Six Smart Ways To Finance Your Purchase

You long for that snazzy LCD television from the newspaper advertisement. It further tempts you with a fabulous offer – Buy a 42-inch set and get a 21-inch free. But, is this the right time to buy? It's true that our economy has started showing some signs of improvement lately, but still it may not be prudent to touch your cash reserves yet. If there was some short-term option to finance the deal, one could think of buying it. After all, the deal may not last once the economy turns for the better.

You do not want to let the opportunity slip whether you have the money to spare or not. So, what are the best options to finance your purchase in both the situations? Let's check out.

1. CashMost shops offer a cash discount on a purchase, if you pay in cash upfront. The discount differs from shop to shop, and is dependent on your purchase, the price, and of course, your bargaining skills. So, don't hesitate to drive a hard bargain, if you prefer this mode of payment. After all, the shopkeeper gets huge discounts from the dealer and in these competitive times he would like to make the sale.

   Reason recommended: If the purchase is not too expensive and you can afford it, this option will enable you to get a good discount.

2. Loan Many shops tie up with a NBFC/bank to offer a loan on the spot to make a purchase. For instance, Vijay Sales offers loan facilities from Bajaj Finance at zero per cent interest. All you have to do is make a 33 per cent down payment with your credit card or cash and the balance amount will be converted into EMIs over a 8- or 12-month period at zero per cent interest. However, you will have to pay a processing fee, which depends on the type and price of the consumer durable you are purchasing. For a purchase of about Rs. 30,000-Rs. 35,000, the processing fee could be around Rs. 650.

   Reason recommended: An ideal option as you get interest-free finance with ease of payment (through instalments). Additionally, you will not have to dig too much into your savings, as your down payment and processing fee are a small percentage of the cost of the product.

3. Credit cardSwiping your credit card may be a good way to make the purchase, especially if you have a cashback facility or earn reward points on your card. Check the details with your bank before making the purchase. Find out if you can pay the amount by converting the same into EMIs, at zero per cent interest. Many banks offer this facility. However, you also need to take into account the processing fee that has to be paid on the loan, which can be quite steep at times.

   Reason recommended: The flexibility to pay in instalments at zero interest. Besides, you will get a bonus in the form of reward points or cash back on your card.

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4. Finance from banksIf you do not have enough money to buy the consumer durable, but are still hankering for it, you can seek finance from a bank. There are various ways in which banks offer finance. Some of them are:
   1. Overdrafts against fixed depositsBanks offer credit against a fixed deposit you hold with them to make the purchase. Under this facility, you can avail an overdraft of about 90-95 per cent of your fixed deposit balance. Interest charged on it is 2 per cent more than what you earn on your fixed deposit. So, effectively, you are paying just two per cent interest for the days you hold the overdraft. If you pay off any part of the overdraft, you will not pay interest on that amount. Moreover, interest will be calculated on a daily basis, on the balance outstanding in your overdraft account.

      Reason recommended: If your need is short term, you do not want to dig into your cash kitty and you can pay back the amount soon, this is the best way to go. In this method, interest outgo is also low and is only for the days you hold the overdraft.

   2. Overdraft against salaryIf you hold a salary account with a bank, you may be eligible for an overdraft facility against your salary. Banks like HDFC and ICICI offer an overdraft of up to three times your salary for a short-term need. The overdraft amount is adjusted against your next month's salary, but the interest rates are quite high. So, check the rates and other processing charges before you go for it.

      Reason recommended: Another good option, if your need is ultra short term. Your future salary credits will clear the outstanding in a couple of months and you will pay interest only till the overdraft exists in your account.

5. Loans from employerSome companies offer low-rate loans to their employees. Some banks even present an interest-free festival advance to their employees. The money loaned out is collected by way of deductions from your salary over 12 months.

   Reason recommended: If your company is offering such finance, take advantage of it because you may not have to pay any interest on the amount or have to pay a very low interest compared to a bank. Paying in instalments by way of adjustment against salary will not pinch your pocket either. And, in case you get that festival bonus, the credit will offset the loan.

6. Consumer durable loans or personal loans Banksoffer loans to help you make your purchases. Interest rates on these loans vary depending on the amount and tenure of the loan. The rate could be as low as 12 per cent and as high as 28 per cent (fixed or floating).

   Reason recommended: Banks offer hassle-free loans within quick turnaround times. You may strike a good deal if you shop around for the rates. Also, your existing bank may agree to work out a good deal for you.