What are the Basic Features of a Consumer Durable Loan?

A consumer durable loan is a type of loan which is availed of to finance the purchase of various necessary items like washing machines, refrigerators, air conditioners, LED televisions, microwaves, furniture, clothing, and groceries. Consumer durable loans can be used to support all of your purchases and can be paid back in accordance with time-frames suited to your needs. You can also obtain them at zero or low interest rates and also obtain financing for up to 100% of your purchases.

Did you know?

A consumer durable loan requires a minimal down payment and no interest charges.

Features of a consumer durable loan

1. Most lenders provide a 0% interest rate
2. Loan amounts range from ₹10,000 to ₹15 lakhs
3. 100% financing available on consumer durable products
4. Lending banks and non-banking financial companies (NBFCs) offer an EMI facility without any extra charges.
5. Tenure of Repayment is dependent on the amount taken and the time fixed by the Bank
6. Secured and unsecured loans are available.
7. No charges for Foreclosure
8. The process is hassle-free with minimal documentation fees though you have to produce some relevant personal information. 

Leading Banks or NBFC offering consumer durable loans

Also Read: Government Loan Schemes for Small Businesses In India

Eligibility Criteria for Salaried Individuals and self-employed Professionals

Consumer durable loans are available from most lenders (banks and NBRCs) to both, salaried and self-employed individuals. The eligibility conditions for a consumer durable loan can differ depending on the applicant’s repayment history, income, and loan size, among other factors. The eligibility criteria required by lenders for consumer durable loans are listed below.

Salaried Individuals

1. Age: Minimum 21 years and maximum 65 years 
2. Minimum monthly income: Rs 15000
3. Experience in the current organisation: Minimum 1 year

Self–employed Professionals

1. Age: Minimum 21 years and maximum 68 Years
2. Minimum Income: 1.5 Lakh 
3. Employment Stability: At least 2 years in the current business

Types of consumer durable loans

A consumer durable loan is a type of financing that can be used to buy consumer durable products including domestic appliances, electronics, and other similar items. The instalment loan is the most frequent sort of consumer durable loan. This sort of personal loan differs from an EMI conversion using a credit card or debit card in that no card is needed to make the purchase or establish an instalment payment plan.

Instalment loan and its different subcategories

Instalment loan: The most prevalent type of consumer durable loan, these are paid back in weekly, fortnightly, monthly, or bi-monthly instalments according to a current schedule. The interest rate on these instalments may be constant or fluctuate over time. Furthermore, these personal loans may or may not involve any type of security or collateral. Instalment loans can be classified into the following types based on this distinguishing feature. 

1. Fixed-rate consumer durable loan: The majority of consumer loans available to borrowers are fixed-rate loans, similar to the mechanism that applies to other personal loan interest rates. This consumer loan has the same interest rate throughout the loan term, as the name implies.
2. Variable–Rate consumer durable loan: The interest rate payable on the outstanding balance of any variable rate consumer credit varies with the change in the market interest rate. As a result, your interest rate will fluctuate. However, the interest rate on these loans is usually limited in terms of how high or low it can be.
3. Secured consumer durable loan: Secured loans are backed by a piece of property as collateral. In India, a secured consumer loan usually entails the hypothecation of the object being purchased. Some banks also offer consumer durable loans backed by other assets such as fixed deposits, RBI bonds, gold jewellery, and life insurance policies. As a result, secured consumer durable loan interest rates are typically cheaper. If you are unable to repay the loan for any reason, the lender has the right to demand your security as compensation.
4. Unsecured consumer durable loan: The most prevalent type of consumer durable loan is an unsecured loan. To avail this loan facility, no broker is required in order to furnish any type of document related to the application. Unsecured loans may have higher interest rates than secured loans. Most banks and financial institutions, on the other hand, offer consumer durable loans at rates that are competitive with personal loan interest rates. In some situations, such as during festivals, you may be eligible for a special deal that includes no or low processing fees and a 0% effective interest rate.

Fees of consumer durable loan

Aside from interest, there may be other fees that apply to a consumer durable loan.

1. Processing fee:– Processing fees include the administrative fees and expenses associated with the disbursement of a personal loan. The processing charge typically ranges from 0% to 6% of the loan amount approved.
2. Late payment charges:– If you miss an EMI payment, you must pay this fee (which is usually a fixed amount) in addition to the owed EMI amount.
3. Cheque bounce Charges:- If you miss an EMI payment because the account linked to the post-dated cheque is either low on funds or has been closed, you will be charged a cheque bounce fee. It is usually a fixed fee of roughly ₹500.
4. Foreclosure/ Prepayment Charges:– Prepayment entails paying a sum that is greater than the EMI amount. However, foreclosure occurs when a debt is paid off before the repayment period expires. This total prepayment is frequently accompanied by foreclosure/prepayment charges. These typically range between 0% and 6% of the principal amount prepaid, plus any relevant taxes.

Documents Required for Consumer durable Loans

Some of the most frequent paperwork needed to get a consumer durable loan are listed below.

1. Completed application form with two passport-size photos
2. Proof of your identity:-Aadhar card / PAN card /Driving licence/Voter ID / Passport
3. Address Proof :- Aadhar card /Passport / Bank account statement /Lease/Property Purchase Agreement /Utility Bill ( not more than 3 months old ) / Driving Licence 
4. Proof of your income:-

• For Salaried person:- salary slips/ Bank account statement/ Form 16
• For Self Employed Person:- Bank account statement/ previous year income tax return/ P&L statement and balance sheet

       5. Any other documents the Bank may consider necessary.

Also Read: How to Apply for the Best Business Loan in India? – Types of Govt. Loan Schemes

Factors affecting consumer durable loans

Although some lenders offer consumer durable loans with no interest, others do charge interest. A lender’s interest rate is determined not only by the financial institution but also by the individual applicant’s profile. A few significant factors that influence the interest rate paid to an individual are listed below.

1. Credit score:– Credit scores range from 300 to 900 and are a three-digit numeric summary of your credit report/credit history. A credit score of 900 or higher (such as 750 or higher in the case of CIBIL) makes it easier to get a consumer durable loan because it demonstrates more creditworthiness. It also enables you to obtain it on more favourable terms, such as a cheaper interest rate.
2. Loan amount:– Higher loan amounts usually mean a higher rate of interest for the applicant. This is because larger loan amounts typically result in greater EMI payments, which raises the lender’s risk of default.
3. Loan Tenure:– Longer repayment terms are frequently associated with a higher interest rate, and vice versa
4. Current outstanding debt:– In the event of applicants with existing debt, a higher rate of interest may be levied on consumer loans since the lender perceives a larger chance of default.

Conclusion

In this article, you would have come to know about the consumer durable loan, its types, features, eligibility, and uses. At the onset you must study the interest rates, compare the rates of various lenders and all other charges as well. You can then make a decision based on the one you find the most feasible.

Follow Legal Tree for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.