Life is uncertain and so is the financial situation. You never know, when the need of money would arise. For e.g. circumstances such as medical emergency – which is unpredictable or wedding expenses which are predictable but unavoidable and in fact is a burden on most of the families.
So the first option that comes to mind when you want to meet your expenses is the personal loan by approaching the bank especially larger ones. However there are benefits when it comes to getting a loan from bank but there are certain cons as well as listed below:
High interest rate: The most important factor in a personal loan is the interest rate. Since such loan are mostly unsecured, the interest rate charges by the private banks is high. The reason behind the same is the high risk. In case of default, banks have to bear losses since money granted by them is not paid by the borrower. This adds as a negative mark on their balance sheet.
Interest is charged on the full amount: Even if part of the loan is repaid, the interest is charged on the full amount.
CIBIL score: It is quite obvious for anyone to check the repayment capacity of the applicant. And the same rule applies with the bank. In order to validate the credit worthiness, they gather financial history data of the borrower. And based on the records fetched from the bank, they calculate the score.
Strict eligibility criteria: Considering the risks involved, almost every bank has strict eligibility criteria. And the most important is the income of the applicant. Higher the income, higher is the chance of approval and so is the quantum of loan. Although there are loans for low income earners but the other terms and condition makes the process cumbersome.
Lengthy documentation process: Documents required for personal loan are many. This includes pay slip, bank statement, income tax return, business presence proof, to name a few.
Time consuming process: Although every bank claims to provide approval within 48 hours or even earlier, the actual time taken to get the money is quite high. So someone in a emergency has to face tough time till money is received.
Various charges: In addition to the interest rate, there are additional fees charged by the bank such as processing fee, cheque bounce charges, etc. This further increases the actual cost of getting a loan.
So how to save money on high interest personal loan?
Ofcourse there is no harm in asking for money from your relatives or friends. But everyone has their own problems in life and may not be able to help you out completely. These days, there are multiple low cost alternatives to get personal loan.
The options are as follows:
Peer to Peer Lending: Also called as P2PL, these are online marketplaces for personal loan. Various lenders (basically individuals) are ready to offer loans. Borrower has multiple choices to choose the lender and bargain on the interest rate too. The interest rate charged is less compared to banks. And so is the eligibility criteria and documentation process.
Few of the prominent players in the P2PL space in India are – Faircent, i2iFunding, LendenClub, Lendbox
Co-operative Banks: When someone wishes personal loan, he/she first approaches bigger banks such as State Bank of India, ICICI Bank, HDFC Bank and others. These banks typically charge a very high interest. However there are certain categories of banks called as co-operative banks which offer personal loan with low amount and at a low interest rate. Explore in more detail about personal loan from co-operative banks. In addition to low rates, the eligibility criteria is not very strict.
Secured Loans – Against Fixed Deposit / LIC Policy / Equities / Mutual Fund, others: Not many individuals are aware of getting loan against all the mentioned securities. Since it is a secured loan, the interest rate is naturally on a lower side.