How to Refinance during Covid-19 by getting Personal Loans

If you are planning on getting a personal loan and worried whether you are making the right decision or not?

And how are you going to pay all the money back?

Here we are going to answer all your queries.

First of all let us tell you 

What is a personal loan?

A Personal loan is a loan that you take from the bank. But the problem is people think everyone can get a personal loan from the bank. But this is not the truth. If you are associated with occupations like a farmer or if you are a self- employed person or if you are a homemaker you won’t be able to get 

personal loans. 

Personal loans are for those people who have a fixed amount of income every month. In short, if a fixed amount of income is coming to your bank every month then only you are eligible to get a personal loan. Otherwise, you have to appeal for other loans banks are offering but not a personal loan. 

Why does a personal loan charge higher interest?

Personal loans usually charge higher interest than a home loan, car loan, loan against property, or even gold loans. The reason behind is that personal loan is an unsecured loan. Personal loan is generally provided completely based on your credit worthiness; the bank only gives you the loan based on the fixed income coming to your bank every month that’s it. That is why it is an unsecured loan.  Increase tomorrow you die or run away banks will have very very slim chances of recovering. That is why the bank charges a higher interest rate because the default rate is very high here. 

What is the Interest rate?

There are 2 types of interest 

1. Fixed interest 

2. Floating interest 

Fixed interest is where the interest rates remain fixed throughout the tenure of the loan. Suppose you take a loan of 2 lakhs, And throughout the tenure the interest rate will remain the same, It won’t change. That is called a fixed interest.

When you are asking for a personal loan your fixed interest will be higher than floating interest but then it has its advantages as well as disadvantages.

The advantage here is in case the bank increases the interest rate later you are safe because your interest rate will not go up. But in case the bank reduced the interest rate you will have to pay the same interest rate which is more.

In some recent past years, the interest rate is going down continuously. That means it will go down in the future also. So choose your interest type wisely.

Eligibility

Normally banks will lend you up to 1- year annual income. This means if your annual income is 5 lakhs you will get a personal loan up to 5 lakhs. But you should keep this in your mind that your p loan should not be more than 60% of your annual income and the personal loan EMI should not be more than 20% of your monthly income. 

 Do not sign any documents without breading terms and conditions of personal loan 

 Please be very cautious when you are signing the papers. Do not pay more than 16-17% interest rate. Some banks even lend you 12-13% interest rate if you are working in a good company and your track record is good.

What are the extra charges the bank takes?

Apart from the interest rate, there are many charges 

Processing fee- when you avail a personal loan of 5 lakhs they will take half % or 3% as processing fee. This is something they take as the expenses towards processing the loan.

But some banks only charge you .5% or 1 % processing fees if you are a creditworthy person. Once the loan is sanctioned you will have the power to negotiate with them. 

Prepayment charge – if you avail a personal loan of 5 lakhs after 6 months you get some huge amount of money from your work or somewhere and you decided to pay back all the money and get rid of your personal loan. But then the bank will say if you want to pay the entire amount in advance then there is something called pre-payment charges which are like 5% of your outstanding loan amount.  If you deny paying that they will simply show you your terms and condition paper. So be extremely cautious while you sign the papers and ask about the prepayment charges when you are taking personal loans.

Cheque bounce charges & late payment charges - suppose you have to pay EMI on a particular date but that month your salary gets delayed by 4-5 days. Then you will not be able to pay your cheque on time. Then immediately the bank will take cheque bounce charges. If you think it is normal then let me tell you some banks take 3000 to 5000 rupees as cheque bounce charges and they will also charge you late payment charges so be extremely causations and don’t get fooled by the banks. 

 

So be wise while taking your personal loan otherwise you will be trapped by personal loan frauds.