Source: The Hindu Businessline.
Evaluate the options available before you zero-in on any specific lender. This is because the eligibility criteria, interest rates, fee and other charges vary widely across banks.
Ajith has been working in an IT company for the last three years. His sister’s wedding is coming up in two months, he also wants to purchase some consumer durables for his house and vacation abroad during the Dussera holidays. For sure, he earns a fat salary and has some savings. Should he use these up to fund these expenses?
Not necessary. He can take a personal loan, offered by almost every bank on every street corner. Such a loan is typically available for a five-year period and getting one is hassle-free as it involves minimum paperwork and no security, guarantor or collateral. What more, most banks take less than 72 hours for the approval! True, the process is so simple that some banks offer this service at your doorstep. But to be on the winning side, you need to do your homework before you zero-in on any specific lender. This is because the eligibility criteria, interest rates, fee and other charges vary widely across banks.
Not necessary. He can take a personal loan, offered by almost every bank on every street corner. Such a loan is typically available for a five-year period and getting one is hassle-free as it involves minimum paperwork and no security, guarantor or collateral. What more, most banks take less than 72 hours for the approval! True, the process is so simple that some banks offer this service at your doorstep. But to be on the winning side, you need to do your homework before you zero-in on any specific lender. This is because the eligibility criteria, interest rates, fee and other charges vary widely across banks.
Eligibility Banks offer personal loans under two broad categories — salaried and self-employed individuals/professionals. For a salaried individual, the age limit for availing a loan is broadly 21 years-60 (at the time of maturity) and for the self- employed, it is 25-65 years. Although these limits broadly remain the same across all banks, the cut-off level of income for being eligible for a personal loan and the maximum loan available differ. For example, HDFC Bank sets the minimum net annual income at Rs 84,000 for the salaried while at ICICI Bank it is Rs 96,000. At CitiBank, it is Rs 1,20,000. Others, such as Punjab National Bank, have different eligibility levels for customers in metros, urban and non-urban centres. For professionals such as doctors and techies, Canara Bank has special schemes — Doctor’s Choice and CanTech.
The loan amount too varies. For instance, Standard Chartered offers up to Rs 30 lakh for the salaried and Rs 15 lakh for the self-employed. At PNB, the minimum loan is Rs 24,000 for an urban centre while the maximum is 12 times the net monthly income subject to a ceiling of Rs 10 lakh.Hence, to get the best deal, visit the Web sites of all banks. Look at what is on offer. Some banks offer ‘relationship discounts’ i.e. if you already have an existing relationship with a bank, you may be able to get better rates, discounts on fee and charges, etc. Some offer a personal accident/health insurance cover at a nominal premium alongside.
Also, make use of online eligibility and EMI calculators. Some banks have these calculators on their Web sites too. If your income is not sufficient to fetch the loan you want or if you feel the EMI is at a higher-than-comfortable level, consider taking a joint loan with your spouse. That will enhance your eligibility and divide the EMI burden as well. Interest, fees and other charges.
The loan amount too varies. For instance, Standard Chartered offers up to Rs 30 lakh for the salaried and Rs 15 lakh for the self-employed. At PNB, the minimum loan is Rs 24,000 for an urban centre while the maximum is 12 times the net monthly income subject to a ceiling of Rs 10 lakh.Hence, to get the best deal, visit the Web sites of all banks. Look at what is on offer. Some banks offer ‘relationship discounts’ i.e. if you already have an existing relationship with a bank, you may be able to get better rates, discounts on fee and charges, etc. Some offer a personal accident/health insurance cover at a nominal premium alongside.
Also, make use of online eligibility and EMI calculators. Some banks have these calculators on their Web sites too. If your income is not sufficient to fetch the loan you want or if you feel the EMI is at a higher-than-comfortable level, consider taking a joint loan with your spouse. That will enhance your eligibility and divide the EMI burden as well. Interest, fees and other charges.
Rate of Intarest
A key criterion to choose a lender would be the rate of interest and rates for personal loans differ based on your profile. The rate is based on banks’ perception of your risk profile, which, in turn, depends on your occupation, salary/income, credit history, place of residence and personal profile. Banks charge anywhere between 12 and 25 per cent interest on personal loans and so, negotiating rates is desirable.
A key criterion to choose a lender would be the rate of interest and rates for personal loans differ based on your profile. The rate is based on banks’ perception of your risk profile, which, in turn, depends on your occupation, salary/income, credit history, place of residence and personal profile. Banks charge anywhere between 12 and 25 per cent interest on personal loans and so, negotiating rates is desirable.
Compare ratesAjith gets a loan at 12 per cent while his friend Suman gets one at 15 per cent interest. Isn’t Ajith lucky to have obtained a lower rate? Yes, if these two rates are comparable. More often than not, they are not. This is because, the basis of computation of interest may differ. Some banks may quote a flat rate of interest while others may quote a rate calculated on quarterly, monthly or a daily reducing balance. Let’s assume Ajith borrows Rs 2 lakh at 12 per cent flat rate for three years. The total interest would be Rs 72,000. The EMIs will be 2,72,000/36 = Rs 7,555 .55. At the end of every month, he would have repaid a part of the principal through the EMI, but would still continue to pay interest on the repaid amount (as interest is charged on the entire loan amount). In this case, the effective interest cost works out to be much higher than the said 12 per cent.
It is always better to get a loan with interest charged on reducing balance. But here too, the effective cost will vary depending on whether it is annual, quarterly, monthly or daily reducing balance. A monthly reducing balance might suit you as it times well with your EMI payments but it is always better to work out the effective cost of different options before choosing one.
It is always better to get a loan with interest charged on reducing balance. But here too, the effective cost will vary depending on whether it is annual, quarterly, monthly or daily reducing balance. A monthly reducing balance might suit you as it times well with your EMI payments but it is always better to work out the effective cost of different options before choosing one.
Other Charges
Besides, you also need to check on the other charges, such as processing fee, documentation fee, pre-payment penalties and switching charges as they add to the cost of the loan. Further, a few administrative costs — charges for duplicate statement, charges for rescheduling, — may not be disclosed upfront may surprise you later on unless you figure that out early enough.
If you have done your homework, you could take the upper hand in the negotiations and obtain the loan at competitive rates.
Besides, you also need to check on the other charges, such as processing fee, documentation fee, pre-payment penalties and switching charges as they add to the cost of the loan. Further, a few administrative costs — charges for duplicate statement, charges for rescheduling, — may not be disclosed upfront may surprise you later on unless you figure that out early enough.
If you have done your homework, you could take the upper hand in the negotiations and obtain the loan at competitive rates.
DocumentsOnce you have chosen the lender based on the above criteria, documentation requirements are quite simple. You need to give proof of your identity — voter ID/PAN card/driving licence/passport; proof of address, bank statements, Form 16 and salary slips of the past few months as may be required. If you are self-employed, you will have to produce a certified balance-sheet and Profit and Loss account of the past two/three years along with other mandatory documents, such as partnership deed, in addition.
Post a Comment