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Ramalingam

Ramalingam Kalirajan  |8334 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 07, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jun 03, 2024Hindi
Money

Recently, I took a loan from Axis Bank to consolidate some existing debt. This included pre-closing loans from both Ashleel Bank and Hdfc Bank through a balance transfer. Axis Bank deducted the outstanding balance of the Ashleel Bank loan, processing charges, and general insurance from the loan amount. They provided me with a demand draft (DD) to submit to Hadfaqsi Bank for pre-closure of the existing loan there. The remaining amount from the loan was to be used for personal expenses. Today, when I went to Hadfaqsi Bank to pre-close the loan with the DD, they informed me of additional charges. These included prepayment penalties, interest accrued up to the date, and GST. I ended up paying these extra charges to close the loan. Afterwards, I contacted Axis Bank to inquire why they hadn't informed me about these additional pre-closure charges from Hdfc Bank upfront. Their response was that it's standard practice for banks to charge these fees when pre-closing a loan. While I understand that there might be pre-closure charges, I believe Axis Bank should have included the full amount needed to close the Hdfc Bank loan in the initial DD. This would have allowed me to better plan my finances and avoid the unexpected additional burden. Their lack of transparency about the total cost of pre-closing the Hdfc Bank loan caused me financial stress and disrupted my financial planning. I have paid the extra charges with DD to Hdfc bank and they started the Pre closure of the loan. But they told, the emi will be deducted and will reflect back after the pre clousure process ends. The pre closure of Hdfc Bank loan requires 7 to 10 working days as they told. Also i have to pay new EMI of Axis Bank loan one day before. My mind is blowned up by all this stressful and dissatisfied situations. Note - The loan process by Axis bank was also distressfully long about 2.5 weeks because of unprofessionalism and miscommunication between thier employee's, they made the loan documents two times due to their mistakes. Please help with your genuine guidance. Open to any advices or suggestions. Thank you

Ans: It's evident that you're dealing with a stressful situation involving multiple banks and loans. Let's break down the issues and work through potential solutions step by step.

Understanding the Situation
Loan Consolidation: You took a loan from Axis Bank to consolidate existing debts.
Pre-Closure Fees: You encountered unexpected pre-closure charges from HDFC Bank when you tried to pre-close the loan with a demand draft (DD) provided by Axis Bank.
Communication Issues: Axis Bank did not inform you about these additional charges, leading to financial stress.
Long Processing Time: The loan process with Axis Bank was lengthy and involved mistakes, adding to your distress.
Key Issues Identified
Lack of Transparency: Axis Bank did not provide clear information about the full cost of pre-closing the HDFC Bank loan.
Unexpected Charges: You had to pay additional charges at HDFC Bank for pre-closing the loan, which you were not prepared for.
Communication and Professionalism: The loan processing with Axis Bank was prolonged and marred by errors.
Steps to Address the Issues
Immediate Actions
Document Everything: Keep all the receipts, communication records, and documents related to the loan process and the additional charges you had to pay. This will be crucial for any future disputes or complaints.

Contact Axis Bank Again: Reach out to Axis Bank's customer service or your loan officer. Clearly explain the financial burden caused by the lack of transparency regarding the pre-closure charges. Request a detailed explanation and ask for compensation or a refund of the extra charges incurred due to their oversight.

Monitor Loan Pre-Closure: Since the pre-closure of the HDFC Bank loan requires 7 to 10 working days, monitor this process closely. Ensure that the pre-closure is completed, and verify that the EMI is stopped as promised. Confirm with HDFC Bank that the EMI deducted will be refunded promptly.

Long-Term Actions
Formal Complaint: If Axis Bank does not respond satisfactorily, file a formal complaint with the bank. Follow their grievance redressal process. If necessary, escalate the matter to the Banking Ombudsman for resolution.

Financial Planning: Review your financial plan to account for the unexpected charges. Adjust your budget to accommodate the new EMI payment to Axis Bank and any other financial commitments.

Consider Refinancing: Depending on the response from Axis Bank, you might want to consider refinancing the loan with another bank if better terms and transparent processes are offered. However, be cautious of any pre-closure charges from Axis Bank.

Preventing Future Issues
Detailed Loan Agreement Review: Always review loan agreements in detail before signing. Ask for a breakdown of all potential charges, including pre-closure fees, processing fees, and any other hidden costs.

Research and Compare: Before taking a loan, research different banks and compare their terms. Look for banks with a reputation for transparency and good customer service.

Seek Professional Advice: Consult with a Certified Financial Planner (CFP) before making significant financial decisions. A CFP can provide valuable insights and help you avoid potential pitfalls.

Evaluating Financial Health
Current Debt Management: Ensure that your current debt-to-income ratio is manageable. The goal is to keep your debt repayments within a reasonable percentage of your income to avoid financial strain.

Emergency Fund: Maintain an emergency fund to cover unexpected expenses. This can help you manage unforeseen charges without disrupting your financial planning.

Investment and Savings: Continue to invest and save according to your financial goals. Ensure that your investments are diversified to mitigate risk.

Final Insights
Navigating loans and consolidating debts can be complex and stressful, especially when unexpected charges and delays occur. It's crucial to maintain clear communication with your bank and stay informed about all aspects of your loan agreements. While Axis Bank's lack of transparency has caused financial stress, you can take steps to address the issue and prevent similar situations in the future. Document everything, communicate clearly with the bank, and seek professional advice when needed. With careful planning and informed decision-making, you can manage your finances effectively and work towards financial stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sanjeev

Sanjeev Govila  |458 Answers  |Ask -

Financial Planner - Answered on Dec 30, 2023

Asked by Anonymous - Dec 21, 2023Hindi
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Subject: Urgent Foreclosure Advice Needed for Private bank home Loan Dear Samrat, I am writing to you with an urgent request for your financial guidance regarding the foreclosure of my home loan with a private bank. Loan Details: • Loan Amount: INR 190,000 • Interest Rate: 10.40% p.a. • Disbursement Date: july 2013 • Original Loan Term: 20 years • Current Outstanding Balance: INR 1,100,000 My Concern: I have been making consistent payments on my loan since its inception. However, now I am now interested in closing the loan nine years early, When I contacted the bank to inquire about the foreclosure amount, to my surprise, they informed me that it would be the same as the outstanding balance, i.e., INR 1,100,000. This was unexpected as I anticipated the balance to be significantly lower due to the early closure My Request: can you explain why the outstanding balance hasn't decreased more significantly despite early closure request? • Considering the nine-year early closure, can you please suggest any strategies I can utilize to negotiate a lower foreclosure amount with the bank? • Additionally, please advise on any alternative loan options or financial strategies that might be advantageous in my situation, taking into account the early closure goal. Thank you for your immediate attention and expertise. I eagerly await your guidance in this matter.
Ans: • The bank's claim of INR 11,00,000 as the foreclosure amount is likely correct, even though you've been making consistent payments. In the initial years, home loans involve significant interest charges. Your monthly payments (EMI) primarily cover the accruing interest initially, with a smaller portion going towards the principal.

• Check your loan agreement or contact the bank for details on any prepayment penalties. Negotiate to waive or reduce the penalty, especially if you have a good repayment history.

• For the alternative option, you can connect with your existing bank for the loan refinancing or loan restructuring. It would help you to revise your existing loan, such as interest rates, payment schedules and other terms. You can also connect with other banks or NBFCs for the same. They will provide you the better option compare with your existing bank.

Before moving forward with any choice, we advise you to carefully consider your options and assess your financial status.

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8334 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2025

Asked by Anonymous - May 12, 2025
Money
I am 38 years old and self-employed, earning an average of 1.8 to 2 lakhs per month. I have a home loan of 44 lakhs (EMI is 46,000, tenure 15 years). There is no other liabilities. My investments include 11 lakhs in mutual funds, 3 lakhs in fixed deposits, and 1.5 lakh in gold. Should I focus on prepaying the home loan given my irregular income, or keep my investments intact and continue with EMIs?
Ans: You are doing quite well, especially with your investments and controlled liabilities. Your financial discipline is truly appreciable.

You are 38, self-employed, with Rs.1.8 to 2 lakhs monthly income.
Your current home loan is Rs.44 lakhs with EMI of Rs.46,000 for 15 years.
You have Rs.11 lakhs in mutual funds, Rs.3 lakhs in FDs, and Rs.1.5 lakhs in gold.
Your income is irregular, but you have no other liabilities.

Let us now do a 360-degree evaluation of whether to prepay the loan or stay invested.

 

Step-by-Step Financial Assessment
1. Evaluate the Stability of Your Income First
You earn between Rs.1.8 to Rs.2 lakhs per month.

 

But income is irregular. That needs caution.

 

Loan EMI is Rs.46,000 — about 25% of your average income.

 

If income drops in any month, EMI pressure will increase.

 

So we must first ensure EMI is always affordable, without stress.

 

Hence, liquidity is more important for you right now than aggressive loan prepayment.

 

2. Evaluate Your Emergency Reserve
You have Rs.3 lakhs in FD and Rs.1.5 lakhs in gold.

 

That makes it Rs.4.5 lakhs total liquid safety.

 

Your EMI is Rs.46,000, and personal expenses will also be there.

 

Ideal emergency fund for you = 6 to 9 months of expenses + EMI.

 

That is around Rs.6 to Rs.8 lakhs minimum.

 

So current emergency fund is slightly lower than ideal.

 

Please don’t use this for loan prepayment now.

 

3. Assess the Role of Mutual Funds
You have Rs.11 lakhs in mutual funds. That’s a solid step.

Now let’s assess whether to redeem this and prepay loan.

 

Should You Redeem Mutual Funds to Prepay?
Mutual funds, over long term, give better post-tax return than loan savings.

 

Loan interest is 8% to 9%, whereas mutual funds can give 11–13% in long term.

 

Especially if funds are equity-oriented and held for 5+ years.

 

You will also get capital gains tax exemption on Rs.1.25 lakhs LTCG annually.

 

If you redeem funds, you lose growth potential and compounding.

 

That hurts long-term wealth building.

 

So, do not redeem the entire Rs.11 lakhs in mutual funds.

 

4. Disadvantage of Early Loan Prepayment in Your Case
Prepaying early will reduce interest over time, yes.

 

But you may run into cash flow stress in slow months.

 

Once money is used to prepay, it cannot be taken back easily.

 

Liquidity once lost = flexibility lost.

 

Also, income tax benefit under Section 24(b) gets reduced if loan balance drops.

 

So it’s better to maintain balance between repayment and investment.

 

5. Best Strategy for You – A Balanced Approach
Let’s now craft the best plan for you.

 

Maintain Strong Liquidity First
Keep FD and gold untouched.

 

Increase emergency fund to at least Rs.6–Rs.7 lakhs.

 

For that, set aside extra Rs.2.5–Rs.3 lakhs from savings over time.

 

This makes your EMI safe even in low-income months.

 

Continue Your Mutual Fund SIPs Without Stopping
SIPs give long-term growth and beat loan interest in most cases.

 

Don’t stop mutual fund investments to prepay loan.

 

Stay invested. Let wealth compound.

 

Start Small and Periodic Prepayments
Don’t do bulk prepayment now. Do systematic small prepayments.

 

For example, Rs.25,000 to Rs.50,000 extra every 3–4 months.

 

When income is higher, use that surplus to prepay in parts.

 

Target 1–2 bulk part-payments per year.

 

This reduces tenure and interest slowly, without affecting liquidity.

 

Track Your Loan Amortisation Every 6 Months
Use netbanking or get a fresh loan statement every 6 months.

 

Check how each prepayment is reducing principal.

 

Adjust your strategy accordingly.

 

Avoid One-Time Full Prepayment
That would kill your long-term investment compounding.

 

Also removes your income tax benefit under Section 24(b).

 

Stay flexible. You are self-employed.

 

You need cash buffers more than salaried people.

 

Final Insights
Do not do bulk home loan prepayment from mutual funds now.

 

Keep SIPs going and maintain your compounding.

 

Grow your emergency fund to Rs.6–7 lakhs minimum.

 

Use surplus months to make small part-payments towards home loan.

 

This protects your peace and builds wealth at the same time.

 

Reassess in 2–3 years. You may be able to prepay more later.

 

You are already in a good financial position. Your thoughtful approach is praiseworthy.

 

Best Regards,
 
K. Ramalingam, MBA, CFP,
 
Chief Financial Planner,
 
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Ramalingam

Ramalingam Kalirajan  |8334 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2025

Money
i wish to purchase new car i10, should i purchase the same through own money or should i take a vehicle loan from bank and the money own by my to be kept as FDR or liquid mutual fund
Ans: It’s a good sign that you’re thinking before buying a car. You’re not rushing into it. That shows maturity and smart thinking.

We will now evaluate own money vs vehicle loan — from every angle.

 

Understanding the Nature of a Car Purchase
A car is not an investment.

 

It is a consumption asset, not a growth asset.

 

It depreciates every year. Its value goes down, not up.

 

So the cheaper the total cost, the better for your wealth.

 

Option 1: Use Own Money Fully
Pros

No interest cost. You save on total expenses.

 

You are free from monthly EMI pressure.

 

Car becomes fully yours from day one.

 

No need to deal with bank, forms, hypothecation etc.

 

Cons

Your liquid money reduces.

 

You may not have enough cash for emergencies.

 

Opportunity loss if you had invested that money.

 

Option 2: Take Vehicle Loan & Keep Own Money in FDR or Liquid Mutual Fund
Let’s evaluate this with care.

Vehicle Loan Pros

You can preserve your savings for emergencies.

 

EMI can be budgeted monthly, if income is stable.

 

Some banks offer competitive interest rates.

 

Vehicle Loan Cons

You will pay interest on a depreciating item.

 

Loan adds to your monthly obligations.

 

You must pay insurance, EMI, fuel, and service together.

 

FDR and Liquid Mutual Funds give lower returns than loan cost.

 

So you will likely lose more in interest than you gain.

 

Let's Compare: Interest Rate vs Investment Return
Vehicle loan interest is usually 9% to 11% per year.

 

FDR gives around 6% to 7% before tax.

 

Liquid mutual funds give 6% to 7.5% on average.

 

So you pay more to the bank than you earn from investment.

 

Tax on interest or gains reduces actual return further.

 

This means taking a car loan and investing your own money leads to net loss.

 

Best Option for You: Smart Compromise Approach
Let me share a wise solution.

 

Don’t use full own money. Don’t take full loan either.

 

Instead, pay 70–80% from own funds.

 

Take a small car loan for the remaining 20–30% only.

 

This keeps EMI low and retains some liquidity.

 

You reduce interest cost and also keep Rs.50,000–Rs.1 lakh aside.

 

Park that in liquid fund for any urgent need.

 

Repay this small loan fast in 1–2 years.

 

Only Take a Car Loan If:
Your job income is stable.

 

You already have 3–6 months emergency fund ready.

 

You don’t have big loans running now.

 

You can pay EMI without affecting savings.

 

You commit to close the loan early.

 

Avoid This Mistake:
Never buy a more expensive car because loan makes it “feel affordable.”

 

Loan should not expand your car budget.

 

Whether you buy with loan or cash, pick a simple car within limits.

 

i10 is a wise, middle-ground choice. Good thought.

 

Tax Angle (If Business Use)
If you are using the car for business, vehicle loan interest may be tax-deductible.

 

But for personal use, there is no tax benefit.

 

So do not take loan just for imagined tax saving.

 

Final Insights
A car is a need, not an investment.

 

Using your own money fully keeps things simple and cheap.

 

Taking a full car loan and investing the money gives net negative return.

 

Best option is a split approach — pay major part from own funds.

 

Take small loan only if needed and close it early.

 

Always keep emergency money aside before buying.

 

Avoid emotional buying or overbudget cars.

 

Your financially balanced approach is very appreciable.

 

Best Regards,
 
K. Ramalingam, MBA, CFP,
 
Chief Financial Planner,
 
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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