Are you in urgent need of money and looking for a reliable source to borrow it? Do you think there is a safer place than a bank to borrow money? It doesn’t matter what your needs are, getting money to meet them is now possible with the help of a personal loan. Whether it is money for your dream holiday or need money to support wedding expenses or for any other materialistic requirement, make use of the personal loan option to get the money instantly which can be repaid in monthly installment over the coming years.
This is a form of unsecured loan that can be made use to meet any current financial requirements. It’s called unsecured loan as there is no need of any security for availing the loan. This type of loan is mainly taken by those who are in immediate need of money without any collateral and with manageable rate of interest. The money disbursed as a personal loan will not be monitored thus it can be used to meet any needs. This personal loan amount is used for holiday, education, household requirements etc. Repayment of this is usually through fixed amount of installments over a fixed period of time. Apart from meeting all the eligibility criteria and document requirements, it is also essential that the individual should have a good credit rating. This is checked through CIBIL- Credit Information Bureau (India) Limited.
What are the costs involved in a Personal Loan?
There are definitely service charges and other charges applicable for each service that is offered by the bank. Though the charges will differ from bank the bank, the type of charges implied on personal loan are pretty much the same. The below table will help you with some of the basis fee and charges associated to personal loan:
Description of Charges Charges Applicable
|Description of Charges||Charges Applicable|
|Loan Processing Charges / Origination Charges (Non-Refundable)||Upto 2.25% of loan amount plus service tax|
|Charges for Late Payment||24% per annum plus service tax|
|Amortisation Schedule Charges||Per transaction rate plus service tax|
|Prepayment/Foreclosure Statement Charges||Per transaction rate plus service tax|
|Duplicate Prepayment/Foreclosure Statement Charges||Per transaction rate plus service tax|
|^EMI Bounce Charges||Per transaction rate plus service tax|
|Prepayment Charges||5% of principal outstanding plus service tax|
|Repayment Mode Swap Charges||Per transaction rate plus service tax|
|Statement of Account Charges||Per transaction rate plus service tax|
|Duplicate No Objection Certificate/ No Due Certificate||Per NOC plus service tax or ₹ 500 Per NDC plus service tax|
|Loan Cancellation Charges||Per transaction rate plus service tax|
It is essential to note that these takes into consideration various categories such as loan amount, type of business or corporate, customer relationships etc. Also it excludes government schemes and subsidy. The Mean rate will be the sum of rate of loan accounts divided by the number of loan amounts.
What are the investment options available in India?
Here are some of the best investment options in India that reap maximum Rate of return:
1. PPF – Public Provident Fund: With a minimum of ₹ 500 up to ₹ 100,000 can be invested and the return on this is tax free. Current interest rate on PPF account is fixed at 8.1% per annum.
2. Peer to Peer Lending: Commonly known as P2P lending is an alternate to bank loans. Through this online service you will be matched with a vendor who will provide loan within few days and it requires very less paper work. You can expect around 9.69% return on investment on average seasoned return.
3. National Savings Certificate (NSC): With minimum of ₹ 100 deposit, the investor can choose the tenure of deposit as either 5 years or 10 years, rate of interest on the investment differs as per the tenure. Rate of return on this is about 8.10% as of 1st April 2016 and maximum ₹ 150,000 tax returns can be filed on the same.
4. Senior Citizen Savings Scheme (SCSS): With rate of interest close of 9.2%, this is the best investment option for those who are 60+ years. Senior citizens do not have to look for another safer plan than this as it offers maximum benefits and maximum returns with minimal investment.
5. Money Market Funds: Liquidity is the main benefit of this type of investment and your savings are not blocked. Some of the money market instruments returns are:
Money Market Funds (ROI-Fund):
- 97% – BPI Money Market Fund
- 42% – BDO Peso Money Market Fund
- 91% – PNB Global Filipino Peso Money Market Fund
- 52% – PNB Dream Builder Money Market Fun
- 19% – Metro Money Market Fund
6. Bank Fixed Deposit: This is one of the best and widely accepted forms of investment. Though the rules and interest rates slightly vary from bank to bank, it is a very common and simple product for investment. The return on this investment is 6.75% for 30-day FD scheme, 7.5% for deposit period of 60 to 90 days, 7.75% and 8% for 120- days and 6 months deposit term, respectively.
7. Sukanya Samriddhi Yojana: One of the great investment options for those who are risk aversive. This is mainly for future benefits of your daughter either for her education or wedding. The return on this investment is about 9.20% per annum.
Here is a simple table to explain the same:
|Investment Options||Maximum Amount||Minimum Amount||Minimum Investment Period|
|Public Provident Fund||₹ 150,000/ – (One FY)||₹ 500/- (One FY)||15 Years|
|Mutual Fund (SIP)||No Limit||As low as ₹ 500||Only applicable in case of close-ended and ELSS schemes|
|Equity Shares||No Limit||No Limit||Not Applicable|
|Real Estate Investment||No Limit||No Limit||Not Applicable|
|Gold ETF||No Limit||Variable||Not Applicable|
|Post office monthly income account schemes (single)||₹ 450,000/-||₹ 1,500/-||5 Years|
|Company Fixed Deposits||No Limit||As low as ₹ 2,000/-||12 Months|
|Initial Public Offerings||No Limit||No Limit||Not Applicable|
|Unit Linked Insurance Plans||No Limit||₹ 100,000/- for plans 45 years and below||45 Years or below|
Things to consider before taking Personal Loan for Investment:
• Do not borrow more than what is required as this can lead you to pay interest for unnecessary debts. It is important to consider all requirement for a loan, sum up the amount requirement and then start looking for loan option, interest rates, monthly EMI, tenure etc.
• Taking loan and then struggling with it to repay off is not a great idea. Before taking a loan, make an in-depth calculation of what amount is required and for what purpose.
• Taking a loan ‘just because it is easy to get one’ should not be the purpose. Avoid being into debts. Stick to the plan for which you are taking a loan.
• Irrespective of how convincing the managers in the bank is and how satisfying their talks are, compare as much as different loan offers from various banks, before considering and finalizing.
• Every penny borrowed will have to be repaid with interest, thus borrow only if there is really a need. Being tied into long-term contract will not help; it will reduce the probability of getting a loan in case of future requirements.
Before You Dive In:
- Choose the best bank: Each bank will work differently thus each bank services offered are unique, understand your needs and accordingly choose the bank. Sometime, you will even have to think of the accessibility and reachability of the bank. If you are taking loan from a bank that is too far of distance, then in case of any emergencies there will lot of waste in time and effort due to distance.
- Comparing different sources of personal loans: Comparing is always a key factor; this will help you to choose the best from the alternatives available. Also it will help you to have a Plan B option in case if the best one fails to offer loan in a required manner. A table of the below type will assist:
|Banks||Interest rate (%)||Processing fees (%)||Amount (Rs)||Prepayment charges (%)||Disbursal time|
|HDFC Bank||13.99 – 22.25||2 for A/C holders, 2.5 for non A/C holders||₹ 50,000 – ₹ 1.5 million||4||2 – 7 days|
|ICICI Bank||14.0 – 18.5||2 – 2.5||₹ 50,000 – ₹ 1.5 million||5||7 days|
|Bajaj Finserv||15 – 17||2 – 2.5||₹ 100,000 – ₹ 2.5 million||Up to 2||4 working days – approval in 24 hours.|
|Kotak Mahindra Bank||15 – 19||Up to 2||₹ 100,000 – ₹ 1.5 million||5||7 days|
- Invest time in finding what documents re required and check if you have the originals and copy of the same handy. Bank officials will come anytime to collect these documents either from your residence or from your office.
- Income certificate are essential, thus contact your company to get a copy of at least last 6 months salary slips and other relevant documents. Similarly each out to your bank get bank statement for a period of last one year to make the whole processing faster and hassle-free.
So, when should you be going for it?
Though a personal loan can be used for much purpose, identifying whether there is a need for a personal loan before applying is important. For this the individual should be capable to understand what the need is and how crucial the need is in their lives.
- It is not advisable to take personal loan for any consumption-based products. For example, don’t take a personal loan for buying TV, mobile or car.
- Do not opt for a personal loan if you are unsure about how to pay it.
- Consider taking a personal loan only in cases of emergency, this should not be an option for sourcing fund for everyday needs.
- It is fine to opt for a personal loan to fund for owning a house that will bridge the gap between home loan and initial down payment requirements.
- It is good to take a personal loan to make an investment that will reap more benefits than the interest that is being paid on the loan.
And, when should you not?
- Don’t apply for a personal loan if your credit rating is low. This will not just get your loan application rejected but will also impact any future loan applications unless the scoring ticks up.
- Make sure there is enough balance in your credit card. In case if you have drained out the balance in your card, banks will not be ready to offer loan as there is more risk of default.
- Make regular payments of EMI and other transactions, defaulting these will result in being blocked by the bank for any future transaction. Payment defaulting will not just bring down your credit scoring but will also throw a bad impression to banks.
- Don’t apply for too many loans. Irrespective of how crucial or necessity it is, applying at too many places or applying immediately after one loan gets over will bring negative marks on your credit rating.
- Do not opt for a loan especially a secured loan unless you totally understand the risk associated with the same. Get enough knowledge about its working and then apply.
Thus it is perfectly alright to take a personal loan to make an investment unless the return on investment is higher than the rate of interest charged on the personal loan. Taking personal loan for investing in definitely appreciating assets like land is always a good move. Play the cards smartly to make the most benefit of the personal loan, also if you are expecting some fund in the future; take a personal loan that has less complication to pre-close. The more planned your move is, the benefits will be higher. And as one of the basic tip – do not use personal loan to spend on miscellaneous or every day expense. Take loan to invest in things that will reap benefits in the future. Most banks are offering this facility to help make us to meet a wide range of financial needs.