Getting any type of credit (especially personal loan) is like falling into the debt trap which is created by the lender. Because initially when you get loan amount credited into your bank account, the things start looking greener as your wish of taking loan for whatever purpose comes into reality. But irrespective of taking a personal loan, home loan, car loan, etc. the amount you end up paying by the end of the term sky rockets and is not evaluated often by many. This increase is because of high interest rate and various other charges such as processing fee, pre-payment penalty, cheque bounce, etc. that comes along with the loan.
So how to save money when deciding to take personal finance?
7 ways, individuals looking for personal loan can save money
Do you really need a personal loan?
Even before you start looking for personal loan, ask yourself – do I really need a personal loan? Many people, take personal finance for going on a foreign trip, buying expensive jewelry, consumer items such as high end gadgets, etc. But do you really need to borrow money for such things? And by not having these things, will your life change, will you make losses in the absence of such things? Definitely not, right?
So the first tip is to take a loan only when it is utmost important e.g. medical emergency. You would be surprised to know the amount of money you will save by not taking a personal loan.
Arrange money from your own savings/investments: If you have decided that borrowing money is the only option then the first solution should be utilizing your own savings. Check out all your bank accounts, investments made, any money lent to friend/relative, and others. For e.g. if you have invested in fixed deposit and the term is nearing to its end, then you can make premature withdrawal. Although there would be a penalty but this amount would be negligible compared to the interest and other charges you will end up pay after taking loan. Especially individuals with low monthly salary or self employed with low income should always remember – taking personal loan from a bank should be the last option. And if you are still short of money, then try the following next option.
Borrow money from your friends/relatives: This should be your second preferred option. If your own saving is not sufficient to meet the objective then borrow money from your acquaintances. There is absolutely no harm or hesitation in asking for money. Either they will agree or disagree. But there is always a 50% chance of your friend saying YES. To further increase your chance, in return, you can pay them interest, lower than what banks or other lenders are charging. This way both of you will be on a winning side i.e. lending person (your friend/relative) will get higher amount of money in return and your purpose will be solved. But make sure to make timely repayment as promised, because trust once lost, takes time to develop. However everyone has their own financial objectives in life. So this alternative solution may not always work. If it doesn’t, try the next option.
Loan against Securities: If your friends/relatives or other known person are not able to help much, then your third option should be to take personal loan against securities. Not many people are aware of getting loan against securities is possible. Such type of loan falls under the category of secured loan. Many financial institutions offer such loan against fixed deposit, physical gold, shares, mutual funds, LIC policy, etc. While it may not be possible for individuals from low income group to have assets such as gold, shares, mutual fund, FD, etc. But if you have any of these, then take loan against these. There are many advantages of availing such loan – low interest, no credit history check, interest is charged on the amount utilized and not on the entire loan amount, and so on.
Opt for Cash Loan: If secured loan is also not possible then apply for cash loan. This is offered by financial services companies and not banks. Cash loan is actually a personal loan but offered for short term and small amount and low interest and processed very fast. In India, you can get such quick loan from NBFCs such as – mobile wallet companies, peer to peer lending companies, or credit finance companies. Read details about getting cash loan.
Approach Co-operative Bank: Before approaching commercial bank, apply for loan at co-operative bank. There are many benefits of availing personal loan from co-operative bank such as low interest, not very stringent terms and conditions, zero prepayment and processing charges, and many others. This article on personal loan from co-operative bank provides detailed information. The table below shows few of the commercial banks and their income eligibility criteria:
|Name of Co-operative Bank||Monthly Income Required|
|The West Bengal State Co-operative Bank Ltd.||Rs. 2,000|
|The Andaman and Nicobar State Co-operative Bank Ltd.||Rs. 5,000|
|The National Co-operative Bank Ltd.||Rs. 5,000|
|Abhyudaya Co-operative Bank||Rs. 8,000|
|The Greater Bombay Co-operative Bank Ltd.||Rs. 10,000|
Loan from Commercial Banks: Finally, if none of the above listed options work, apply for loan from commercial bank. But make sure you bargain on lowering the EMI and ask for flexi repayment option but without extending the term and with no increase in the interest rate. If you have good relationship with the bank and your case is strong, things will be in your favor. Although this would be loss making for the banks but saving money as much as possible should be your ultimate objective.
So bottom line is – If you want a better financial life, try to avoid taking personal loan or any type of loan as much as possible. And if you do so, try to move out of debt as early as possible. And especially for poor income borrowers, personal loan is more expensive and it really affects your finances badly. So for such individuals, saving money should be the prime objective.