Cushion of personal loan

Always apply for the amount which is unavoidable

Sajad Bazaz
Srinagar, Publish Date: Apr 18 2018 11:44PM | Updated Date: Apr 18 2018 11:44PM
Cushion of personal loan

We are in the middle of April and first phase of the wedding season here in Kashmir is already underway.  Most of the brides and grooms-to-be would be busy shopping and preparing themselves for their big day. Almost all of them work towards getting in good shape in all respects before their marriage.

But all preparations for the wedding day depends upon the financial cushion one should have to make this a memorable day. So, the big question is: are you financially in good shape?

Why I am getting into wedding season in today's column is obviously the need to have sufficient funds available to make the wedding a life-time event. Basically, one of my acquaintances referred a young man to seek guidance for obtaining financial assistance from the bank. Actually he wanted  his  weddings arrangements to be perfect. The young man, conscious of his financial health, was aware about certain loan schemes. However, he  was looking for a sizeable amount of debt to make this one event of life (wedding) a memorable event for all times to come.

 In a situation like this, the most suitable facility one can bank upon to meet his/her urgent is personal loan. It's a cash loan facility with minimum documentation. The banks give this loan against your future income and the funds are instantly credited to your savings bank account.

Any person having a regular monthly income is eligible to take route of this loan Scheme. Different banks have different parameters for the scheme. Mostly, the banks prefer to extend this kind of loan facility to salaried persons falling in the age group of 21 to 60 years. For those associated with business, the age limit is extended up to 65 years. In all cases, it's the amount of monthly income which is taken into consideration by the banks to arrive at the quantum of finance.

Notably, professionals and self-employed person too are considered eligible for availing the facility. The banks even take work experience of the person into account. Before looking at personal loan as an option to meet urgent needs, one should have a look at the cost of loan. Here it's important to know the rate of interest charged by the bank. Interest rate varies from bank to bank. Today in a scenario when banks rate their borrowers on the basis of credit score, you with a good credit score, can negotiate for low interest rate. So, don't be surprised to find a bank charging different borrowers with different rate of interest in a single loan scheme.

Tenure of loan also affects the cost of loan. Personal loans are to be repaid in equated monthly instalments (EMIs). Your EMI depends on your principal loan amount, rate of interest and loan tenure. These loans are to be repaid usually within 5 to 7 years. But remember, the shorter the repayment period of a personal loan, the better it is.

Of course, a longer repayment period reduces the EMIs, making repayments comfortable. A shorter tenure of loan obviously increases the EMI, but it reduces the interest burden. For example, for a loan amount of Rs.15 lacs with a tenure of 5 years and having 15% rate of interest, you have to pay EMI of Rs.35,685. At the end, you repay Rs.21.41 lac as against loan amount of Rs.15 lacs. This means you cough up Rs.6.41 lac as interest on the loan for 5 years. If you decide to repay this loan amount of Rs.15lacs in three years, your EMI would be Rs.51,998. Here EMI is higher than in the repayment schedule of 5 years, but interest burden will be lesser. You would be repaying Rs. 18,72 lacs as against loan amount of Rs.15 lacs. This means, your interest burden for three years repayment schedule would be Rs.3.72 lacs as against interest burden of whooping Rs.6.41 lacs in 5-year repayment schedule.

Meanwhile, in the context of situation of the young man who was looking for suitable loan facility to fund his wedding expenses,  it always makes a financial sense to start planning for future at the earliest. Though personal loans are easily available options, it’s best to avoid raising a loan for a wedding. Instead, one should be an early bird as far as saving money for future is concerned.  The earlier you start saving, the more of a corpus you will be able to accumulate. Even if availing of a loan is inevitable, you should apply for the amount necessary. 

(The views are of the author and not that of the institution he works for)



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