Bank officials of Dutch lender ABN AMRO Bank NV, a part of Royal Bank of Scotland NV has informed that, bank is withdrawing its personal loan and credit card services in India and will be focusing only on retail deposits, wealth management, and corporate banking.
In view of this many employees working in credit card and personal loan segments have been asked to leave. Earlier in the beginning of the current fiscal, around 2,850 people were hired by the consumer banking team of the bank, which has 31 branched on India, but at present around 500 of them have left.
An anonymous executive at ABN AMRO Bank told, “The book size of the consumer finance division has almost been halved—from Rs2, 300 crore to Rs1, 200 crore. The plan is to shrink it to around Rs190 crore.”
In 2007 as part of a global acquisition the Indian operations were sold to Royal Bank of Scotland in the year ended 31 March, 2009 had posted a 93% decline in profit to Rs Rs19.39 crore, from Rs280.99 crore in the previous fiscal.
RBS in order to raise funds is selling off businesses chosen as non-core in select markets. Bank sources said it will continue to expand ABN AMRO corporate and wholesale banking activities.
RBS spokesperson in an email response to queries sent by Mint stated, “As part of our regular review of the products and services we provide, in line with many other banks in India, we made a decision earlier this year to discontinue the issuance of fresh credit card or unsecured loans.”
“We continue to maintain our service for existing card and loan customers and remain focused on the branch banking and wealth management businesses in the retail arm of the bank.”
However in February 2009, RBS had announced that it will be shifting to India retail and commercial banking operations, having 2,500 employees, into a for-sale, non-core division. RBS is getting advice from Morgan Stanley on the sale.
There have been rumors that sale to HSBC Holdings Plc, Europe’s largest lender might not get through. But Malini Thadani a spokesperson for HSBC India, refused to “comment on rumors”.
The RBS spokesperson said, “RBS is in ongoing discussions for the remaining retail and SME (small and medium enterprise) assets it has decided to sell in Asia and we will not be making any further comment at this stage.”
This is the third time the UK-based bank is trying to sell its consumer banking assets in Asia including India.
Recently RBS has been holding talks with Standard Chartered Plc and Australia and New Zealand Banking Group Ltd (ANZ) for the sale of its Asian consume banking assets.
But Standard Chartered Bank had walked out of the deal due to bad asset quality and high valuation. Also ANZ is not going to finalize the deal of the Asian consumer banking assets of RBS, including those in India, on the basis of commercial and regulatory uncertainties.
Although ANZ has acquired the retail and commercial banking operations of RBS in Taiwan, Singapore, Indonesia and Hong Kong for around $550 million (Rs2,558 crore). It has also attained the onshore global banking and markets (GBM) and global transaction services (GTS) operations in the Philippines, Vietnam and Taiwan (excluding securities).
Moreover last year bank’s consumer banking operation, which was put on sale reported an operating loss of Rs230.77 crore.
Before this it had made profit of Rs38.99 crore. In the previous year the provisions for non-performing loans, or the money set aside for sticky assets, had risen to Rs335.92 crore which was almost nine times the amount that the bank had provided for in the previous year.
The fiscal year 2009 was not a good year for foreign banks in India, as slowing economy had led to rise in non-performing loans. But no other foreign banks had seen a dip in profit.
Standard Chartered Bank’s India operations had registered 12% growth in net profit; HSBC’s net profit had risen to 8%; while the Indian arms of Citibank NA and Barclays Bank Plc had reported a growth of 20% and 485%, respectively.
Friday, February 26, 2010
Thursday, February 4, 2010
Penalties for pre-paying loans might be banned if banks found guilty
According to report of the acting Director General of the Competition Commission of India, the competition watchdog in India banks – both public and private sectors are working as “cartel” by charging penalty from the customers for pre-paying loans.
In view of this, Commission has issued notices to around 20 banks including big players such as the State Bank of India, Punjab National Bank, ICICI Bank and HDFC among others. The final decision will be taken by the regulator after it receives replies from the banks. On the other hand banks are consulting law firms to get legal view on the issue.
According to the sources closely related to the investigation, banks are charging prepayment penalties to “limit competition or not to have extensive competition and also to discipline customers so that they don’t switch banks at a slight drop in interest rate”. On the other hand banks say pre-payment leads to asset-liability mismatches having a cost attached to it.
The sources added, “The banks have been acting in collusion and charging customers for pre-payment of loan. They decided to charge the interest after a meeting of the Indian Bank Association (IBA) in 2003 where it was decided that all banks would enhance fee-based income and charge customers for paying the loan earlier than the due date. They decided to charge the customers uniformly so that they don’t switch loyalties when interest rates drop”.
However banks charge interest on pre-payment of loan even before the IBA meeting, after meeting the system was formalized and became more organized. The sources said, “This is an anti-competitive behavior and in violation of Section 3 of the Competition Act, which deals with anti-competitive agreements.”
But after the IBA meeting the decision was circulated internally, which is also in violation of the Reserve Bank of India’s guideline.
The sources pointed out that RBI does not support such practices and it has given clear instructions that banks should not levy “usurious charges” and should not have “income without earning”. The RBI has clearly stated that banks must maintain transparency in case of charges and should not charge fee-based income, the source said. Buts the banks are not following guideline of both the RBI and the Competition Act.
Last year the Competition Commission of India (CCI) had received a complaint from the customers regarding the penalty charges imposed by the banks on pre-payment of loans. However the pre-payment penalties are being charged by the banks in order to discourage customers from retiring debt before the scheduled date and also to stop them from switching banks to take advantage of more competitive rates offered by rivals.
In case the Commission finds the banks guilty, the penalty on pre-payment of loans might be banned across the industry, the sources informed. This move of Commission will bring relief to many home loan borrowers who have little choice but to pay pre-payment penalty or stay on with their existing banks even though they have to pay a higher interest rate on their loans.
In view of this, Commission has issued notices to around 20 banks including big players such as the State Bank of India, Punjab National Bank, ICICI Bank and HDFC among others. The final decision will be taken by the regulator after it receives replies from the banks. On the other hand banks are consulting law firms to get legal view on the issue.
According to the sources closely related to the investigation, banks are charging prepayment penalties to “limit competition or not to have extensive competition and also to discipline customers so that they don’t switch banks at a slight drop in interest rate”. On the other hand banks say pre-payment leads to asset-liability mismatches having a cost attached to it.
The sources added, “The banks have been acting in collusion and charging customers for pre-payment of loan. They decided to charge the interest after a meeting of the Indian Bank Association (IBA) in 2003 where it was decided that all banks would enhance fee-based income and charge customers for paying the loan earlier than the due date. They decided to charge the customers uniformly so that they don’t switch loyalties when interest rates drop”.
However banks charge interest on pre-payment of loan even before the IBA meeting, after meeting the system was formalized and became more organized. The sources said, “This is an anti-competitive behavior and in violation of Section 3 of the Competition Act, which deals with anti-competitive agreements.”
But after the IBA meeting the decision was circulated internally, which is also in violation of the Reserve Bank of India’s guideline.
The sources pointed out that RBI does not support such practices and it has given clear instructions that banks should not levy “usurious charges” and should not have “income without earning”. The RBI has clearly stated that banks must maintain transparency in case of charges and should not charge fee-based income, the source said. Buts the banks are not following guideline of both the RBI and the Competition Act.
Last year the Competition Commission of India (CCI) had received a complaint from the customers regarding the penalty charges imposed by the banks on pre-payment of loans. However the pre-payment penalties are being charged by the banks in order to discourage customers from retiring debt before the scheduled date and also to stop them from switching banks to take advantage of more competitive rates offered by rivals.
In case the Commission finds the banks guilty, the penalty on pre-payment of loans might be banned across the industry, the sources informed. This move of Commission will bring relief to many home loan borrowers who have little choice but to pay pre-payment penalty or stay on with their existing banks even though they have to pay a higher interest rate on their loans.
Monday, November 23, 2009
Public sector banks to go easy on personal loans
Public sector banks are going easy on personal loans, good news for people are in need of money can apply for personal loan. Earlier PSBs were abstaining from giving personal loans but now they are loosening the strings on personal loans.
Mr J.P. Dua, Executive Director, Allahabad Bank, told Business Line, “Personal loans are again becoming a significant segment of retail portfolio. In fact, it is time the public sector banks occupied the space vacated by private sector majors such as ICICI Bank”.
On the other hand, till last year private banks, were going aggressive on personal loans lending but now they are getting cautious due to high default rate. They are not focusing much on retail.
For instance ICICI Bank largest private sector bank retail portfolio has decreased to Rs 86,400 crore by September 2009 as against Rs 1,22,500 crore a year ago.
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, informed, “In our retail growth, personal loans too are a part. We are offering them along with other products such as gold loans.”
A senior official of State Bank of Hyderabad pointed out the PSBs are charging relatively low interest in order to attract loan seekers.
He stated, “Generally, the interest on personal loans is about 200 basis points more than prime lending rate. This is much lower that charged by private banks and non-banking finance companies”.
However private banks and NBFCs are charging between 16 and 24 per cent, for the loan amount ranging between Rs 50,000 and Rs 2 lakh which is to be repaid in 24-36 months.
A senior SBI official informed, personal loan is being looked as a ‘good’ segment and it is not reluctant’ to expand advances.
Also low credit off take in other sectors (such as corporate lending) is responsible for increased interest in personal loans.
As per RBI data, this fiscal (till October) the bank credit had grown by 4.5 per cent as compared to 12.1 per cent last year. While on a year-on-year basis, it had grown 9.5 per cent as against 28 per cent last year.
The main aim is to tap existing customers. Mr Dua said, “This approach keeps our portfolio healthy.”
According to Mr Reddy, “Catering to the needs of our customers alone can be generating good business”.
SBI country’s largest public sector will be considering the loan on a case-to-case basis for salaried categories even though they are not bank’s customers.
During the diligence process some of the other parameters that are taken into consideration are clean credit history, salary credit into a bank account and high disposable income.
Mr J.P. Dua, Executive Director, Allahabad Bank, told Business Line, “Personal loans are again becoming a significant segment of retail portfolio. In fact, it is time the public sector banks occupied the space vacated by private sector majors such as ICICI Bank”.
On the other hand, till last year private banks, were going aggressive on personal loans lending but now they are getting cautious due to high default rate. They are not focusing much on retail.
For instance ICICI Bank largest private sector bank retail portfolio has decreased to Rs 86,400 crore by September 2009 as against Rs 1,22,500 crore a year ago.
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, informed, “In our retail growth, personal loans too are a part. We are offering them along with other products such as gold loans.”
A senior official of State Bank of Hyderabad pointed out the PSBs are charging relatively low interest in order to attract loan seekers.
He stated, “Generally, the interest on personal loans is about 200 basis points more than prime lending rate. This is much lower that charged by private banks and non-banking finance companies”.
However private banks and NBFCs are charging between 16 and 24 per cent, for the loan amount ranging between Rs 50,000 and Rs 2 lakh which is to be repaid in 24-36 months.
A senior SBI official informed, personal loan is being looked as a ‘good’ segment and it is not reluctant’ to expand advances.
Also low credit off take in other sectors (such as corporate lending) is responsible for increased interest in personal loans.
As per RBI data, this fiscal (till October) the bank credit had grown by 4.5 per cent as compared to 12.1 per cent last year. While on a year-on-year basis, it had grown 9.5 per cent as against 28 per cent last year.
The main aim is to tap existing customers. Mr Dua said, “This approach keeps our portfolio healthy.”
According to Mr Reddy, “Catering to the needs of our customers alone can be generating good business”.
SBI country’s largest public sector will be considering the loan on a case-to-case basis for salaried categories even though they are not bank’s customers.
During the diligence process some of the other parameters that are taken into consideration are clean credit history, salary credit into a bank account and high disposable income.
Wednesday, September 2, 2009
Fulfill pre-conditions to take Personal loans
To get a personal loan one has to fulfill pre-conditions such as a professional degree, a salary account or being an existing customer. Earlier personal loans were classified as unsecured loans but now this concept has changed and now these loans are linked to an existing relationship with a bank. Generally banks for sanction of these loans, ask for a salary account and the loan is linked to the monthly salary which show the cash flow of the borrower.
Private Banks have now started focusing on the salaried class or in-house customers similar to the public sector banks, to upsurge their unsecured loan portfolios. Before this private banks used to sanction these loans did not ask for collaterals in case the individual had a good credit history. Borrowers’ salary slip was enough to get a loan. But now banks are checking the customers’ financial status, work experience and about the company where the borrower is employed. According private bankers, “A customer could take a loan on the strength of a good credit history and use it to have multiple loans from various banks. These kinds of loans are getting weeded out”.
After the tightening of norms, the private banks such as ICICI Bank, HDFC Bank and Kotak Mahindra reduced their lending rates to about 15-18 per cent. The industry sources informed some of the banks used to charge 25 per cent or more on such loans before the tightening of norms. The interest rate varied for different customers.
Kamlesh Rao, executive vice-president of Kotak Mahindra Bank pointed out, “Because of rising defaults, private banks are going slow on granting unsecured loans, particularly those based on credit history. All of them have become extremely cautious.” “These loans are less than 2 per cent of our portfolio of unsecured loans.”
Kotak Mahindra Bank’s preferred customers for these loans are self-employed traders and salaried people who on average apply for loan size of Rs 7.5 lakh. The bank unsecured loan book amount to Rs 1,300 crore.
Bank’s loan division informed earlier Citibank used to be liberal in sanctioning unsecured loans, now the bank has put pre-conditions such as professional degree, preferably an MBA, engineering degree, or be a chartered accountant, according to the bank’s loan division. In case the borrower has an account or credit card with the bank, then bank give preference to these borrowers.
On the other hand it is not mandatory to have a salary account for HDFC Bank, but in-house customers are preferred. The bank charges high pre-payment penalty of 4 per cent on outstanding loan. Till last year ICICI Bank was the one to sanction maximum number of personal loans, has now stopped giving small-ticket unsecured loans. By the end of the first quarter bank unsecured loan book amounted to Rs 768 crore. At present bank is busy in rebalancing its funding profile before it starts working on building its growth.
The public sector banks on the other hand are expanding their personal loans portfolios aggressively by giving loans to only those customers having salary accounts with them. The public sector banks are following the cash flow-based model in which the salary is attached to the loan account and the due payment is deducted directly from the salary account every month.
The State Bank of India country’s largest lender is offering loans at 12.5-15.5 per cent to the borrowers who have salary accounts with the bank. An official of the bank told, “Our delinquency rates are very low as we base it on this model.”
SBI is having a personal loan portfolio of Rs 37,538 crore after a 16 per cent growth since last year. Bank is focusing on existing customers and the well off segment.
Private Banks have now started focusing on the salaried class or in-house customers similar to the public sector banks, to upsurge their unsecured loan portfolios. Before this private banks used to sanction these loans did not ask for collaterals in case the individual had a good credit history. Borrowers’ salary slip was enough to get a loan. But now banks are checking the customers’ financial status, work experience and about the company where the borrower is employed. According private bankers, “A customer could take a loan on the strength of a good credit history and use it to have multiple loans from various banks. These kinds of loans are getting weeded out”.
After the tightening of norms, the private banks such as ICICI Bank, HDFC Bank and Kotak Mahindra reduced their lending rates to about 15-18 per cent. The industry sources informed some of the banks used to charge 25 per cent or more on such loans before the tightening of norms. The interest rate varied for different customers.
Kamlesh Rao, executive vice-president of Kotak Mahindra Bank pointed out, “Because of rising defaults, private banks are going slow on granting unsecured loans, particularly those based on credit history. All of them have become extremely cautious.” “These loans are less than 2 per cent of our portfolio of unsecured loans.”
Kotak Mahindra Bank’s preferred customers for these loans are self-employed traders and salaried people who on average apply for loan size of Rs 7.5 lakh. The bank unsecured loan book amount to Rs 1,300 crore.
Bank’s loan division informed earlier Citibank used to be liberal in sanctioning unsecured loans, now the bank has put pre-conditions such as professional degree, preferably an MBA, engineering degree, or be a chartered accountant, according to the bank’s loan division. In case the borrower has an account or credit card with the bank, then bank give preference to these borrowers.
On the other hand it is not mandatory to have a salary account for HDFC Bank, but in-house customers are preferred. The bank charges high pre-payment penalty of 4 per cent on outstanding loan. Till last year ICICI Bank was the one to sanction maximum number of personal loans, has now stopped giving small-ticket unsecured loans. By the end of the first quarter bank unsecured loan book amounted to Rs 768 crore. At present bank is busy in rebalancing its funding profile before it starts working on building its growth.
The public sector banks on the other hand are expanding their personal loans portfolios aggressively by giving loans to only those customers having salary accounts with them. The public sector banks are following the cash flow-based model in which the salary is attached to the loan account and the due payment is deducted directly from the salary account every month.
The State Bank of India country’s largest lender is offering loans at 12.5-15.5 per cent to the borrowers who have salary accounts with the bank. An official of the bank told, “Our delinquency rates are very low as we base it on this model.”
SBI is having a personal loan portfolio of Rs 37,538 crore after a 16 per cent growth since last year. Bank is focusing on existing customers and the well off segment.
Friday, July 31, 2009
Personal loan figures are lowest amongst various loan segments
The Reserve bank of India (RBI) has released a data according to this industry and agriculture sectors have absorbed a larger amount of the total gross bank credit while in the personal loan segment it is limited also home loans and credit cards has shown decline.
The figure of loans given to the real estate sector is high as it includes all the loans given to the development of hospitals, educational institutes, hotels and commercial finance. The real estate industry has absorbed 47.4% of the total bank credit against 43.2 per cent a year ago.
On the other hand personal loans, such as housing, credit card outstanding, education, consumer durables, and advances against fixed deposits amounted to 7.6 per cent of the incremental non-food credit therefore shows limited lending in this segment. By the end of May, the total amount of personal loans has declined to Rs 29,266 crore as against Rs 72,777 crore a year ago.
According to M Narendra, executive director, Bank of India, “Credit absorption by infrastructure companies have been encouraging, we expect other segments to fall in line with the busy season in the second half. With the economic conditions improving and interest rates going down substantially, housing should see a revival this year. In fact, home loans have started improving, but credit cards are down as banks are cutting back on their losses”.
Steep rise in real estate prices in metros is also responsible for the dull demand home loan segment. By the end of May home loans stood at Rs 13,028 crore, whereas total home loans at the end of May 2008 amounted to Rs 31,735 crore. There was decline in the credit card outstanding by May-end which had come down to Rs 381 crore as against Rs 7,116 crore in the corresponding period a year ago.
However the education loans showed a substantial growth with the total outstanding of up to Rs 7,338 crore by the end of May 2008 from Rs 5,914 crore a year ago, the reason being most of the banks especially the public sector banks had aggressively increased their portfolios.
A decline was seen in the negative growth in consumer durable loans of up to Rs 300 crore at May-end as against Rs 534 crore at the end of May last year.
RK Bakshi, executive director, retail, Bank of Baroda explained, “The growth in credit deployment was lower in 2008-09 because of the economic slowdown in the normally busy season of second half of the year”. In fact the growth in loans to the commercial real estate, continued to be high. In May 22 the loans to the real estate sector had risen to Rs 32,321 crore from Rs 17,018 crore at the end of May 2008.
The figure of loans given to the real estate sector is high as it includes all the loans given to the development of hospitals, educational institutes, hotels and commercial finance. The real estate industry has absorbed 47.4% of the total bank credit against 43.2 per cent a year ago.
On the other hand personal loans, such as housing, credit card outstanding, education, consumer durables, and advances against fixed deposits amounted to 7.6 per cent of the incremental non-food credit therefore shows limited lending in this segment. By the end of May, the total amount of personal loans has declined to Rs 29,266 crore as against Rs 72,777 crore a year ago.
According to M Narendra, executive director, Bank of India, “Credit absorption by infrastructure companies have been encouraging, we expect other segments to fall in line with the busy season in the second half. With the economic conditions improving and interest rates going down substantially, housing should see a revival this year. In fact, home loans have started improving, but credit cards are down as banks are cutting back on their losses”.
Steep rise in real estate prices in metros is also responsible for the dull demand home loan segment. By the end of May home loans stood at Rs 13,028 crore, whereas total home loans at the end of May 2008 amounted to Rs 31,735 crore. There was decline in the credit card outstanding by May-end which had come down to Rs 381 crore as against Rs 7,116 crore in the corresponding period a year ago.
However the education loans showed a substantial growth with the total outstanding of up to Rs 7,338 crore by the end of May 2008 from Rs 5,914 crore a year ago, the reason being most of the banks especially the public sector banks had aggressively increased their portfolios.
A decline was seen in the negative growth in consumer durable loans of up to Rs 300 crore at May-end as against Rs 534 crore at the end of May last year.
RK Bakshi, executive director, retail, Bank of Baroda explained, “The growth in credit deployment was lower in 2008-09 because of the economic slowdown in the normally busy season of second half of the year”. In fact the growth in loans to the commercial real estate, continued to be high. In May 22 the loans to the real estate sector had risen to Rs 32,321 crore from Rs 17,018 crore at the end of May 2008.
Monday, July 27, 2009
Loans are good or bad?
Most of us have taken loan but we don’t know how to classify the loans whether it is good or bad?
A loan which adds to your earning capacity or taken for increasing productive skills then it can be classified as good loan. In case a loan is taken to meet some emergency must not be classified because it is must it cannot be good or bad.
For classification of loan the purpose for which it is being taken is important. Therefore the other deciding factor is the cost.
The cost effectiveness of the loan is related to the purpose for which you are taking loan. The education loan taken for higher studies or the student is from poor family and cannot continue his school; this loan is classified as good because this will generate significant earning capacity in relation to their cost and are available at a low interest rate. On these loans there is tax reduction facility which reduces the post tax of the loan.
The second purpose can be loan taken to fund the cost of your own residence such as renovation or adding a floor. Usually the price of this asset increases in value and will be the source of pension income or retirement by means of reverse mortgage.
The third purpose can be to buy a vehicle reasonably priced. This can add up in your productivity which is getting low because of the bad condition of public transportation in most of the cities in India.
Another reason for taking loan can be for funding expensive/luxury consumer items. With the booming of malls there has been increase in the usage of plastic money which means more and more swipe giving rise to more and more debt.
Then the credit cards having high debt for longer duration can land you in a financial crisis. Thus the loan against credit card should not be more than 30-45 days, as bank charge high interest on this.
Some people take loan for tentative purposes such as for investment in stock market. This is not right this can put you in miserable situation. Whenever there is set back in the share market you might face a great loss, such situation came in the last fiscal year when there was global economic crisis.
Hence before taking loan keep in mind these points which can help you in taking the right decision.
A loan which adds to your earning capacity or taken for increasing productive skills then it can be classified as good loan. In case a loan is taken to meet some emergency must not be classified because it is must it cannot be good or bad.
For classification of loan the purpose for which it is being taken is important. Therefore the other deciding factor is the cost.
The cost effectiveness of the loan is related to the purpose for which you are taking loan. The education loan taken for higher studies or the student is from poor family and cannot continue his school; this loan is classified as good because this will generate significant earning capacity in relation to their cost and are available at a low interest rate. On these loans there is tax reduction facility which reduces the post tax of the loan.
The second purpose can be loan taken to fund the cost of your own residence such as renovation or adding a floor. Usually the price of this asset increases in value and will be the source of pension income or retirement by means of reverse mortgage.
The third purpose can be to buy a vehicle reasonably priced. This can add up in your productivity which is getting low because of the bad condition of public transportation in most of the cities in India.
Another reason for taking loan can be for funding expensive/luxury consumer items. With the booming of malls there has been increase in the usage of plastic money which means more and more swipe giving rise to more and more debt.
Then the credit cards having high debt for longer duration can land you in a financial crisis. Thus the loan against credit card should not be more than 30-45 days, as bank charge high interest on this.
Some people take loan for tentative purposes such as for investment in stock market. This is not right this can put you in miserable situation. Whenever there is set back in the share market you might face a great loss, such situation came in the last fiscal year when there was global economic crisis.
Hence before taking loan keep in mind these points which can help you in taking the right decision.
Friday, July 24, 2009
Personal loan ideal for short term need
Personal loan is a unsecured loan and can be taken for certain purposes such as for renovation of house, to meet medical expenses, foreign travel, marriage expenses, purchasing consumer durables, higher education etc. But personal loan has set of advantages and disadvantages attached to it. The main advantage of a personal loan is the flexibility as it can be used for any purpose. Even the application process is comparatively simple with minimal documentation requirements. As the loan is unsecured thus there is no need for any kind of security or guarantor.
Although it appears to be good but these loans are quite difficult to acquire exclusively as these are unsecured. To get this loan the eligibility criteria depends upon the applicant’s income credit history with regard to any other loans and repayment capacity. The interest rates offered on these loans can vary between 15-25 percent depending on the credit profile, income level, and nature of employment of an applicant. If bank find a higher risk in lending to an applicant it might not sanction the loan or charge a high interest rate together with additional security in the form of a personal guarantee.
The loan amount to be sanctioned generally depends on personal income along with other factors like age, profession, education and repayment capability if any other loans have been taken etc. All these factors are also taken into consideration for setting the interest rates. For instance the interest rate might be lower for a person working with a reputed firm as compared to a self-employed person. The tenure for repayment of loan is normally between 12 and 60 months. Generally these loans are not sanctioned for more than five years.
The EMIs are calculated for the repayment of the loan and if a person wants to do prepayment of loan a penalty is charged. The processing fee might be calculated as a percentage of the loan amount for the documentation and verification formalities. Before signing on dotted lines one must study terms carefully whether there are any additional charges or penalties.
Some banks might set flat rates for personal loans. Apparently the rates might look lower than even the current home loan rates. But in actual the flat rate do not reflects the actual cost of the loan. Indeed the effective rate is much higher. It is included in the EMI and person pays it on a reducing balance basis. For instance a loan of Rs 1 lakh figured out at a flat rate of 12 percent with an EMI of Rs 3,800 for 36 months in fact is worked out to an effective interest rate of 22%.
Approximately the total interest of Rs 36,800 works out to a yearly interest of Rs 12,226 and in the same way the rate of 12 percent is quoted. This will be correct in case a person is paying onetime interest at the end of the tenure of the loan. EMIs are calculated from the first month on the principal outstanding, the interest is normally charged at 22%. Therefore check for flat rates of interest carefully and always choose for reducing balance rates. The right approach would be to take loan when there is dire need to do so. Although personal loans are easy to get but one should not burden him unnecessarily with high interest debt without a convincing reason.
Although it appears to be good but these loans are quite difficult to acquire exclusively as these are unsecured. To get this loan the eligibility criteria depends upon the applicant’s income credit history with regard to any other loans and repayment capacity. The interest rates offered on these loans can vary between 15-25 percent depending on the credit profile, income level, and nature of employment of an applicant. If bank find a higher risk in lending to an applicant it might not sanction the loan or charge a high interest rate together with additional security in the form of a personal guarantee.
The loan amount to be sanctioned generally depends on personal income along with other factors like age, profession, education and repayment capability if any other loans have been taken etc. All these factors are also taken into consideration for setting the interest rates. For instance the interest rate might be lower for a person working with a reputed firm as compared to a self-employed person. The tenure for repayment of loan is normally between 12 and 60 months. Generally these loans are not sanctioned for more than five years.
The EMIs are calculated for the repayment of the loan and if a person wants to do prepayment of loan a penalty is charged. The processing fee might be calculated as a percentage of the loan amount for the documentation and verification formalities. Before signing on dotted lines one must study terms carefully whether there are any additional charges or penalties.
Some banks might set flat rates for personal loans. Apparently the rates might look lower than even the current home loan rates. But in actual the flat rate do not reflects the actual cost of the loan. Indeed the effective rate is much higher. It is included in the EMI and person pays it on a reducing balance basis. For instance a loan of Rs 1 lakh figured out at a flat rate of 12 percent with an EMI of Rs 3,800 for 36 months in fact is worked out to an effective interest rate of 22%.
Approximately the total interest of Rs 36,800 works out to a yearly interest of Rs 12,226 and in the same way the rate of 12 percent is quoted. This will be correct in case a person is paying onetime interest at the end of the tenure of the loan. EMIs are calculated from the first month on the principal outstanding, the interest is normally charged at 22%. Therefore check for flat rates of interest carefully and always choose for reducing balance rates. The right approach would be to take loan when there is dire need to do so. Although personal loans are easy to get but one should not burden him unnecessarily with high interest debt without a convincing reason.
Subscribe to:
Posts (Atom)
