YOUR QUESTIONS: LOANS: For a car loan, opt for a variable rate loan, as interest rates are currently falling

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By Chaitali Dutta

How is the daily decreasing balance of a car loan calculated? Should I opt for a fixed or floating loan for a car loan?
By Bhupender Singh

In any daily declining balance loan, interest is applied to the end-of-day balance and accrued for the entire month. Therefore, the earlier you pay the EMI in the month, it will be slightly advantageous, thanks to lower interest compared to paying the EMI towards the end of the month. The interest component in a 31-day month will be higher than, say, February, which has fewer days. Since we are currently in a period of decreasing rates, it would be wise to opt for a variable rate loan.

For home loan prepayment, should I pay in bulk after accumulating for a few years or pay any amount whenever I have a surplus?
By Samir Gupta

The decision would be defined by the possible growth rate on your excess money. Here, the net return (interest rate less tax payable) should be compared to the interest you pay on the home loan. If you can grow the excess at a rate above the home loan interest rate, you must accumulate and then repay the loan. Otherwise, pay the surpluses directly into the loan, as they become available.

Can I deposit Rs 1.5 lakh in my son’s (minor) account in addition to Rs 1.5 lakh in my PPF account in the same financial year. Can I deposit in two different accounts?
By Romil Shah

The maximum deposit amount by an individual is Rs 1.5 lakh, including deposits made to minor accounts where the individual is a guardian. In your case, the aggregate of the two accounts should only be Rs 1.5 lakh.

After working two and a half years, I left the services to pursue higher education. Can I withdraw the accumulated EPF and VPF balance to finance my studies? What are the tax implications?
By sreenivas

Yes, you can withdraw from your EPF account. The TDS at retirement will depend on the number of continuous years of service. If it is five years or more, then TDS is not applicable. The interest on your contributions to the EPF, employer’s contribution, interest paid on employer’s contribution are taxed according to your slab.

The author is the founder, AZUKE Personal Finance Advisory (www.azukefinance.com). Send your questions to [email protected]

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