New Delhi--It’s the start of the festive season and shopping is high on the priority list for several people. Managing finances during this period of time is very important and there are many women who are also looking at personal loans in order to finance their purchases. The focus here will be on personal loans available in the market and their features.
The entire loan process involves a lot of steps, right from applying for the loan to the kind of documentation required and the amount eligible for the loan.
ET takes you through this maze. While applying for a loan, the rate of interest is among the main factors that should be considered.
It now varies from 11.5% for public sector banks to an average of 19% for private sector banks. First, one has to consider the minimum and maximum amounts of a loan available. Banks generally lend from Rs 10,000 onwards.
Punjab National Bank loans start from Rs 10,000 while others, such as, Citibank start at Rs 40,000. State Bank of India loans start at Rs 24,000 while HSBC Bank offers loans from Rs 50,000 onwards.
Banks also have a maximum ceiling on the quantum of loan. Canara Bank lends a maximum of Rs 1 lakh and Standard Chartered Bank goes up to a limit of Rs 7 lakh. UTI bank has an upper ceiling of Rs 20 lakh. Banks like HSBC and the State Bank of India allow higher borrowings in metros as compared to other areas.
Your nature of employment, to a large extent, determines your eligibility for the loan. For example, State Bank of India offers loans only to government employees, public sector employees and employees from multinational corporations among the salaried class, apart from various professionals, under its specific schemes.
Among the self-employed, Citibank offers loans only to specific professionals, including chartered accountants and doctors.
Individuals, thus, need to check their eligibility for the loan very carefully. Also, if you are salaried, there are banks that give you loans only if your company is listed with them or have different rates of interest, according to the company you work with.
Standard Chartered and HDFC Bank are two banks with such policies. In case of Canara Bank and the Corporation Bank, your salary has to be routed through their bank, if you do not have a salary account with them already.
Punjab National Bank asks for a gross annual salary of Rs 5 lakh if you do not have an account with them. Your tenure will depend on your loan amount. Most banks allow you to repay your loan in 48 equated monthly installments but few like the Corporation Bank and Canara Bank allow up to 60 months for loan repayment.
State Bank of India allows up to 48 months to repay your loan. HSBC Bank offers four easy repayment options where you can choose between lower EMIs in the first year or pay interest on the utilised amount only or last EMI waiver option or standard EMI repayment.
The interest rates you are charged could vary. One has to be careful whether the rate quoted is a flat rate or a reducing balance rate. For example, the rate is around 18-19% for Citibank personal loans. Certain banks also have different rates for the self-employed and the salaried.
HDFC Bank charges 20% for the salaried and 26% for the self-employed, while HSBC Bank charges 18-19% for a salaried employee and 19-22% for a self-employed person and ICICI Bank charges 21% for the salaried and 31% for the self-employed. Canara Bank, Corporation Bank, and the Bank of Baroda charge around 12-13%.
All these rates are on a reducing balance method Age is another criterion when it comes to applying for a personal loan. The minimum age alternates between 21 and 23 for most banks and the maximum age lies between 60 and 65.
This again depends on the type of employment. For example, minimum age eligibility for the self-employed starts around 24 and goes up to 65 while for the salaried its between 21 and 60 years of age.
Documentation is a very important step in the sanctioning of your loan. Salary slips, balance sheets, Form 16, IT returns, residence proof, age proof and address proof are the most frequently asked for papers. Standard Chartered Bank charges a documentation fee at the rate of 2%.
Processing fees are also levied as a percentage of the amount you borrow. This rate is around 2% for most banks. You need to check all the options and know what you are eligible for before you opt for a personal loan.