BANKBAZAAR TIP CENTRAL
How is your EMI calculated?!
At a constant interest rate, EMI is constant month on month. The change happens in the way the principal and interest is added every month! In the initial years of loan repayment principal is lesser than the interest component of the EMI. In the latter years the reverse is true!
Popular alternatives for a personal loan!
When you are in the urgent need of cash, the easiest option seems to be taking a personal loan. But with the raging interest rates these days, it’s not quite wise to get into the vicious cycle of debt. Banks also tend to look at your entire financial profile before accepting you for eligibility. What if you could have an option apart from personal loan in times of crisis?
Here are some quick fixes as alternatives to personal loans –
- Loan against fixed deposits – This is the quickest possible loan because banks lend against their own fixed deposits. The repayments of this type of loan should be done within the fixed deposit tenure. The biggest advantage is there is minimal documentation required and loans are available over 80% of the fixed deposit value. Also, your fixed deposit continues to earn interest even during the tenure of the loan. However, you must discipline yourself to repay the loan every month like an EMI.
- Gold loan – Initially started off as a popular source of finance in rural and semi-urban areas, gold loans have off late become extremely popular in metros as well. This type of loan provides immediate liquidity on the basis of one’s jewellery without having to sell it away. Further, there are no processing charges and prepayment fees. The loan amount depends on the purity and weight of the gold that is given. Although this loan does not necessitate previous credit history, banks are going stringent on these after recent RBI regulations. Further, the interest is not cheap and is comparable with personal loans.
- Loan against Property – You can borrow against your property and the loan amount is calculated on the basis of value of property and the borrower’s capacity to repay. Refinancing the property is an option if the value of loan is to be increased or the property value has risen over a span of time. Failure in prompt repayment can result in loss of ownership, and hence absolute care must be taken, as a property is usually of higher value than any other form of security.
- Loan against shares – Banks lend against the shares of specific companies which you hold. However, not all shares you hold qualify for such loans. Each bank has a different list of approved securities which qualify for such loans. The amount depends upon valuation of security and ability to repay and service the loan. Although you can receive money without liquidating your investments, the amount granted as a proportion of the security offered is much lower compared to other forms of loans. With present volatile stock markets, this may not come cheap as well.
- Loans against Life Insurance policies – Loans that are granted on the basis of life insurance deals have lower rates of interest and easy options for repayment. Loan amount is dependent on the value of the policy. It can be repaid anytime during the term of the policy. In the event of an unpaid loan amount, interest will be deducted from the claim. This is a quick loan with minimal documentation.
- Loan against Public Provident Fund (PPF) – Loans can be taken on the basis of PPF but with tenure only up to 2 years. If the first loan is repaid, the borrower is entitled for another loan if they are within 3 to 6 years of opening an account. The benefit of this loan is that you can borrow without breaking your PPF and also with minimum documents.
Summary of Salient Features of Different Kinds of Loans
|Factor||Loan against Fixed Deposit||Gold Loan||Loan against Property||Loan against Shares||Loan against Life Insurance||Loan against PPF|
|Eligibility||Fixed deposit should be for at least a year||Available for just gold components. Not valid for other stones, metal or platinum.||No mortgage issues. Property should not be under ownership disputes. Minimum income from the land should be Rs 1 lakh||Only individuals are eligible.. Loan is granted only on the basis of bank’s approved list of shares||They are sanctioned only on endowment plans, after completion of 3 years of the entire premium||It is available from the 3rd up to 6th year and up to 25% of balance at the end of 2nd year|
|Documents||Fixed Deposit Receipt||Proofs for identity and address of the individual||Proof of residence, identity, age, income, property documents and signature||Proofs of address, identity and signature. Power of attorney, transfer pledges and forms||Actual documents of the policy||PPF passbook|
|Rates of Interest||1% or 2% more than the rate on the fixed deposit||10% to 17%; Higher in the case of gold loans from NBFCs||13% to 16%||13% to 16%||8% to 9%||2% above the rate of interest for PPF|
|Processing Time||2 or 3 days||1 working day||10 or 15 days depending on the lender.||7 to 15 working days||2 to 3 days||1 or 2 working days|
You can take a look at the above mentioned options see which one might suit you best. If you are in urgent need of cash but for a short period of time, you might want to consider these alternatives. Evaluate your need and financial position before deciding on any kind of loan, as these will have direct implications of your financial plan.