF. FD can be utilised in an emergency by breaking it and PPF can be used as your long-term tax-free investment. But, if you take a loan against PPF, you will miss out on interest and the compounding benefits. Another point is, the loan amount is limited to 25 per cent of the balance at the end of the second financial year preceeding the year in which the loan is applied, so your eligible amount may be much less.

You can check with your bank the terms and conditions of other loans like home improvement loans, home renovation loans, gold loans, and personal loans. Then, compare each of these options from different banks and decide what suits you the best.

So, first find out your loan eligibility, interest rate, loan tenure, processing fee, pre-payment penalty, foreclosure charges, stamp duty, and other charges. Also, check interest rate details, whether it is a fixed rate or floating rate. Is interest calculated on reducing balance method? Do you have to pay only interest (like in an overdraft facility) on the utilised amount or a fixed equated monthly instalment (EMI)?

If you are a salaried person and get a bonus or incentive periodically, it makes sense to go for a fixed EMI option with no pre-payment penalty and foreclosure charges, so that you can pre-pay or foreclose your loan whenever you get an incentive.

If you are a businessman with variable cash flows, an overdraft kind of loan will make sense wherein you pay interest only on the amount utilised and can repay the principal whenever you have surplus cash.

Another option is to sell a portion of your gold jewellery to fund home renovation instead of taking a gold loan. Instead of paying EMI, you can start a mutual fund systematic investment plan (SIP) in equity or hybrid funds, as per your risk appetite. It will be good to create an investment corpus, which is likely to beat the inflation monster.

Uma S. Chander, CFP® Handholding Financials

Chandra Sahu, Bengaluru

I have been buying 5 gram gold coins regularly for the past few years. They are kept in a bank locker, but as I have relocated from Raipur to Bengaluru, I want to surrender my locker in Raipur and take one here in Bengaluru. Is there a way to get the gold insured for transit?

There are a few high-value courier services available, such as Sequel, Air Parcel, BVC Logistics, and Jai Ambe Logistics. They take commodities like bullion, precious metals such as gold, and gemstones. They are specialised in handling such shipments and also provide insurance coverage for it.

Alternatively, digital gold is also a better option if you like to continue buying gold. In that case, you would not have to go through the transit hassle. You can buy digital gold through a broker who has a permit.

Hina Shah CFP®