What is Personal Loan?
Personal Loan, which is also called personal loan or personal finance, is a loan you can take from your own bank account. This is a form of credit, which means you can take out the money as and when you need it without giving a repayment schedule. You can go ahead and withdraw it and use it for the next. You can also ask the bank to allow you to pay back the amount you have taken by instalments. This may also give you the cash to carry out other functions such as payments for important expenses, re-payment of home loan or getting a marriage loan or investing in some other important financial decisions.
However, you should remember that this loan may not be good for your health. Your total loan amount can only be to Rs 25,00,000. Since the application is a compulsory one, you may not be allowed to withdraw the amount you take and a penalty of Rs 10,00,000 would be imposed if you do so.
The interest on the loan depends on the amount that you have taken. A new credit card with 0% interest will give you interest as high as 14.99%. If you are looking for a low-interest loan, you can go for personal loan with less than 12% interest.
The procedure for personal loan varies from lender to lender. It could be online, offline, from a single bank, or from a financial institution like HDFC, ICICI, State Bank of India, Bank of Baroda etc. You can also use a credit card as a form of personal loan to be repaid later, by transferring the amount you withdraw to a credit card. There is a normal rate of interest on this loan for which you can read the rates before taking the decision.
As mentioned, this loan does not require you to put a repayment schedule, so you can take the amount as and when you need it. You can repay the amount through monthly installments, or through the easiest method of paying back by installments which is paying back the balance amount, one-by-one, over a period of time. However, you will have to complete the payments in time, as if you don’t do so, the interest rate may increase at any time and you will have to pay the interest.
There are a couple of benefits with this type of loan. Firstly, you can repay the loan in less than a year since the interest rate is low. Secondly, you can repay the loan with EMI or EMIs, which are online payments, but the interest rate is high. The third benefit is that it can help you take a debt consolidation loan, or a loan to set up your business, but the rates would be high.
However, the drawback is that you cannot ask the bank to make a separate EMI for each month. You will have to repay the amount once you get it. Apart from this, the loan has a significant amount of money.
Some facts on Personal Loan
– Most of the people don’t know that personal loan can be taken from the savings bank account. This is because banks usually make personal loan with the condition that you can’t withdraw money from your savings bank account. Therefore, you need to be a graduate to be able to apply for personal loan from a bank. This could have been a good condition to create awareness of the loan. If you have not been able to get personal loan from your own bank, you can also apply from the institution, which offers this loan.
– The interest rates differ for personal loan on every kind of tenure. For example, the lowest rate of interest is for 3 months term, while for 10 years term, you can pay an interest of 12.9%.
– The annual percentage rate on personal loan for 3 months is 6.2%, and the same for 10 years is 12.9%.
– You can withdraw the amount as and when you need the money.
– If you take the loan for a business purpose, you can get 2 credit reports – one from HDFC and one from Axis Bank, which would also include the payment history and the progress of the loan. These reports are free of cost and you can get them online.
– As you make regular EMIs, you will be able to repay the loan in a very short time.
– However, as you increase the repayment amount, you will have to pay more and more interest on the loan. The high interest would also include a daily interest component, which means that the interest would increase with every passing day.
There are a few risks with this type of loan. Firstly, in the event that you default on the payments, the bank will have a right to reclaim the amount, but it will have to pay back the principal amount along with interest, which may be quite high. Also, if you have borrowed from a cooperative bank, you will not be able to get the amount back as it will be taxed, even if you default. The bank can’t do anything about it.
– In the case of SBI, there is a provision of penalties to be charged for keeping the loan unpaid for too long. This means, if you haven’t paid the loan for 6 months, your bank will charge you a penalty amount for the same amount.
– As of now, we don’t know if you will be allowed to apply for a personal loan from a post office.
The type of personal loan you should consider
Usually, the banks prefer to give you a personal loan which has the best interest rate. So, a personal loan should have a low interest rate, but if you are looking to borrow more than what you need, you can always consider personal loan from a cooperative bank, which provides better rates than the normal banks.
A personal loan from a bank might be difficult to get. You have to be more qualified and keep a good payment history. Even if you need to make a request to the bank, it might take a long time to get a loan from a bank. But if you are a graduate and not already married, there is a good chance that you will be able to apply for personal loan from a bank. If not, you can apply for a personal loan from a cooperative bank.
Lenders offer personal loans to you under several terms and conditions. Usually, they ask you to pay the principle amount along with the monthly instalment of the loan. You will not have to pay any interest during the tenure. If you repay the loan early, the bank will pay you the interest as well. Some of them also give you an additional rebate for paying the loan in an advanced manner.
Getting a personal loan is one of the most convenient and easy ways to manage your finances. You can easily make the monthly payments for the loan in your budget and repay the loan in time. As you make payments regularly, your loan repayment period will be shortened.
Personal loans for business purposes
As of now, you can only apply for personal loans for personal purposes. But if you have a business idea, then you can easily avail a business loan. You can get a personal loan to cover your basic expenses and expenses for your business. For example, if you are starting a real estate business, then you will need a business loan for carrying out the business activities.
Lenders usually ask you to take the loan for a business purpose and allow you to make payment towards the loans on time. However, if you need to get the loan for personal purposes, there is a high chance that you will be refused. Also, if you default on the loan, then the bank might have the right to take the loan back from you.
You should choose the loan option that is suitable for you. If you can’t make a payment on time, then it is better to opt for personal loan from a bank. You can also consider personal loan from a cooperative bank.