Understanding the economics of interest-free Loans
Before we dive into how to avoid drowning in interest rates, let’s take a look at what an interest rate actually is. An interest rate is simply used as a security blanket for a financial institution. Since they are placing themselves at the risk of you defaulting on your loan, the interest rate serves as a way to compensate for this potential loss in profit.
The rate of interest may increase or decrease based on the outstanding amount of the loan, along with several other factors. As the name implies, an interest-free loan means that you would not be required to pay any interest on your loan. This is accomplished by restructuring the way the loan is to be paid.
What are Interest-Free Loans?
How an interest-free loan works is quite different from the workings of a normal loan. Financial institutions usually establish a special set of requirements before signing off on these loans. Some require you to collect “savings points” with your savings account first, ensuring that you have an appropriate amount of funding to begin paying off your loan. Whatever the case, be prepared to meet some specific requirements before you apply for an interest-free loan.
The Many Forms of Interest-Free Loans
The Indian government has occasionally issued interest-free loans to those in need. In June 2015, they provided interest-free loans to sugar mill owners to help sustain India’s sugar industry. At this time, however, government interest-free loans are not yet available to private borrowers.
Employee interest-free loans are yet another alternative for those looking to obtain some cash without being dragged down by interest rates. However, it is important to note that these loans will be subject to taxation, and a percentage will be deducted from your monthly salary as a result. This can be avoided if the amount in question is less than INR 20,000 or is being used for medical purposes. Additionally, Bajaj Finserv offers a wide variety of loans for both salaried and self-employed individuals.
If you’re concerned about your eligibility or want to find out where to get an interest-free loan, a short term loan might just be the thing you need. Some accounts allow you to obtain an “interest-free overdraft.” Additionally, some credit cards will not charge interest on new purchases, or will offer a reward system for making particular purchases. The Standard Chartered Platinum and World Credit Cards from Bajaj Finserv reward you with 5 points for every INR 100 spent on various purchases such as groceries or apparel. Also, if you have a smaller loan and a credit card that offers 0% interest on balance transfers, you might want to look into transferring your loan over to your credit card balance.
While these options offer multiple ways of acquiring an interest-free loan, it is always important to check with your financial institution of choice about specific policies and requirements.
What this Means for Home Loans
While interest-free home loans are not available at this time, rest assured that there are still financial institutions out there willing to provide you with lower interest rates. Bajaj Finserv provides home loans with attractive interest rates and even gives you a 3-month “holiday” to help you get on your feet before paying your EMI’s.