There was a time when borrowing used to be considered as almost a sin. Whereas today, you name an incident a loan is available for you from not one but many resources. Whether you want to get married, go for a vacation, celebrate a festival – ‘Personal loan’: your loyal and honest companion will be with you 24*7!
Personal loans are attractive:
It is very simple and easy to get this loan. This loan is unsecured loan, it means you do not have to give any guarantee to acquire this loan.
As it requires very few documents to process the loan, documentation is simple. After you put in the request and fulfill the eligibility criteria, you are in receipt of the money within a week or two.
You generally get 1-5 year’s time to repay the loan. You need not give anything (movable, immovable assets) as a security to process this loan.
If this is the case then why any financial institution will give away a loan like this? Why they will try to benefit their customers at the cost of their own risk? Alternatively, there is something in between the lines, which we need to pay attention to…, let us see
Basics of personal loan:
First, let us know about the documents mandatory to apply for the personal loan. And these include
Remember when you give such proofs to the organization while applying for the personal loan .You are actually giving them a blueprint of your wealth condition. So don’t be under the impression that bank is asking for no documents from you.
Coming to the interest rates:
As banks claims it to be, loan with no end-use restrictions and no-security. Interest rates charged upon Personal are extremely high. They can range between 16 to 30 % annually. More to that, interest rates differ from bank to bank and person to person.
For salaried person if interest rate is ‘X’ then for the same personal loan it can be ‘X+1 or 2%’ for self-employed person. For government employee interest rates may go down further. So depending upon your repaying capacity and bank’s willingness to lend you can negotiate for the better rates. You can even offer your Equities, M.F. and insurance policies as security to bank which will increase your credibility and may decrease interest rates.
Interest, of course, is the most significant of the costs. But that doesn’t mean you should ignore the other charges. These would typically include
A personal loan can be proved beneficial in certain conditions. How? Let us explore that too…
Examples of Right usage of personal loan:
So you can always opt for personal loan when you are in dire necessities mentioned above but with a caution that” Personal loan is injurious to your financial health”!!!!!!
(The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at email@example.com)