What is liquid loans, is it safe?

Ans: While it is always a good idea to pay off the maximum loan amount early to save interest on your home loan, there are some things you should definitely keep in mind.

You should always have some liquid amount available handy for regular day expenses or emergencies. Once you deduct this amount, the money available can then be used to prepay your home loan. This will help you save money on interest payments.

You can choose whether to make a bulk prepayment in one go or go for smaller prepayments. From a tax perspective, you can claim exemption on monthly EMI payments which you will not be able to once you pay back your home loan. So it might be preferable to make smaller prepayments instead.

Ans: While it is always a good idea to pay off the maximum loan amount early to save interest on your home loan, there are some things you should definitely keep in mind.

You should always have some liquid amount available handy for regular day expenses or emergencies. Once you deduct this amount, the money available can then be used to prepay your home loan. This will help you save money on interest payments.

You can choose whether to make a bulk prepayment in one go or go for smaller prepayments. From a tax perspective, you can claim exemption on monthly EMI payments which you will not be able to once you pay back your home loan. So it might be preferable to make smaller prepayments instead.

Ans: Liquid loans, also known as liquidity loans or instant loans, are short-term loans provided by financial institutions to individuals or businesses to meet immediate cash needs. These loans are typically unsecured and have a quick approval process, allowing borrowers to access funds rapidly.

Features of Liquid Loans
Quick Access to Funds: Liquid loans offer rapid access to funds, making them suitable for addressing urgent financial requirements.
Short-Term Tenure: These loans usually have a short repayment tenure, ranging from a few days to a few months.
Unsecured Nature: Most liquid loans are unsecured, meaning borrowers aren't required to provide collateral to secure the loan.
High Interest Rates: Due to their convenience and quick approval process, liquid loans often come with higher interest rates compared to traditional loans.
Comparison with Standard Savings Accounts
Interest Rates: While standard savings accounts offer nominal interest rates, liquid loans typically charge higher interest rates. Therefore, from an investment perspective, keeping surplus funds in a savings account might be more beneficial in terms of earning interest rather than paying interest on a loan.

Liquidity: Savings accounts provide easy access to funds, allowing account holders to withdraw money whenever needed without incurring additional costs. On the other hand, liquid loans offer immediate cash availability but come with the obligation of repayment within a short period.

Risk Consideration: Keeping surplus funds in a savings account is relatively low risk, as the principal amount is generally protected. In contrast, liquid loans involve the risk of default if the borrower fails to repay the loan on time.

Considerations for Surplus Funds
Emergency Fund: Consider maintaining a portion of your surplus funds in a standard savings account as an emergency fund. This ensures liquidity and accessibility in case of unexpected expenses.

Investment Opportunities: Evaluate investment options that offer higher returns than savings accounts while considering the associated risks. Depending on your risk tolerance and investment horizon, explore avenues such as fixed deposits, mutual funds, or bonds.

Conclusion
Liquid loans provide quick access to funds but come with higher interest rates and short repayment tenures. When deciding whether to keep surplus funds in a standard savings account or opt for liquid loans, consider factors such as interest rates, liquidity needs, and risk tolerance. It's advisable to maintain a balance between liquidity and investment opportunities based on your financial goals and circumstances.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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