Sunday, September 30, 2018

Should you take personal loan/ balance transfer in Singapore and pay off a home loan in India?

This is one of the most frequently asked questions among Singapore NRI community. I often receive queries from IT professionals working in the city-state who have home loans back in India and thinking to pay off in full or a portion of them by taking a personal loan or credit card balance transfer in Singapore. Well, the idea to take a loan to pay off another loan only make sense if you are getting a cheaper loan and paying off a higher interest loan. Since most of the home loans in India charges around 9.5 to 11% in INR and you can get personal loan on credit card also known as balance transfer in Singapore for as low as 2.5% for 6 month it make a lot of sense to take a personal loan in Singapore and pay off your home loan in India, though there are some risk which you need to consider. For examples, this only make sense if you have the visibility that you will be in Singapore for next 6 month or more.

To give you an example, one of my friends has an outstanding loan amount of 10 lacs with interest rate of 9.60% In India whose monthly EMI was around 11,000. In order to pay off that loan he borrowed 22K SGD on two credit cards, don't ask me how much he earns to have that much credit limit, but that's what he told me. Then he transferred those 22,000 SGD to India and paid off the home loan in full. Btw, if you are doing sending money to India, consider using DBS India Remit, it is fast and gives better exchange rate.

Since borrowing in credit card is quite risky and the bank will charge you 25% p.a. in case you missed your payment, many people are scared of this option until they know about balance transfer, which allows one to take a personal loan from another bank to pay off that credit card loan.

Interest rate for Personal loan and Balance Transfer in Singapore

Most of the local and foreign banks in Singapore will give you 10K SGD with 2 to 2.5% of interest rate and some upfront processing fee. For example, HSFC Card balance transfer allow you to transfer your cred card balances or credit lines to HSFC and charge very low balance transfer rate e.g.

2.50% p.a. for 6 months* with processing fee of S$88 (EIR: 4.39% p.a.#)
4.88% p.a. for 12 months* with processing fee of S$88 (EIR: 6.77% p.a.#)

They also waive off the processing fee for approved amount of S$ 10,000 and above. Though these rates may vary with time and you should always check the bank website for the latest interest rates and terms and condition.

How Much is Saving when you pay off Home loan by taking Personal Loan?

Anyway, my friend paid around 100$ in processing fee and 250$ on interest, so in total, he paid in a total of 350$ extra in six months, which comes to around 17K INR with the rate of SGD/INR as 48.0, the average SGD to INR rate for last 24 months.

Now, the big question is how much he saved on interest payment on home loan back in India? Let's assume he continued paying EMI of 11K for next 10 year to finish off the loan then he would end up paying around 1,188,000 INR which means he saved approximate 1,88,000 INR which is a huge amount.

Btw, this may not be accurate because for 10 years you could have also earned some interest on the NRE fixed deposit of 10 lakh you paid upfront in India, but you will still be in positive side given difference in rates of fixed deposit and home loans in India, which is around 2.5 to 3%.

There is also a factor of SGD/INR movement but considering global scenario now, I don't think SGD will cross 50 in next six month or one year, but your decision shouldn't be totally based upon that.

The most important benefit of taking a loan in Singapore and paying off a home loan in India is peace of mind. After six months, you are debt free and no need to pay any EMI in India, but you need to take a little bit of risk and show some courage to do that. If you have a good visibility that you will be in Singapore for next 1 year and you get a good personal loan or credit card balance transfer in Singapore, then this becomes less risky and more beneficial.

If you are not very familiar with credit card balance transfer or credit line withdrawal then you can also take regular personal loans from local Singapore banks e.g. DBS, POSB, UOB, OCBC, Standard Charted Bank, Maybank, HSFC, Citi etc. Currently, Citibank is offering a personal loan with rate of 4.82% p.a. for two years and 4.55% p.a. (8.50% E.I.R) for 36 months loan tenure. Similarly, HSBC is also offering personal loan at the rate of 4.55% to foreigners for 2 years.

How much you can borrow or what interest rate you will get totally depends upon your profile e.g. job, salary, and age. Though I suggest you don't take any suggestions blindly especially on Internet and do your own research or ask a certified financial advisor. You should always do the due diligence and compare personal loan rates and credit card balance transfer schemes and recent promotions which offer processing fee waiver and cashback on money comparison sites.

If you are a conservative on money matters and don't like debt then this is a good option for you to take a personal loan in Singapore and pay off a home loan or any other loan in India. If not full, at least paying a portion of home loan can also reduce your burden in terms of reducing EMI and less interest payment. You should also remember that home loans in India offer unique tax benefits, so if you have some income in India, you can keep some portion of the home loan to do tax saving on your Indian income.

Btw, this is not just a question from IT people working in Singapore, it is valid for any NRI working in a foreign country where difference on interest rate between India and that country is big. The idea to take a lower interest rate loan and pay off a higher interest loan is valid until there is not much fluctuation in exchange rate, but you have to do the due diligence and understand the risk of paying off your loan in foreign currency.

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