How to deal with high interest rates on personal loans
Demand for this specialty has grown significantly as a result of recent corporate scandals. A recent report by CRIF High Mark (a credit information bureau) states that the origin (volume) of personal loans has increased by 4X from 39.9 million accounts in FY19 to 158.1 million accounts in FY22.
Gaurab Chopra, CEO and founder of Indialands, says, “Borrowers opt for personal loans for weddings, travel, business, medical emergencies, etc. However, they should be aware of the ‘most important terms’ including interest rates, processing fees, payment policy, duration, etc. The borrower must understand and consider the issues mentioned before applying for a personal loan. “
Impact for borrowers: The RBI’s recent move to raise the repo rate by 40 basis points will increase the interest rate on personal loans, Chopra said. A borrower will now land on a 3-year loan at 0.6 percent higher interest.
Dealing with high interest rates: As banks begin offering higher interest rates to customers, experts say it is important for borrowers to buy new stocks for their financial condition. “In the event, any customer unable to bear the higher EMI amount, the borrower can request an extension. In the event a borrower chooses to pay for the balloon, it will help the borrower to make more frequent payments, as lower policy will attract higher interest rates, ”Chopra explained.
Finally, for new borrowers, if the higher EMI exceeds their repayment threshold, it is advisable to re-evaluate the loan requirements and borrow only what is needed. “Under no circumstances should borrowers miss or delay their payments, as this could double the charges and impaired credit score,” he added.
There are a few other ways to get a loan, such as secured loans that usually attract low interest rates, which one can explore;
Employee Provident Fund (EPFO): A loan applicant who has an EPF account can opt for a loan up to 90% of the total deposit amount.
Public Provident Fund (PPF): As a long term savings instrument of the Government of India, a loan applicant can take a loan against PPF from the third financial year to the fifth year after opening an account.
Gold: Chopra noted, “It can be mortgaged as collateral and can be great as an alternative to unsecured personal loans. Interestingly, this is a way that does not require a good credit score. “The amount of debt depends on the amount of gold.
Property: It is easy to get a loan against any property. Property loans can be obtained up to a maximum of 80 percent. Note that over time, as the value of the property increases, so does the value of the property.
Fixed Deposit: Fixed deposit accounts can be easily used to get a loan up to 90% of the FD amount.
Insurance: A loan can be taken by the user as opposed to life insurance but the interest rate is fixed at 10.50 percent to 12.50 percent.
Mutual Funds: Mutual funds can be used to get loans. An agreement is made where the financier lends to the purchased unit.
“Although there are multiple options for getting a personal loan, each option has its own advantages and disadvantages. The loan applicant has to understand his needs and choose wisely, ”Chopra concluded.
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