Personal Finance

Checklist for consumer durable loans

Devang Mody | Updated on January 23, 2018 Published on May 17, 2015

On the lookout for a washing machine? Here’s how you can pick a loan to suit your purchase



When we visit a consumer durables store, we are faced with an array of brand options. Once we choose the brand, then come the payment options.

They range from using cash or credit/debit cards for the whole amount upfront to opting for EMI financing. If you go for the EMI option, here are some points to be considered.

Is it interest free?

The biggest deciding factor for selecting a loan is its cost. There are two financing options available in the market: interest-free loans and interest-bearing loans (interest ranging from 12 to 18 per cent). If some financiers charge interest, how can others offer it for free? This is because the interest costs are subsidised by the manufacturers. They use a part of their marketing budget to provide customers with interest-free loans. However, as a customer, you need to check for price discounts that will be offered by the dealer if you pay cash, as against opting for an EMI.

If there are no zero-interest offers, you can buy on your credit card, in which case the credit limit is blocked for the loan amount taken. Other interest bearing loans towards durables are predominantly offered by financial institutions and banks.

Number of instalments

The reason why you should opt for a loan is to manage your personal finances better. Depending on the product and, in turn, the loan amount, you should ask for a flexible number of instalments. If you opt for interest-free loans, longer tenors, such as eight to 10 months, would be useful. Most interest-bearing loans are for fixed tenor options, either three to six months or nine to 12 months.

Down payment

The down payment is what you have to put up from your own pocket to get the financing option. This is usually 10-25 per cent of the product price but, in some cases, can be as low as zero per cent. Selecting a mid-range down payment (20-25 per cent) is ideal as this reduces the subsequent EMIs and does not postpone liability to the future.

Processing fees should be flat irrespective of the number of instalments chosen. If it is proportional to the number of instalments and increases as one goes for higher tenors, then the interest is being camouflaged as processing fees. In such cases, the financier should not claim it is interest-free. At the time of taking the loan, you ought to have clear information on the applicable interest rate, the interest paid by the manufacturer for your loan, down payment and processing fees paid by you.

Service issues

Financiers should commit to resolving queries within 48 working hours. A portal or mobile app for self-service is ideal, as you can then fulfil your requirements on your own instead of waiting for finer details. Once the deal is done, ask if a monthly statement of accounts will be provided, as this ensures that you are kept in the loop. After loan closure, the financier should send a no objection certificate proactively. The financier should also report the loan to the credit bureau as this helps in building credit history and getting better deals for high-value home or personal loans.

The relationship between the financier and the customer should go beyond one transaction. This approach will help the financier know the repayment capabilities of the customer. While some of these principles are relevant only for durable loans, they provide an insight in choosing a financier for other types of loans too.

The writer is President, Consumer Business, Bajaj Finance

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