Monday, 6 February 2012

All about Personal Loans

Stuart Miles
Personal loan is speedy way of borrowing money from Bank or NBFC.  Personal loan come with very high interest rates as they are unsecured in nature and generally do not need a guarantor. Only in case of acute emergency one should go for personal Loan. The lender would be happy to give you the loan without asking you the purpose of the loan.

Instead of lengthy write up, let us understand Personal loan in detail in the form of Question and Answers.  Here we Go….
·    Q: When should you go for Personal Loan? A: Only in case of emergency. If possible try and avoid availing personal loan for buying consumer durables. The interest rates are very high.
·    Q: Who lends this Loan?
A: Banks and NBFC (Non Banking financial Companies).
·    Q: What about the Processing time, Repayment options?
A: Processing time is usually 8 to 10 days. Go for private banks in case you don’t have much time in hand. Repayment options are quite flexible. Usually 1 to 5 years.
·    Q: what are the eligibility criteria?  A: Banks look into your credit rating, repayment ability, Job Security. Your monthly take home salary, ITR returns if applicable (if the loan is big).
·    Q: Is there any minimum and maximum limit on loan amount from lender?A: In case of Private Banks, the minimum is 50 k and Maximum is 20 lakh.  Most of the PSU banks have 25k as minimum and 10 lakh as maximum. In addition to this, Banks are not willing to fund you loan amount more than 12 times of your net monthly take home income.
·    Q: What are the usual Interest rates for personal loan?A: Generally the interest rates vary from 13% to 24%. PSU banks have appealing interest rates but the processing time is generally high.Tip : Allahabad and UCO bank have interest rates less than 14%. Please confirm by calling the bank as they keep changing the interest rates.
·    Q: Are there any other charges that we need to consider?A: There are quite a lot of charges. Here goes the list.
ü  Processing charges: usually 1 to 2% of loan amount. Some banks charge flat fee. This needs to be paid when you apply for the loan
ü  Cheque bounce: You will have to pay penalty for this. This is in the range of Rs 250 to 500.
ü  Pre-Payment Fee: If you want to pre close the loan, you may have to bear the pre closure charges. This is in the range of 2% to 4% of your outstanding loan.
ü  Late-Payment Fee: If you delay in paying your EMI, you are asked to pay penalty. This can go up to 3%. Some banks charge flat fee.
ü  Duplicate Statement charges : This is in range of Rs 100 to 250
ü  Documentation/handling charges: Usually in range of Rs 500 to 1000.
ü  Service Tax:
Tip: You can negotiate with the bank to wave off or reduce the charges. You never know it might work in your favor
·    Q: What are the documents required for applying the loan.A: The list of documents is not exhaustive. Here we Go…
ü  Identity Proof : PAN, Passport, DL, etc
ü Income Proof: Latest salary slip, ITR Returns, Bank statement for last 3 or 6 months.
ü Residence Proof: Electricity Bill, Telephone Bill, Bank statement, Ration Card etc.
ü Qualification Proof: Degree certificate, or highest degree certificate – (very few banks as this).
ü Employment Continuity Proof: Form 16 or Company Appointment letter
ü Two passport size photo’s.
·    Q: Any other criteria?A: Some banks expect your income should be minimum 8K per month; there is also restriction on Age of the applicant. For example Minimum 21 Years and Maximum 58 year or so…
·    Q: How to get choose the best offer?A: The first and foremost thing is to compare the interest rates. EMI is the key. Filter 3 or 4 banks on the basis of EMI. Call up these banks and ask about other associated charges like processing, pre closure etc. You can negotiate and bargain hard. Sound confident when you talk. Let the executive know that you are evaluating other options too.Talk to the bank where you salary gets credited. This bank might be willing to give good rebate to extend their relationship. Processing would be much faster if you are an existing customer.
·    Q: I don’t have internet facility. Not sure how to check for the best offer.A: Give a call to Just Dial and let them know you are looking for personal loan.You will be flooded with calls from bank executives. I bet you can get the best rate by this approach. I have tried this for buying batteries for my car.
·    Q: Are there any alternative to personal Loan?A: As mentioned, Personal loan should be your last option. (I am ignoring the option of withdrawing cash using credit card. Please never do this). Try your best to get a secured loan to meet your requirement. Loan against FD’s, Gold, LIC policy etc. These loans work out lot cheaper than personal loan. Check if your company is willing to give you salary advance. This is generally interest free. Only when you run out of all options knock the door for Personal Loan.
Do you agree that personal loan should be taken when you have no other option?

4 comments:

Chris from personalloansguide.co.za said...

A personal loan is certainly a good option if you're looking for instant cash for urgent financial needs. Just make sure that you can afford the repayments. Failure to do so will not only affect your credit rating but can also land you in legal trouble.

WealthUCreate said...

Agree with you. With the ease, it comes with associated high cost.

Rashi Mittal said...

Realy nice article to have knowlege of personal loan because now a days, every person go for a personal loan because of high expensis, I also had took loan last month in bhopal with easy repaiments, there is no time for normal person to go to every bank and find what they are giving ,so the best thing is to find online Loan In Bhopal

Ashvika Malhotra said...

good post,,Personal Loan is the best way to untangle your personal expenses.Now you can apply for personal loan Online and can compare interest rates.

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