When the going gets tough, a personal loan gets you going!

A personal loan can help you realise many short term and long term dreams. In the absence of adequate savings, you can always fall back on a personal loan.

Life is a crazy ride, full of ups and downs. It is a series of phases, the good following the bad, the unexpected following the expected. One can never truly predict what the next turn will bring, or whether one will be taken by surprise sooner or later. The old adage ‘Nothing is constant except change’ holds true in terms of the lives we lead!

The same applies to the state of our finances. Despite the most careful planning, there are days when we are short of funds to finance the smallest of expenses. Or our investments that we were most counting on, go awry and we lose a lot of money in the process. Or there comes a time when we need a large sum of money quickly, but we don’t have the means to raise it. 

But just like there are problems, there are solutions. In terms of one wishing to have more money but not able to accumulate it at once, the solution is to apply for a personal loan. 

What is a personal loan?

A personal loan is a sum of money that one may get from their bank, in lieu of their income, age and credit history. The personal loan interest rates are normally higher than other loan products such as home loans. This is because a personal loan is an unsecured loan, i.e. there is no collateral that the applicant furnishes like in the case of a secured loan, such as a home loan. Thus, the loan’s veracity and repayment is dependent only on the individual’s income profile and repayment behaviour, in the absence of collateral.[1]

 

Normally, the interest rates for personal loans are over 11%. The best personal loans in India today are available for personal loan interest rates ranging from 12% to 19%, for a minimum loan amount of Rs 50,000 and a maximum of Rs 20 lakh. The tenure may range from three months to 60 months.

The bank or financial institution lets you apply for a personal loan basis your eligibility, credit history and repayment capability. The lending institution normally does not concern itself with how the applicant intends to spend the money borrowed.

So what can you use the personal loan for?

There are many uses that you can put the loan amount to. Sample just a few of the many uses of a personal loan[2]:

• Children’s education, wedding expenses
• House remodel
• Making a down payment for a new house purchase
• An expensive acquisition for the house – large plasma TV with home theatre, for example
• A month-long foreign trip with the family
• Setting up a small business
• A medical emergency
• Repaying an old debt, etc.

Thus, there is no limit on how you can use the personal loan money. The only thing you need to watch out for is to repay the loan as mutually agreed upon with the bank, so as to not fall prey to penalties and higher rate of interest at a later date. Defaulting on personal loan repayments can also ruin your credit history, making it difficult to borrow any other loans in the future.

How to apply for the personal loan

Applying for a personal loan is fairly simple – depending on your bank – and in many cases, you can even apply for it online.

1. Start by checking your personal loan eligibility. It is computed basis the following factors[3]:
• Any existing debt in your name – home, car, credit card loan
• Your age
• Monthly income
• Desired loan amount
• Credit history
2. Once you find out how much loan you are eligible to get, you can check the bank’s personal loan interest rates[4].
3. Now that you are cognisant of the interest rates, apply for the personal loan. When doing this online, you just need to fill out the application form provided by your bank and upload the supporting documents asked for (income proof, residence proof, age proof, bank statements, IT returns, etc.)
4. Depending on the bank, the loan application is now perused and the loan is approved if all details are found correct. The bank will provide you with a transaction ID that you must quote when checking the status of the loan. The loan may be disbursed in just a few hours if it is pre-approved.

Be sure to…

…Follow a regular repayment model. The monthly loan instalment (EMI) is auto debited from your bank account on a pre-decided date every month. You must ensure that you have sufficient account balance to pay the EMI.

…Not quit your job while you are repaying the personal loan, or if you quit, to engage in new employment shortly. The loan is granted on the basis of your income, and a lack of income can set back your repayment. After several rounds of payment defaults, the bank is free to prosecute the loan holder.[5]

 

…Apply for a personal loan transfer to another bank that is offering the same product for a lower rate of interest. You can keep a tab on the personal loan interest rates being offered by various banks, as also the processing fees they charge before effecting the transfer. You are free to pre-pay the loan even after transferring it to another bank.

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[1] https://www.nerdwallet.com/blog/loans/credit-card-personal-loan/

[2] http://tips.thinkrupee.com/articles/personal-loan-advantages--disadvantages.php

[3] http://www.moneycontrol.com/news/business/personal-finance-business/-2086633.html

[4] http://www.idfcbank.com/personal-banking/loans/personal-loan.html

[5] http://www.lawyersclubindia.com/forum/Credit-card-and-personal-loan-default-75039.asp

Invest. Earn. Repeat

One cannot grow money if there is no investment. So, the foremost thing is to have a sustainable source of income and then save the amount, to invest it later on in some appropriate policies that will help you in doubling your sum, after years. This is the normal process through which maximum of us do our financial planning. But what if you come across policy, where both insurance and investments are integrated together?

What To Look for?

Yes, such policies exist and are termed as Unit Linked Insurance Plan. So, this is basically a life insurance policy where the risk is covered for the policyholder, and even you have an investment option at the same time that will give you the chance to invest in bonds, stocks or mutual funds. But such investments do have market risk and is with the policyholders.

Meeting the Goals!

The policies can be used for many purposes- retirement, health, child’s education, marriage and even for investment purposes. So this plan very well acts as a savings vehicle while at the same time is loaded with benefits of the insurance contract. So when one buys units in ULIP, the individual purchases units with a large group of investors, just like doing it in mutual funds. Different types of ULIP offer different types of qualified investments. So, it is a must to read the scheme prospectus carefully before investing.

Who Should Do ULIP?

1. Individuals Who Want To Closely Track Their Investments: ULIP helps investors to closely monitor their respective portfolios and even you are given the flexibility to switch funds to varying risk-return profiles.
2. Having Medium To Long Term Investment Horizon: This is ideal for those individuals who want to invest for a longer duration of time.
3. Individuals With Varying Risk Profiles: A choice of fund is available for all investors- from risk averse to those investors having strong risk zone.
4. Investors For All Life Stages: The plan can be selected based on your current status of age, your financial needs and different liabilities at different point of life.

Advantages

There are many advantages which you can avail time to time. Look at the points below for understanding it in a better way.

1. Market Linked returns
2. Life protection, savings, and investments
3. Flexibility
4. Single premium

Charges

There are different charges deducted by different insurance companies at the end. Some of the basic charges are

1. Administration charge
2. Fund management charge
3. Surrender charge
4. Switch charge
5. Premium allocation charge
6. Mortality charge
7. Partial withdrawal charge

Switching Between Funds

The insurance companies allow you to switch between funds after deduction of an amount. However, this helps in switching between debt and equity funds when the market is volatile or even when there is a fluctuation of the interest rates. This is one of the pros of ULIP, where your investments still tend to remain safe and secured. Even in the case of liabilities, financial standing, and risk profile, the investments can be changed accordingly.

Later, not sooner, to buy your dream home

Waiting for the festive period, when investor sentiment is high, is a wise move when looking for a home loan product. 

Every person wishes to buy a house for themselves and their loved ones. However, expensive real estate in India makes this dream an impossibility for most people. But those who properly plan the purchase account for the right timing.

The ‘right timing’ denotes a confluence of one’s personal finances, reduced interest rates and the best property that is available for purchase at that point of time. However, while one may or may not have adequate money at their disposal, or even find their dream house at the time, getting the right home loan is a matter of research. Most buyers wait patiently for the festive season to come around, when they believe that it is auspicious to buy a house – and when home loan rates are lower. 

Why wait for the festive period?

The festive period (generally spanning Ganesh Chaturthi, Navratri, Diwali, and later Christmas and the New Year) comprises of many days and dates that Indians consider auspicious for new beginnings. Thus, weddings, christenings, house and car purchases etc. are all timed to coincide with these dates.

Housing finance companies and banks are well aware of the positive sentiment towards big ticket purchases during this time. Thus, they maximise this sentiment by offering limited period home loan offers. Chief among these are lower interest rates (applicable for the tenure of the loan) and zero processing fees. 

Other home loan offers include discounts on online application of home loans, or transfer of existing home loan to another lender at a reduced rate, etc. 

Reduced interest rates are the biggest magnet during the home purchase process: a lower interest rate translates into a lower EMI, and hence, lesser repayment to the lending institution. A good offer also includes no processing or legal evaluation fees when granting the loan – this is a significant saving for the buyer. 

Not just banks and lending institutions, but real estate developers may also have offers to attract buyers. However, these are not always timed to coincide with the festive period, and may include such incentives as paying only 5% of the project cost to book the house, and paying the balance 95% on flat possession. Or they may include many free amenities or discounts for booking within a limited period of time. Many have pre-approved home loans on the project, so this also saves a lot of time for the buyer. 

However, do resist the temptation to buy a property only because there is a home loan offer being pitched at the moment. Do take some time to find the right home, and book it so that the developer or home owner does not sell it to someone else. You can then apply for the home loan at a suitable time, when a good offer comes along.