Is a Personal Loan in Saudi Arabia Worth Considering to Pay Off a Home Loan in India?
When it comes to financial planning and arbitrage opportunities, a personal loan in Saudi Arabia to pay off a home loan in India seems like an intriguing possibility. Let's delve into the details and explore whether this strategy could be beneficial.
The Case for Arbitrage
The opportunity to take advantage of a higher interest rate difference can significantly reduce your overall financial burden. The speaker mentions achieving a '6 arbitrage' opportunity, meaning they could save more than 45 lakh Indian Rupees (INR) by redirecting funds from a loan in the UAE (DUBAI) and using the proceeds to settle their home loan in India.
The personal loans in DUBAI come with a 4-year tenure, which might seem daunting due to the higher EMI, but if you can afford it, it's a clever move. By paying off a 15-year home loan in just 4 years, the savings on interest costs can be substantial. Over the course of 7 years, they have managed to save over a crore (10 million INR) in interest costs.
Interest Rate Considerations
The interest on personal loans in Saudi Arabia is generally lower compared to home loans in India. This means that if you can secure a personal loan with a lower interest rate in Saudi Arabia, using it to pay off your home loan in India could certainly be financially advantageous.
Although the exact interest rate for personal loans in Saudi Arabia is not specified, the implied lower rate compared to India could potentially make it a cheaper option. Moreover, unlike home loans in India, personal loans may not offer any tax breaks. Therefore, even though a home loan in India is considered a good debt in terms of tax benefits, the lower interest rate on a personal loan in Saudi Arabia might make it a more cost-effective choice.
Challenges and Pitfalls
However, taking a personal loan in Saudi Arabia to pay off a home loan in India is not without its risks and challenges. Here are some key points to consider:
Higher EMIs: Personal loans in DUBAI typically have a higher EMI due to their shorter tenure. This can put additional financial pressure on your budget. FX Exposure: If you borrow in foreign currency (such as AED), there is a risk of adverse currency fluctuations, which could increase your debt. Additionally, converting the loan amount back to INR could result in exchange loss. Interest Deductibility: If the loan is taken for business purposes, even though it's used to pay off a home loan, the interest may not be tax-deductible in India. Foreign Liabilities: Having liabilities outside of India can complicate financial management and tax planning. It also increases the risk of financial complications and legal issues.Alternatives and Personal Experience
Another approach is to save up and use personal funds to pay off the home loan. The writer advises friends not to take any loan outside India to pay off a loan in India. Instead, they suggest saving for a couple of years to accumulate sufficient funds to close the loan. This method avoids the complexities and risks associated with foreign loans.
The writer also mentions that in a few scenarios, it might indeed be beneficial to take a personal loan in another country, but it depends on various factors such as the interest rate, tenure, and exchange rate fluctuations.
Conclusion
In conclusion, while there are potential savings in taking a personal loan in Saudi Arabia to pay off a home loan in India, it is crucial to carefully evaluate all the risks and benefits. The decision should be based on your ability to manage higher EMIs, your tolerance for FX risks, and your overall financial situation. If the interest rate in Saudi Arabia is significantly lower and you can afford the higher EMI, this strategy could indeed be advantageous. However, it's always wise to consult with a financial advisor before making such a decision.