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Step-by-step guide to achieve financial freedom – Loan prepayment, balance transfer, SIP and more

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The term ‘financial freedom’ can have different interpretations for different people. For some, financial freedom or independence would mean having adequate monetary resources to cover their living expenses. For many, it may refer to having enough money to meet financial goals or lifestyle choices. For others, it may mean getting rid of debt repayment obligations. Gaurav Aggarwal, Senior Director, Paisabazaar.com, shares some tips for achieving financial freedom in a broader sense:-

Make prepayments, whenever possible

“Prepayment or foreclosure of outstanding loans can lead to substantial savings in interest cost, especially if made during the initial years of the loan tenure. Hence, existing borrowers having financial surpluses should always try to prepay their loans. Those having multiple loans can start prepaying the loan costing them highest interest rate and/or having longer residual tenure. This will derive higher savings in interest cost,” Gaurav Aggarwal said.

“One should also factor in foreclosure or prepayment charges, if any, levied on loan prepayment. Lenders offering loans on fixed interest rate usually levy prepayment charges. RBI guidelines have barred the lenders from levying prepayment charges on floating rate loans. Opt for loan prepayment or foreclosure only if the overall savings in the interest cost exceed the prepayment charges, if any, by a wide margin,” he added.

“Also avoid using emergency funds or existing investments made for your crucial financial goals for prepaying loans. Doing so may lead you to avail loans at higher interest cost to tackle financial exigencies or for achieving unavoidable goals,” he advised. 
 
Opt for balance transfer
 
“Balance transfer option allows an existing borrower to transfer his loan to another lender at a lower interest rate, leading to a reduction in his interest cost and EMI burden. Hence, borrowers having long residual tenures should compare the interest rates charged on their existing loans with those offered by other lenders. The best way to do so is to visit online financial marketplaces and compare the interest rate offered by various lenders based on your income, credit profile and repayment capacity,” he said.

“If other lender(s) are offering lower interest rates than the ones levied by your existing lender, then request your existing lender to reduce your interest rate. If your existing lender rejects your request, then transfer your loan to the lender offering a lower interest rate. However, factor in prepayment charges levied by the existing lender, processing fees and other charges levied by the new lenders before exercising balance transfer,” he opined.
 
Include your EMIs in your emergency fund
 
“The primary purpose of maintaining an emergency fund is to deal with financial exigencies or income loss caused by job loss, illness or any unforeseen situation. The size of this fund should be big enough to meet your unavoidable expenses for at least six months. Hence, include your EMI obligations for the next 6 months in your emergency fund. This would help you in continuing your EMI repayments during financial exigencies and thereby, save yourself from incurring higher interest cost, late payment penalties and any adverse impact on your credit score,” he said.
 
Prepare a financial plan 
 
“Having a financial plan helps in providing a direction to your money management and investment activities as per your income and liquidity. It also helps in devising an optimal asset allocation strategy for reaching your financial goals. Start this process by estimating the amount required to meet each of your financial goals on the basis of your time horizon, presumed rate of return and inflation rate. Once you have this information, use online SIP calculators to find out the monthly contributions required to achieve your financial goals,” he advised.
 
Begin investing early through SIPs
 
“The earlier you start investing, the more time your investments would have to grow and thereby, benefit from the power of compounding. Hence, try to start investing for your big-ticket financial goals like post-retirement corpus and child’s higher education as early as possible. This would help you achieve financial goals with much smaller monthly contributions,” he said.

“Opt for the SIP mode of investment as regular investment at periodical intervals would instil financial discipline and also ensure rupee cost averaging by purchasing more units at lower NAVs during market downturn or correction. This would also eliminate the need for monitoring markets and timing your investments,” he added.
 
Review your credit report at regular intervals
 
“Your credit reports list various activities related to loans and credit cards. They provide details related to your repayment history, your past and existing loan and credit card accounts, applications made for credit cards and loans, etc. As this information is reported by the lenders to the credit bureaus, any clerical error made by the credit card issuer or lender during the reporting or any fraudulent activity made in your name can reduce your credit score. The only way to detect such wrong information is to fetch your credit report at periodic intervals and report them to the concerned bureau or lender for rectification. Fetching your credit report at periodic intervals can also help you in getting pre-approved loan, credit card and balance transfer offers from various lenders,” he concluded.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)





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WhatsApp Update! Mark Zuckerberg says WhatsApp Pay in India soon

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Facebook is inching closer to launch much-anticipated WhatsApp Pay in India and will soon have a positive news to share, the company`s CEO Mark Zuckerberg has said. Data compliance issues and regulations have kept WhatsApp Pay launch in abeyance for quite some time, despite a successful test run of the payments service with one million users in the country.

“We have our test going in India. The test really shows that a lot of people are going to want to use this product. We`re very optimistic that we`re going to be able to launch to everyone in India soon, but of course will share more news when we have that,” Zuckerberg told analysts on an earnings call on Wednesday.

The peer-to-peer, UPI-based WhatsApp Pay service will reach over 400 million users — especially the small and medium businesses (SMBs) — to boost digital inclusion in the country.

The government and the Reserve Bank of India (RBI) have expressed concerns over some of WhatsApp`s features in complying with the regulations.

WhatsApp had earlier said it had built a local system to store payments-related data to comply with the RBI`s data localisation requirement, but later in an affidavit submitted to the Supreme Court, the RBI said WhatsApp`s Pay is yet to comply with its data localisation norms.

“We differentiate between payment systems that are built on top of the existing financial infrastructure like what we`re trying to do with WhatsApp payments or when we make payments in Instagram Shopping, and our work with something like Libra that is trying to build some new technological infrastructure for financial services,” Zuckerberg elaborated.

Telecom Minister Ravi Shankar Prasad has said if WhatsApp meets the regulatory norms from RBI and National Payments Corporation of India (NPCI), then it should be allowed to start digital payment operations in the country.

It is nearly a necessity for WhatsApp to launch the payment service as it is in direct competition with giants like Alphabet`s Google Pay, Walmart-owned PhonePe, Amazon Pay and Alibaba-backed Paytm. These companies are in a fierce competition to dominate the digital payments industry in the country which is estimated to hit $1 trillion by 2023.

According to a report by Omidyar Network and the Boston Consulting Group (BCG), nearly half of MSME owners with annual business revenue between Rs 3 lakh and Rs 75 crore would use WhatsApp Payments once it is fully rolled out.

During the earnings call, Dave Wehner, Chief Financial Officer at Facebook, said daily active users reached 1.62 billion, up 9 per cent compared to last year, led by growth in India, Indonesia and the Philippines.

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“This represents approximately 66 per cent of the 2.45 billion monthly active users in September,” Wehner informed.





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Dharmendra Pradhan: India corrected historic blunder by abrogating Art 370

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Bhubaneswar, Oct 31 (IANS) Union Petroleum Minister Dharmendra Pradhan on Thursday said India corrected a historic blunder by abrogating Article 370 and 35A in Jammu and Kashmir. “India corrected a historic blunder by abrogating Article 370 and 35A under the leadership of Prime Minister Narendra Modi. It is only because of the willpower of PM Modi and Home Minister Amit Shah that integration of Jammu and Kashmir in India was made possible,” said Pradhan.

The minister participated in `Run For Unity` event on occasion of 144th birth anniversary of Sardar Vallabhbhai Patel here. He said Sardar Patel was a towering personality, having made invaluable contributions towards building a modern and unified India. “India would have been destined to reach greater heights of greatness, if Sardar Patel would have been the first Prime Minister of our country,” he said.

Union Minister Pratap Sarangi along with BJP National General Secretary Arun Singh also participated in the “Run For Unity” in Balasore. Odisha Chief Minister Naveen Patnaik paid tributes to Patel on the occasion of his 144th birth anniversary.

“Humble tribute to Iron Man of India, Sardar Vallabhbhai Patel on birth anniversary. His immense contribution to integrate India into powerful nation will always be remembered,” tweeted the Chief Minister.

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Renowned sand artist Sudarsan Pattnaik also paid tribute to the `Iron Man` of India by creating a sand art at the Puri beach.





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Sensex logs all time high of 40,329 after US Fed’s rate cut

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The Federal Reserve on Wednesday cut interest rates for the third time this year in a move to ensure the US economy weathers a global trade war without slipping into a recession.

Sensex logs all time high of 40,329 after US Fed's rate cut

The benchmark equity index, Sensex, surpassed its previous lifetime high during the early trade on Thursday. Image source: Reuters





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