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

Since we are currently in a declining rate period, it would be wise to opt for a variable rate loan.

By Chaitali Dutta

How is the daily declining balance of a car loan calculated? Should I opt for a fixed loan or a 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, due to lower interest than 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 declining rate period, it would be wise to opt for a variable rate loan.

For mortgage prepayment, do I have to pay in bulk after accumulating a few years or pay any amount every time I have a surplus?
By Samir Gupta

The decision would be defined by the rate of growth possible on your excess money. Here, the net return (interest rate minus taxes payable) should be compared to the interest you pay on the home loan. If you can grow the excess at a rate higher than the mortgage interest rate, you must accumulate and then repay the loan. Otherwise, pay the excess directly into the loan as it becomes available.

Can I deposit Rs 1.5 lakh on my son’s (minor) account in addition to Rs 1.5 lakh on my PPF account during the same fiscal year. Can I deposit into 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 in the two accounts should only be Rs 1.5 lakh.

After working for two and a half years, I left the service 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 on withdrawal will depend on the number of years of continuous service. If it is five years or more, the TDS is not applicable. Interest on your EPF contributions, employer contributions, interest paid on employer contributions are taxed according to your slab.

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

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