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Hot cakes for lenders

How & when the need for money arises is difficult to predict. You may face shortfall of money for your most urgent need or even for a long cherished desire

Bienu Vaghela

18 Sep 2008

How & when the need for money arises is difficult to predict. You may face shortfall of money for your most urgent need or even for a long cherished desire...

 

The best part is that help is available and lender does not even question you that for what purpose you are going to use the amount. But they make sure that you do not use it for any speculative purpose.

 

The money is available to the borrowers for their needs which may be anything like wedding expenses, educational needs, car purchase, home improvement, travel expenses, medical expenses, jewellery purchase or even your favourite music system etc. Hence it is up to you how to use that money.

The loans can be classified into secured and unsecured loan. Secured loans usually come with a lower rate of interest but you would be required to submit collateral in order to be approved. On the other hand, an unsecured loan may come with higher interest rates but you won't have to submit a security for your loan.

 

Most people prefer to get a secured loan because they are more affordable for their budget. Your choice would really depend on your needs and your capacity to make payments. 

 

Loans can also be defined based on their interest rates. Fixed rate loans may cost slightly higher than floating (variable) rate loans but you can be assured that the amount of your monthly mortgage will not change all through-out your loan's term. Meanwhile, loans with a floating rate of interest may start out real low but they are also bound to change and increase as the Prime Lending Rate (PLR) in the market increases. If you need your payments to stay the same for the life of the loan, then you're better off with a fixed-rate loan.

 

Now that RBI has hiked the repo rate, the short-term borrowing has become expensive for the banks. Accordingly banks are gearing up for passing the high costs to its borrowers. Banks like SBI have already aligned their interest rates. But this does not deter borrowers once they are in urgent need of money.  

 

The best advice here is to clip the expenditure as you cannot control your income but you can certainly contain your expenses. But if it is a desperate requirement then you can check with various banks to get the best deal.

 

In case you are looking at a loan for a very short term and have fixed deposits with banks, then borrowing against the fixed deposits is a cheap and quick source of raising funds.

One can also use postal savings instruments, gold and LIC policies as collateral to the banks. However, you should note that the rate of interest will go up as the 'risk' involved with the instrument goes up.

Banks are inundated with requests for personal loans. It is the hot selling property for them so given in the competition; you can negotiate for good rates. Besides you should also check the lender's policy on lending. Just comparing the interest rates is not enough.     

 

In the meantime explore other options as well. For instance, will a credit card be a more practical choice for your current financial need? Is it really necessary for you to get a loan at this moment? Will you be capable of keeping up with your payments? Make sure that you are ready to take on your obligations as a borrower especially if you're applying for a secured loan. Remember, you can lose your precious collateral you put up for security if you fail to keep up with your lender's repayment terms.

 

This way the borrower gets money for needs that can not be ignored through personal loans which are the choice of millions giving in the consumerism boom witnessed globally.