Now or later?

PERSONAL FINANCE

Banks have cut interest rates to attract consumers in the festive period. Is it the time to buy?

With Diwali fast approaching, it is discount season for the consumers. Companies and banks are aggressively trying to attract you to purchase homes, cars and all kinds of consumer durables. Builders are making offers of free modular kitchens, returns of stamp duty etc to attract you.

Similarly, housing loans are being offered without the customary processing fee and also, at 50-100 basis points less than the prevailing interest rates. For car loans, the State Bank of India has recently announced a cut of 100 basis points.

Then, there are consumer durable companies who are willing to offer you products at 10 to 20 per cent discounts. Even the loans are available on such products at 'zero per cent interest'.

However, with a general view that interest rates have peaked, does it make sense to delay your purchases as interest rates may go down further in the months to come? It is especially important as a rate cut will definitely impact expensive buys like cars and homes.

As far as banks go, the festival season cuts have already happened. And for further cuts they will look at the October-end credit policy. However, most experts are of the opinion that the Reserve Bank of India (RBI) is not likely to cut either the cash reserve ratio or indicative rates like the reverse repo.

Says Madan Sabnavis, chief economist, NCDEX, "Since the markets are flushed with liquidity now, I do not see the RBI cutting any rates at this point in time."

There are also worries that the Federal Reserve might cut rates further in November which will release more liquidity in the system. That would mean that the RBI will not need to take any affirmative action even in January, 2008.

Buying, therefore, does make a lot of sense due to the festive offers. Especially, the big purchases like homes and cars where there are discounts and freebies.

Says Suresh Sadagopan, financial planner, "At present, I am advising my clients to go for a fixed home loan rate."

His reasoning is that a lot of people have gone through a rude shock when the interest rates and consequently, the Equated Monthly Installments (EMIs) shot up during the last two years. And with the interest rate outlook uncertain, it is best to go for a fixed payout.

Of course, there is the perpetual question is should I buy this great television or car because there is a discount available on it. The quick reply is NO. If you had planned that purchase then go ahead and do it.

Otherwise, do not buy just because there is some freebie available on it.