Personal Loan from Bank vs. LIC: Interest Rate, Fees, Benefits

Personal loan is the only loan which is quickest to get subject to the applicant’s meeting all eligibility criteria and documentation approval. But with fast approval also comes higher interest rates and other fees such as processing fees, pre-payment fees etc. But when urgency strikes any person and he/she is in need of money, then interest rates and fees are secondary and primary objective is to get money for fulfillment of the purpose such as marriage, medical emergency and many others.

There are many ways to get personal loan in India but the two most favored options are personal loan against LIC policy or from financial institutions such as public sector or private or co-operative banks.

Let’s understand how both these options differ in terms of features:

  1. Interest Rate: LIC charges very less interest rate in the range of 9%-10% compared to banks which charges between 16%-24%.
  2. Loan Amount: In case of LIC, loan amount is sanctioned on the basis of surrender value of the policy. Whereas in case of banks, depends on various factors such as income, occupation, credit score etc. Check out in detail on eligibility criteria.
  3. CIBIL Score: Not checked by LIC whereas banks always checks this score by getting data from CIBIL.
  4. Does applicant needs to have account with the lender: Applicant should have LIC policy whereas there is no mandate by the banks to have any type of account.
  5. Is EMI fixed? Not fixed by the LIC but is fixed or is varying by the banks.
  6. Processing Fees: Zero in case of LIC whereas every bank will charge a processing fee which is typically between 1% to 2.5%. Few banks may not charge this fee, if EMI are paid for pre-fixed months.
  7. Can you apply for the account online? There is no online option available at LIC. Whereas almost every bank accepts loan application online.
  8. Loan Approval Timeline: LIC takes more time to approve a loan whereas banks such as HDFC bank or others charge this fee.
  9. Customer Support: No facilities to reaching customer support via SMS, Online chat, phone etc in case of LIC. Whereas these services are available with most of the banks.
  10. Loan Application Status: Cannot be checked online in case of LIC but is possible at the bank’s end.
  11. EMI Payment Options: LIC accepts annual premium in the form of cheque whereas in case of banks, EMI can be paid through ECS, cheque, net banking, cash, credit card.
  12. Risks: Financial security gets impacted when policy is terminated by LIC. Termination happens when debt amount goes beyond surrender value of the policy. No financial security is impacted as long as EMIs are paid fully and on-time.
  13. Loan amount credit: LIC pays the applicant by cheque. Banks can pay via cheque or, direct deposit in the bank account of the loan applicant.
  14. Pre-Payment Fees: NULL in case of LIC whereas most of the banks charge a fee which can be waived-off only after certain minimum EMIs have been paid.
  15. Is income proof required: There is no income or salary proof required by LIC. But banks always ask for income documents to judge credit worthiness.

So as you can see above, when it comes to saving money, personal loan from LIC is the winner due to the low interest rate charged. However compared to banks, loan amount in case of LIC is totally dependent on the surrender value. So if the loan required is big then individual should prefer taking loans from banks.

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