Financial emergencies come unannounced and give very little time to arrange funds to deal with it. While your emergency fund is supposed to support you from such exigencies, even that might fall short at times. The only option left then is to avail loans.
Here are certain checkpoints to help you avail the optimum loan option in terms of cost and swift access:
Loan amount
The loan amount will primarily depend on your income, tenure, the loan type and the value of the collaterals submitted if any. For example, the loan amount in case of a regular loan against a credit card will just be a proportion of your sanctioned credit limit.
However, many credit card issuers have started offering loans over and above your credit limit. The loan amount in case of regular personal loans can range between Rs 50,000 and Rs 10 lakh, depending on your repayment capacity.
Processing time
As financial emergencies require quick access to funds, loans requiring longer turnaround time for disbursals may not prove to be much useful. A personal loan has the quickest processing and disbursal among the various credit options.
However, some lenders claim to disburse personal loans within the same day of application.
Top-up loans take a bit longer due to their complex documentation process. However, some lenders have started offering pre-approved top-up home loans claiming quick disbursals within the same day of the loan application.
Interest rate
The interest rates of your financing options will primarily depend on the type of loan you opt for and your credit profile. Usually, secured loans have lower interest rates than the unsecured ones. Similarly, those with a good credit score and employed with reputed corporates have higher chances of availing loans at lower interest rates.
Personal loans usually come at a lower interest rate than loans against credit cards for the same credit profile. Gold loans, being a secured loan option, usually costs lower than the personal loans and loans against credit cards.
Processing fees
While processing charges of personal loans can range between 2-3 percent of the loan amount, many lenders tend to waive it off during festive seasons or for select customer segments. For credit holders eligible to avail loan against a credit card, the processing fee usually goes up to 2 percent of the loan amount.
Compare the processing charges while selecting the loan option as these charges in many cases can cost a substantial amount of the loan amount. Ensure to add the processing fee to interest costs to derive the total cost of the loan option.
Loan tenure
The tenure of your loan plays a major role in determining your EMI and overall interest cost. Longer tenure would mean lower EMI but would lead to higher interest cost and vice versa. Personal loans and loan against credit cards usually come with loan tenures of 1-5 years.
A few banks and NBFCs also offer personal loans for longer tenures of up to 5 years. Choose your loan tenure primarily on the basis of your repayment capacity as any default in these loans would cost you hefty penal charges while reducing your credit score and future loan eligibility. Also, factor in your monthly contributions to crucial financial goals as ignoring them might force you to avail of a costly loan option.
Choose your credit option primarily on the basis of their processing turnaround time, your repayment capacity, overall credit cost and your funding requirements. Opt for credit card loan or gold loan if you require a lower loan amount and you are sure of paying it off within 3-12 months.
One must opt for an instant personal loan as it costs lower than credit card loan and offers longer tenures.
