Consumer Durable Loan – Features, Types, Interest Rates and Eligibility Criteria

A consumer durable loan is a special type of personal loan that can be used specifically to finance the purchase consumer durable goods such as electronic gadgets, household appliances, etc. Typically this personal loan can be obtained for amounts of up to Rs. 15 lakh with a repayment tenure ranging between a few days to 36 months. Also known as consumer loans, these may be available at 0% interest rate subject to key terms and conditions specified by the lender. Like other personal loans, a consumer durable loan requires minimal documentation and features quick approval as well as disbursal.

Consumer Durable Loan Eligibility Criteria

Most lenders (banks and NBFCs) offer consumer durable loans to both salaried self-employed individuals. The eligibility criteria for a consumer durable loan may vary depending upon the applicant category that you belong to as well as from one lender to another. However, generally the following key eligibility criteria need to be considered when applying for a consumer durable loan:

Note: The above mentioned eligibility criteria are generic in nature and the actual eligibility criteria may vary from one lender to another.

Types of Consumer Durable Loans

A consumer durable loan is a form of credit that can be used to purchase consumer durable goods such as household appliances, electronic gadgets, etc. The most common type of consumer durable loan is termed as an installment loan. This type of personal loan differs from an EMI conversion using a credit card/debit card as no card is used to complete the purchase and or set up an installment-based payment plan. Details of an installment loan and its various subtypes are as follows:

Installment Loans: These are the most common form of consumer durable loans and are paid back in weekly, fortnightly, monthly or bi-monthly installments according to a preset timetable. The interest rate charged on these installments may be fixed or vary with time. Additionally, these consumer loans may or may not require security or collateral. Based on these unique features, installment loans may be further divided into the following types:

• Fixed rate consumer durable loan: Most consumer loans offered to borrowers are fixed rate loans similar to the mechanism using which other personal loan interest rates are applicable. As the name suggests, these consumer loans have the same interest rate throughout the loan tenure.
• Variable rate consumer durable loan: In a variable rate consumer loan, the interest rate charged on the outstanding balance varies with the change in market interest rates. As a result, your interest payouts will vary as well. However, these loans usually have limits on how high or low the interest rate can be.
• Secured consumer durable loans: Secured loans are those which are secured against assets as collateral. Secured consumer loans in India usually involve hypothecation of the item being purchased. Some banks also provide consumer durable loans secured using other instruments such as fixed deposits, RBI Bonds, gold jewellery, LIC policy, etc. Thus, interest rates are usually lower for secured consumer durable loans. If you are unable to repay the loan for any reason, the lender is entitled to claim your security to make up for their loss.
• Unsecured consumer durable loans: Unsecured consumer durable loans are the most common. The borrower does not have to provide any kind of. Interest rates for unsecured loans can be higher than the secured variant. However, most banks and financial institutions that offer consumer durable loans do so at competitive rates that are at par with personal loan interest rates. In some cases such as during festivals you might even qualify for special offers with nil or zero processing fees and an effective interest rate of 0%.

Key Features of a Consumer Durable Loan

Some key features of a consumer durable loan are as follows:

• May be secured or unsecured: Some consumer durable loans may require borrowers to provide a collateral/security to avail a loan, whereas, others may be unsecured (not backed up by any collateral/security). Secured consumer durable loans usually offer higher loan amounts, longer repayment tenures and lower interest rates as compared to unsecured consumer durable loans
• Flexible loan amount: You can avail a consumer durable loan ranging up to Rs. 15 lakh. However, the amount that you are eligible to avail depends upon the item being purchased, your credit score, income level and other factors deemed appropriate by the lender.
• Flexible tenure: Consumer durable loans generally have flexible repayment tenure of up to 36 months.
• Minimal documentation: Usually minimal documentation is required to avail a consumer loan. Some key documents that lenders generally require include photo identity proof (such as Aadhaar, PAN, etc.) income proof (such as Salary slip, ITR, etc.) and address proof.
• Quick disbursal: Consumer durable loans are disbursed almost instantly, once your loan application is approved.

Consumer Durable Loan Interest Rates

The interest rate offered on a consumer durable loan may vary across lenders. The cost of the item being purchased (i.e. loan amount) as well as individual applicant’s profile such as credit score, employment type, tenure desired, etc. are some key factors which may influence the interest rate charged by a lender. Consumer durable loan interest rates of some top banks and NBFCs in the country are given below:

Factors Affecting Consumer Durable Loan Interest Rate

Though some lenders offer consumer durable loans at 0% interest rate, there are some that do charge interest on these loans. The interest charged by a lender not only varies with the financial institution, but also with the individual applicant’s profile. Given below are a few key factors that affect interest rate charged to an individual:

• Credit Score: Credit score is a 3-digit numeric summary of your credit report/ credit history and ranges from 300 to 900. A score closer to 900 (such as 750 or above in case of CIBIL score) helps you secure a consumer durable loan more easily as it indicates a higher credit-worthiness. It also helps you avail it on better terms such as a lower rate of interest.
• Loan Amount: Higher loan amounts generally result in the applicant being a higher rate of interest. This is because, higher loan amounts generally lead to higher EMI payouts which increases the risk of default for the lender.
• Loan Tenure: Longer repayment tenures usually come with higher rates of interest and vice versa.
• Current Outstanding Debt : A higher rate of interest may be charged on consumer loans in case of applicants with high existing debt as this is perceived to increase the risk of default for the lender.

Tips to Get a Low Consumer Durable Loan Interest Rate

Given below are a few tips that could enable you to avail a lower rate of interest on your consumer durable loan:

• Look for lenders who offer a loan a 0% interest
• Look for brands, products and sellers who have tie-ups with specific lenders and may help you avail an interest free/low interest consumer loan
• Try and apply for consumer durable loan with a lender with whom you have a prior relationship
• Maintain a clean credit history (no defaults/late payments) and a high credit score
• Try and maintain a low credit utilization ratio i.e. low level of debt
• Maintain a stable history of employment

Ways to Decrease Total Interest Payout

Though you may not be able to secure the lowest interest rate on your consumer durable loan, given below are a few ways that could help you decrease the total interest payout on your loan:

• Choose a shorter repayment tenure – It would result in higher individual EMIs but will help reduce the overall interest payout. Using a personal loan EMI calculator is an easy way to calculate the ideal EMI payout to minimise your interest outgo while ensuring you can afford the individual EMI payments.
• Part pre-payment/foreclosure – It would help decrease the principal amount which would lead to lower interest payouts. The criteria for foreclosure/part pre-payment vary from one lender to another so ensure you read the terms and conditions carefully before selecting the consumer loan offer from a specific lender.
• Opt for a lower loan amount – Lower loan principal amount would result in lower total interest payout. You can do this by making a higher initial down payment at time of purchase.

Reducing Balance vs. Flat Balance Interest Calculation Methods

Currently, most lenders compute interest payable on consumer durable loans using the reducing balance method. However, the exact method used by the lender is specified in the loan agreement provided to the borrower.

EMI Payment Comparison of Reducing Balance vs. Flat Balance Interest Calculation

Given below is a comparison between the consumer durable loan EMI payable using the reducing balance vs. flat balance methods of interest calculation for varying loan amounts, interest rates and tenures:

* The difference between the overall interest payout of the loan when the reducing balance method is used to compute interest payable on consumer durable loans versus when the flat rate method is used is represented by interest savings.

Documents Required for Consumer Durable Loan

Given below are some common documents required to avail a consumer durable loan:

• Identity Proof: Aadhaar Card/ PAN Card/ Driving License/ Voter’s ID/ Passport
• Address Proof: Aadhaar Card/ Passport/ Bank Account Statement/ Lease/ Property purchase Agreement/ Utility Bill (not more than 3 months old)/ Driving License
• Income Proof:

– For Salaried Individuals: Salary Slips/ Bank Account Statement/ Form 16

– For Self Employed Individuals: Bank Account Statement/ Previous Year Income Tax Return (ITR)/ P&L Statement and Balance Sheet

• Business Proof (for self-employed applicants): GST Registration and Filing Documents/ Partnership Deed/ Certificate of Practice/ MOA & AOA/ Shop Act License

Note: This is not an exhaustive list and the documents required may vary from lender to lender.

How to Calculate your Consumer Durable Loan EMI

You can use the Paisabazaar Personal Loan EMI Calculator to check the EMI payable on a particular consumer durable (personal) loan. The calculator is easy to use and requires you to simply enter the desired loan amount, tenure and interest rate. Knowing your EMI payouts helps in better financial planning and management of finances and allows you to select the most suitable loan option for yourself.

The following table gives a sample of EMI calculations for different loan amounts, interest rates and tenures:

Why Should I Apply for Consumer Durable Loan at Paisabazaar.com?

Some key benefits of applying for a consumer durable loan through Paisabazaar are given below:

• Lets you know the chances of your loan approval: Paisabazaar uses a proprietary algorithm known as SmartMatch, to give you a list of prospective lenders, sorted as per the chances of approval of your consumer durable loan application.
• Single platform, multiple lenders: Paisabazaar.com enables you to access several personal loan offers from various banks and NBFCs on a single platform and eliminates the need to physically visit the branch offices/ websites of prospective lenders.
• Know EMIs payable: You can use the Paisabazaar Personal Loan EMI Calculator to check the EMI payable on your consumer durable loan even before you apply for it. This will help you to choose a loan amount that you can easily repay and convenient repayment tenure.
• Check the eligible loan amount: With Paisabazaar.com you can know the loan amount that you are eligible to secure on your consumer durable loan.
• Completely digital platform: Paisabazaar.com is a completely digital platform which enables you to apply for a consumer durable loan online anytime and anywhere.
• Privacy and transparency: All your personal information is kept confidential and secure as Paisabazaar.com is ISO 27001-2013 certified for Information Security Management System.
• Secure instant in-principle e-approval: You can also get instant in-principle e-approval for your consumer durable loan application, if you apply for a consumer durable loan online through Paisabazaar.

How to Apply for Consumer Durable Loan on Paisabazaar?

To apply for a consumer durable loan online on the Paisabazaar website, visit Paisabazaar.com and click on the “Personal Loan” button on the home page and follow the steps given below:

Step 1: Fill out personal details such as your current city, occupation type, monthly income, mobile number along with the desired loan amount and click on ‘Proceed’.

 Step 2: To secure the most appropriate consumer loan offer, fill out additional information like your company’s name, work experience, PAN and current loan EMI amount (if any)

Step 3. You will receive a list of consumer durable loan offers from several lenders sorted as per the chances of approval. Select the loan offer as per your requirement and complete and submit your consumer durable loan application online.

Step 4. You will receive an instant conditional e-Approval from the lender. The Paisabazaar team will further guide you through the documentation process required for processing and disbursal of the loan.

How to Apply for Consumer Durable Loan using Paisabazaar App?

You can also apply for a consumer durable loan through the Paisabazaar app. To do so, you need to first install the app on your phone, login to your Paisabazaar account and follow the steps given below:

Step 1. Click on the ‘Personal Loan’ tab on the dashboard.

Step 2. Fill out personal details such as the nature of your employment, net monthly income, the residing city and the desired loan amount. Accept the terms and conditions and click on ‘Proceed’.

Step 3. Fill in additional information such as your work experience, the name of your bank and click on ‘Proceed’.

Step 4. You will get consumer durable loan offers from various banks and NBFCs listed as per the chances of approval.

Step 5. Select the consumer durable loan offer that best suits your requirement.

Step 6. Fill in additional bank-specific information that may be required to submit your loan application online.

Loan Verification Process

 The verification process for a consumer loan generally involves the following steps:

1. After you have applied for a personal loan on the Paisabazaar App or website, Paisabazaar forwards your application to the chosen lender.
2. After this, the lender’s representative calls you to verify the application details and to schedule a pickup of your income, KYC, etc. documents needed for your loan application.
3. Upon successful verification of the documents, your consumer durable loan application is approved.
4. The loan amount is disbursed to your account once you sign the loan agreement.

Factors Affecting Personal Loan Disbursal Limits

The following are a few key factors which may affect the disbursal limits of consumer durable loans:

• Income of the Applicant: A higher level of income may help increase the disbursal amount.
• Existing EMIs: Usually, the disbursal amount decreases in case you have higher existing EMI payouts.
• Number of dependents: Having a higher number of dependents may lead to a decrease in the disbursal amount.

Note: This is not an exhaustive list of factors affecting the disbursal limits of consumer durable loans. There are several other factors that may influence a lender’s disbursal decision.

What are the Different Ways to Pay Consumer Durable Loan EMI?

Your consumer durable loan EMIs can be paid using any of the following means given below:

• Autopay: You can make use of internet banking to set up autopay for your EMI payments.
• Standing Instructions: You can set up standing instructions using NACH mandate.
• Online Transfer: EMI payments can also be made online using NEFT, RTGS, IMPS payments.
• Draft/ Cheque: Consumer durable loan EMI payments can also be made via drafts or post-dated cheque.

However, the different EMI payment options mentioned above may or may not be available with all the lenders.

How to Reduce Your Monthly EMI?

In case it becomes difficult for you to make your monthly EMI payments, you can try and negotiate a lower EMI by extending your loan repayment tenure. However, this extended tenure could lead to a higher interest payout over the loan tenure.

Some Must Know Terms Related to Consumer Durable Loan

The following are a few important terms related to consumer durable loans that you must know:

• EMI: Equated monthly installments or EMIs are the scheduled monthly payments that a borrower must make over the loan tenure to pay off the borrowed amount together with the interest accrued.
• Partial-Prepayment: Partial-prepayment involves paying an amount in excess of the actual EMI amount. It decreases the outstanding loan principal amount and also helps decrease the total interest payout of the loan. However, in such cases the borrower may have to pay a certain prepayment penalty and related taxes (as applicable).

Charges and Fees Related to Consumer Durable Loan

Besides interest charges there may be other additional fees and charges that may be applicable on a consumer durable loan. Some of these are discussed in detail below:

• Processing Fees: The administrative fee/charges involved in the disbursement of a personal loan are covered under processing fees. The processing fee generally varies between 0% and 6% of the loan amount sanctioned.
• Late Payment Charges: In case you are late in paying your EMIs, you have to pay these charges (generally a fixed charge) along with the due EMI amount.
• Cheque Bounce Charges: Cheque bounce charges are payable in case you miss an EMI payment because the account linked to the post-dated cheque is either low on funds or has been closed. It is generally a fixed charge of around Rs. 500.
• Foreclosure/Prepayment Charges: Prepayment involves paying an amount in excess of the actual EMI amount. However, when you pay off a loan completely before the end of the repayment tenure it is known as foreclosure. This complete prepayment usually involves some charges known as foreclosure/prepayment charges. These generally range between 0% and 6% of the principal amount prepaid plus taxes as applicable.

FAQs

Q1. What is the difference between a personal loan and a consumer durable loan?

Personal loans come with flexible end-usage and can be availed to meet various personal financial needs such as medical expenses, home renovation, debt consolidation, etc. Consumer durable loans are a specific type of personal loan which can be availed to purchase consumer durable products such as household appliances, electronic gadgets, other common household goods, etc. However, these are generally cheaper as compared to typical personal loans as they are often offered at a low or 0% interest rate and nominal processing fees.

Q2. How is interest payable on a consumer durable loan determined?

Interest payable on a consumer loan may vary with time and from one lender to another. It may also vary with the product, brand or seller that you may wish to purchase from as well as your profile as a loan applicant, the loan amount, tenure desired, etc.

Q3. Is it possible to foreclose or prepay my consumer durable loan?

Yes, most lenders do offer borrowers the option to foreclose or prepay their consumer durable loan and save on the overall interest payout. However, often borrowers may be required you to pay a foreclosure charge ranging between 0% to 6% of the outstanding loan principal amount along with the applicable taxes in case they decide to repay their loan before the end of its tenure.

Q4. What are the different ways to apply for a consumer durable loan?

• You can either apply for a consumer durable loan online through the lender’s website or through Paisabazaar
• You can also visit the prospective lender’s branch office and apply for a consumer durable loan by submitting a duly-filled loan application form along with the necessary documents

Q5. How much finance can I avail through a consumer durable loan?

Many lenders finance up to 100% of the product price when disbursing a consumer loan. In some cases, only 80% to 90% of the product price is finance and the remaining 10% to 20% needs to be paid by the customer through a down payment made at the time of the purchase of the product.

Q6. How is a Consumer Durable Loan Disbursed?

Upon approval of your consumer durable loan application, the loan amount is usually disbursed directly to the seller’s account.