Looking to take a personal loan? Don't! This is because personal loans in India are one of the most expensive loans. They also come with heavy pre-payment charges and also an insurance component, the premium of which has to be borne by the applicant. These loans also could have pre-payment charges that are as high as 4 per cent.
1) Take a loan against fixed deposit
If you have a fixed deposit, it is better to take a loan against the same. Mostly, banks charge 1 per cent higher interest rate, than the contracted rate on your fixed deposit. So, if your fixed deposit presently gives you an interest rate of 8 per cent, the bank will charge you nine per cent. It could also be marginally higher in some cases, but, do not expect it to go higher than personal loans.
Now, a personal loan comes with an interest rate of 13-24 per cent depending on your credit worthiness. Even it comes to a bare minimum of 13 per cent, it is exorbitant. So, it should only be an option after considering various other loans including a loan against a fixed deposit.
Expect to get around 80 per cent of the deposit amount as a loan. It may also include the interest accrued component.
2) Loan against shares
Loan against shares could come at an interest rate of around 10-11 per cent depending on the bank. The one thing to note is that wherever there is a collateral, the rate of interest rate is lower. For example, here you are pledging your shares. In the above case you were pledging your fixed deposits.
3) Loan against PPF
You could also avail a loan against your PPF account. Here you need to complete at least three years, after which you can apply for a loan. The PPF loan is around 2 per cent higher than the contracted interest rate earned on a PPF. So, at the moment, PPF attracts a rate of interest of around 8.7 per cent. So, you would be charged an interest rate of 10.7 per cent. This is way better than the interest rate on personal loans in India.
4) Gold loan
Gold loan interest rates are pretty much comparable to personal loan interest rates, though they could be marginally lower. The processing time is faster than personal loans, which makes them preferable.
5) Home loans top-up
In case there is a need for further loans for your home, you should top-up your home loan and not take a personal loans. Home loans also comes with tax benefits on the interest and the principal amount.
There are several disadvantages of a personal loan. One is that the insurance premium charges are borne by the holder. Some banks charge as much as 4 per cent as pre-payment charges on outstanding loans. The interest rates are the highest after credit card outstanding interest rates.
This makes these loans horribly expensive. So, it should be the last option for individuals, who should consider other set of loans first.