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Wealth spl: How small loans left me completely broke
Published on Wed, Sep 24, 2008 at 13:04, Updated on Wed, Sep 24, 2008 at 14:02 in Business section
Tags: Debt, Personal Loans
MONEY MATTERS: Though some purchases merit borrowing, know where to draw the line.
The power of debt is tremendous. On one hand, it can help you achieve your goals. On the other, it can destroy you.
Unfortunately for Amane, a 42-year old college lecturer who is married and has a child, his loans did him more harm than good. He earns Rs 19,000 per month and is in deep debt, today.
Wealth chronicles Amane's route to debt and suggests a way out.
November 2005: He took a personal loan of Rs 1,50,000, to furnish a new house he was about to acquire.
December 2005: He took a home loan of Rs 4,87,679 to buy a property in Pune, where he now lives with his family.
September 2006: He took a motorcycle loan of Rs 50,000 and bought a new bike.
July 2007: Amane took a personal loan of Rs 5, 00,000 to buy shares, and gave power of attorney to a brokerage firm, to invest his money as they saw fit. When the stock market crashed, he lost all his savings and was left with no savings.
September 2007: He took a personal loan of Rs 4,60,000 (secured against his home), to pay off the remaining Equated Monthly Installments (EMIs) on his personal loan of Rs 1, 50,000, thereby closing the loan. He also utilised it to pay EMIs on other loans.
Loan watch
| When | Type of loan | Purpose | Loan amount (in Rs) | EMI (in Rs) | Remaining EMIs |
| November 2005 | Personal | Furnishing the flat | 150,000 | 5,424 | Closed |
| December 2005 | Home | Buying the flat | 487,679 | 4,947 | 162 |
| September 2006 | Motorcycle | Commute | 50,000 | 1,150 | 43 |
| July 2007 | Personal | Buy shares | 500,000 | 15,080 | 39 |
| September 2007 | Personal (against home) | To close the first loan and pay EMI of Rs 15,080 | 460,000 | 6,049 | 175 |
Not surprisingly, Amane is unable to pay the EMI of Rs 15,080, which obviously, did not go down well with the bank. It’s been six months since he paid his last installment, and the bank is threatening him, so he clears pending dues.
Top mistakes
The personal loan of Rs 5, 00,000 to invest in stocks was uncalled for, considering that he was already paying off three EMIs. In fact, he should have used the loan of Rs 4, 60,000 to prepay his other loans and bring down the EMI amount rather than pay more EMIs.
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