Diwali: Loan for Home improvement!

This Diwali a lot of people are going to make a demand on your money!  One of them seems to be builders who have all lined up schemes to sell property to you. However you must have seen and experienced – a very small portion of the cost of the house is paid by the owner of the house. Normally he/she makes only a down payment – the remaining comes as a loan from the banks that are only too happy to fund you in the current scenario.

Banks and builders are both looking at softening of interest rates so there seems to be a rush to push the loans to you. Also Diwali is a time when people look to finalize a house so that they can complete the buying, do up the house and shift before the academic year starts. So Diwali is a good time to try to push real estate sales. One builder I know has announced a 10% (Vow!) price rise soon as the Diwali week is over.

In an attempt to hasten closure, builders, brokers and banks are rolling out festival schemes on home loans ahead of Diwali. DCB has broken the 8% barrier mark and introduced a fixed rate of 7.95% p.a. for the first year. Other offers from banks are offering rates and dangling a carrot of allowing a shift from fixed to floating rates in subsequent years. Other lenders like Canara, Bank of and Maharashtra are offering fixed-rate loans for the first five years, and subsequently, linking the loans to their prime lending rates. Some are offering a fixed rate for 2-3 years at teaser rates.  Big daddy SBI is offering fixed rates for the first three years. Competition has ensured a good deal for the end customer. Dena Bank offers a fixed rate of 8% for loans up to Rs 30 lakh in the first two years, while Canara Bank offers 8% in the first year for Rs 30 lakh and SBI offers 8% for the first five years for loans up to Rs 5 lakh.

A few builders have agreed to absorb the processing fee if the client closes the deal within a particular time frame. Now, builders and lenders are making a fresh pitch to push sales during Diwali through limited period offers. Good offers are coming from PSU banks too.

In the home loans and home improvement loans markets the big boys of Indian banking industry – Hdfc, Icici, Lic Housing and SBI have beaten the pants off the ‘foreign’ banks. Thus the Citi, Stan Cs of the world are not in the market at all. Now it is the turn on the PSU banks to announce all the concessions on home loans and home improvement loans.
Bank officials are hopeful that the retail credit growth will contribute substantially for the credit demand in the coming quarter.

Their hopes are greater in smaller towns for home loans and home improvement loans – like auto loans.
Personally I do not think it is a great idea to borrow money for a home improvement need. Clearly expenses like painting the house, making small improvements etc. should be treated as a part of one’s expenses. Money for such expenses should come from current income not from future income. There is an argument even for buying a house from own money rather than from borrowed funds, but home improvement money should come from own income not even from own capital!

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