Banks are going all out to encourage car and home buying this festival season. As a result, there are interest rate and administration and processing fee discounts.
For instance, State Bank of India has reduced the processing fee for loans by 50 per cent. For home loans up to Rs 25 lakh the processing fee has been reduced to 0.12 per cent per cent of the loan amount, from 0.25 per cent, subject to a minimum of Rs 1,000. For other slabs, the benefits are similar.
Similarly, ICICI Bank recently cut the floating home loan rate to 10.25 per cent for loans below Rs 30 lakh, and to 10.5 per cent for loans above Rs 30 lakh. HDFC, the largest housing finance company is similar to ICICI Bank – 10.25 per cent for loans below Rs 30 lakh, and 10.5 per cent for loans above Rs 30 lakh.
Given the variety of offers and choice, it might be a good time for the fence sitter to take a call for buying a house or car. However, it may not exactly be so. There are several things that have to be taken into account – for one, the best loan rate. But that is not the only parameter.
Ultimately, customers must look at the total cost and not go by the initial cost. The total cost is far more critical, says Suresh Sadagopan, certified financial planner. “The lower rates and fees are definitely useful to customers who have decided to buy a car or a house. But just lowering the rates will not induce customers to buy,'' he says.
A comparison between the three banks, SBI, ICICI Bank and Bank of Baroda shows that SBI scores over the other two due to its low interest rates and processing fees. But in addition to rates, you should also consider factors like distribution and service. It is possible that an HDFC, whose rates are higher than SBI, scores over SBI in terms of faster loan approval and disbursal.
For instance, for a Rs 30 lakh loan, at 10 per cent interest rate, having tenure of 20 years, the total borrowing cost (including the interest component of Rs 39,48,000 and processing fee of Rs 6500) comes to Rs 39,51,250. The monthly EMI works out to Rs 28,950.
In case of ICICI Bank, for a loan of similar amount and same tenure, at interest rate of 10.25 per cent, the total borrowing cost (including the interest component of Rs 40,63,200 and processing fee of Rs 15,000) comes to Rs 40,78,200. The monthly EMI is Rs 29,430.
In case of Bank of Baroda, the rate for an Rs 30 lakh loan is 10.5 per cent and no processing charge for the festival period. In this case the borrowing cost, which is only the interest component works, out to Rs 41,88,240 and the monthly EMI works to Rs 29,951.
| Interest Rate | EMI (Rs lakh) | Amount (Rs lakh) | Total EMI(Rs) |
| SBI’s Rate for car loan | |||
| @11.25% | 1725 | 5 | 8,625 |
| @10.50% | 1686 | 5 | 8,430 |
| Savings in EMI | - | - | 195 |
| Savings in EMI for 7 years | - | - | 16,380 |
| Add savings in processing fees - 50% of card rate fees | - | - | 510 |
| Total savings | 1,68,90 | ||
| SBI’s Rate for home loan | |||
| @10.75% | 1015 | 50 | 50,750 |
| @10.15% | 974 | 50 | 48,700 |
| Savings in EMI | - | - | 2050 |
| Savings in EMI for 20 years | - | - | 4,92,000 |
| Add savings in processing fees - 50% of card rate fees | - | - | 3,250 |
| Total savings | 4,95,250 | ||
| Source: ApnaPaisa Research Bureau | |||
Explaining the reason behind the generous offers from banks, Anil Rego, CEO and Founder Right Horizons says that liquidity in the system is better and banks are under pressure to lend due the reduction in the Cash Reserve Ratio. Hence banks are under pressure to lend.
According to Harsh Roongta, CEO of Apnapaisa.com all these festival offers are only a reduction in interest rates, which in any case were overdue. The reduction in interest rates will continue even later as systemic interest rates continue. But the reduction in processing fee has some benefit.
Also, In case of SBI, which currently has the lowest home loan rates, the card rate is the actual rate. But in private banks and foreign banks, it is possible for a high net worth customer with a good track record and a good property with clear records to get a home loan at 10 per cent, which is lower than SBI's Roongta says.
For higher loans, between Rs 25 and Rs 75 lakh, SBI’s revised processing fee is Rs 3250, against Rs 6,500 earlier and for loans of above Rs 75 lakh, the revised processing fee is Rs 5,000, against Rs 10,000 earlier. For take over home loans, the bank is charging a flat processing fee of Rs 1,000.
For auto loans the processing has been reduced to 0.25 per cent of the loan amount from 0.51 per cent earlier, subject to a minimum of Rs 510 and a maximum of Rs 5,100. Earlier, the minimum was Rs 1,020 and the maximum was Rs 10,200.
There are similar festival offers from other banks too. For instance, Corporation Bank has waived off the processing fee completely if both housing and vehicle loan are availed together. UCO bank has waived off processing fee without any conditions. Dena Bank has also waived off processing fees completely on home, car, personal and gold loans.
About such combo offers, Roongta says that it is a gimmick, because not too many borrowers would be able to afford a home loan and a car loan simultaneously. While buying a home, you could also look at festival offers from real estate companies, Rego says.
Typically, the festival season between October and February generally accounts for about 60 per cent of the annual sales of developers. Most people buy houses as it is considered, auspicious. So, many builders either offer a discount on the booking rate or waive off stamp duty and registration charges, which can work out a saving of as over Rs 1 lakh.
