Personal loans are the most expensive set of loans in India. They come with various charges, which only increases the cost to the borrower. At the moment various banks and financial institutions provide personal loans in India.
Insurance premium charges
Personal loans comes with an insurance premium which has to be borne by the loan applicant. The insurance premium can vary between companies and banks. Banks tend to charge a lower insurance premium. For example, on a loan of Rs 4 lakhs, one leading private sector banks charges an insurance premium of Rs 4000 plus for the loan tenure of 3 years. This is a lump sum and is built into the personal loan that an individual takes.
In the event of death of the loan applicant the bank or the concerned financial institution recovers the money from the insurance company.
Personal loans comes with pre-payment charges. However, some institutions like Bajaj Finserv at the moment do not have any foreclosure charges. For many banks these charges can be as high as 4 per cent, depending on the tenure of the loan. However, with the passage of time there can also be a reduction in these loans. For example, if only 1 year of the loan re-payment remains, the bank may charge a pre-payment charge of just 2 per cent of the outstanding loan amount.
Interest rates on personal loans can really vary. Some banks charge an interest rates of as much as 24 per cent, while it could go lower to as low as 12 per cent. Now, why would interest rates differ? If your company has an account with a particular bank and your salary is being transferred to that bank, you might get lower interest rates, because of a corporate account.
Processing charges on personal varies. Some banks or institutions may waive off the processing fees on personal loans. For example, at the moment Standard Chartered Bank does not have any processing charges on the personal loans. However, it does charge a higher amount as pre-closure charges.
Personal loans are not the best loans to avail in times of crisis. They come with extremely high interest rates and a host of other charges. It is best to seek loans from alternate sources of funding like loans against shares, loans against gold etc. These would be cheaper and some of these could be really quick