Recently, many use to get invitations either through calls or SMS that they are offering personal loans up to Rs. 15 Lakhs without any guarantee. While it isn’t possible to give a personal loan without guarantee even for Rs. 50,000; how come such a huge amount without any guarantee? Here is where the personal loan problems start to creep you. Learn to differentiate high risk personal loans carefully.
Problems of High Risk Personal Loans
Most of the banks, especially the new generation banks lay huge interest rates on these personal loans which makes a lot of people to hesitate to take these loans. The banks’ revenue will not rise if they are not offering loans to a certain amount. This is the major reason why bank itself calls you to give out personal loans.
When a bank is ready give you loan, it is very natural for anyone to go for it. Before taking these types of loan, if you are not learning and knowing everything related to the loan processes, you will be at high risk. If you listen to the following points, it will give you a clear idea whether to take or reject a loan.
Look at the Interest Rates of your Personal Loan
Normally, 14 to 22% of interest rates are fixed for these types of loans. To get a personal loan it is enough if you provide proof of residence, identity and income which will get you the loan within a few days. Most of the people get slipped or fooled in the process of calculating the interest rates. One must see whether it is a flat rate of interest or deductable interest upon payment. In the flat rate of interest process, the interest will be calculated for the whole sum of amount for the entire year.
For example, let us assume that a person takes a loan of Rs. 1 lakh at 15% interest rate which he has to repay in three years. If it is flat interest, he has to pay Rs. 4,025 as monthly EMI. This way, the payable interest alone will be of Rs. 45,000 in three years.
In case if it is calculated based on deductable interest rate upon repayment, the interest amount will be calculated from the remaining repayable loan amount deducting the amount that he has paid till date. In this method, the monthly EMI will be just Rs. 3475 which comes to an interest of Rs. 24,800 on whole for all the three years.
Between the above two interest methods, there is a difference of Rs. 20,200, which means you are paying less interest in the deductable rate of interest method.
Can we foreclose a per Loan? Foreclosure Terms and Conditions
Most of the banks will not accept to foreclose a personal loan. If you wish to foreclose the loan in between, the bank manager will lay penalty charges. This penalty amount will be approximately 3.5% from the remaining payable loan amount. The shocking truth is that certain banks charge from 20 to 25% as penalty charge from the remaining payable loan amount.
Only a very few banks accept for a foreclosure of the personal loan after 6 months to 12 months’ time period. The terms and conditions on prior payment (foreclosure) of the loan will be mentioned in the loan agreement and it is must that you go through it carefully before taking a personal loan.
Give the Last Chance for a Personal Loan
Personal loans are availed for your very emergency purposes. If you look at the interest rates, the credit card interest rates are higher than personal loan. Credit card interests are usually between 35-40% per year. On this note, it is better to go for a personal loan instead of credit cards loans. At the same time, house mortgage loan interest rates are between 12.5-15%, interest on gold loan in banks are between 11-14%, loan from insurance policy has interest rates from 10-13%, interest on financial documents are between 12-14% which are all having interest rates less than a personal loan. If you have options to go for any of these above loans, it is advisable to go for it during emergencies than ending up paying high interests for your personal loan.
Just because you are offered with a personal loan without guarantee, you cannot go blindly without considering the high risks in personal loans. Considering all the above factors, it is good to give the last preference to go for a personal loan.