Beware of "cheap" Personal Loans offers from Banks

          The next time your bank calls you and asks you for offering cheap Personal Loans, give it a second thought. The banks now-a-days have researched various things about you from your Personal account details and hence offer you loans that they say as "cheap". Pay strict attention to the details of the pre-processing and the pre-payment charges that are included for verification, stamp duty charges for legal agreements and other things.

          Generally, while offering you cheap Personal Loans, interest rates offered by banks may be less than available in market, but that is been compensate when you close the lead by not paying attention to pre-processing fees they would take. Banks do not slash their rates, they just increase the processing fee and pre-payment charges in exchange of giving cheap rates for Mortgage Loans.

           Generally banks in India offers Personal Loans at an interest rates of 12.99% up to 25% and often offers discounts on interest rates, but the catch is the same scheme is not available to all the borrowers and can be withdraw anytime without prior notice. Banks also want to increase their share of retail loans, hence they offer such schemes.

        The borrowers have to keep in mind that Personal Loans interest rates are fixed for the time period you have taken loan, and any changes to the RBI rules for interest rates does not affect and  change borrowers interest rates that he has filed for.

           Hence, you should always read all the documents clearly, analyze the difference in interest rates such as what are normal interest rates and what are being offered after discounted prices, understand the processing fee charges and see how much they are taking. You should always consult a Personal Loan consultant before getting such types of Loans.

            When things are crystal clear, you will not be any problem and won’t end up paying Personal Loans higher than what you expected.

What factors determine your loan approval or rejection?

We often don't feel that in spite of not taking any loan before, our loan application will be rejected and unfortunately, we don't even understand the reason for it.

                 Your Loan approvals or rejections at first depends on what type of loan do you want to take? If you are planning to take an unsecured loan such as Personal Loan, you can get a loan easily as it does not require any guarantor and the interest rates are also greater, so you should avail it without any problems. If you are planning to take a secured loan with low interest rates, such as Mortgage Loan/ Loan against Property, a thorough background check is required regarding your Profit and Loss account and your personal account stability, which determines you are eligible to take the loan.

             Also, there are many other factors that determine the loan approvals, and the time taken to disbursal of your loans. You are judged by the ability to repay these loans on various factors and some of these factors includes, your present age at the time of loan application, your present income, the job stability i.e. Are you planning to change the organization you are working, your CIBIL score(which is determined by your financial account stability), how much monthly installment you can pay that is agreeable to the finance funders, the time duration for which you take the loan, the most suitable type of loan for your purpose that means there’s no point to taking a car loan if you are not planning to take a car!

        Ensuring you have a high credit score can obviously get you a higher probability of getting a loan easily, but a high credit score completely depends on your history of personal accounts, such as late payments on credit cards. Also, if you have an existing loan, you should pay all your mortgage Emi’s in time, which will ensure you are eligible for a good credit score and thus, for another personal loan or mortgage loan.

      

Mortgage loans v/s Personal Loans

While taking up a loan, we always have a dilemma whether to take up a Personal Loan or Mortgage Loan/ Loan against property. There is nothing like this loan is best, or this is not. According to the needs and requirements of the customers, the best can be decided.

Generally, Personal Loans are often known as unsecured loans as there is no involvement of guarantor while taking up a Personal Loan. As such, a high risk is involved because the loan disbursal on purely on the basis of conviction, the interest rates involved are higher than the other types of Loans.  Generally, people prefer Personal loans when they want to buy any household commodity, or they want to go to any Personal trip. The best benefit of a personal loan is you can get it immediately in case of an emergency and you are short of cash. On the basis of your eligibility, you can get a good personal loan amount. The duration for repayment of personal loans is lesser than other loan. You can say it, that it is a short term loan.

A loan against any collateral, such as property is known as a mortgage loan. This is the most secured form of loan available in India. The interest rates in this Loan against property is also low as compared to other loans. As, most of the Indian population comes from a rural area, the loan against property is a good thing for them.  A full fledged agreement is made between the borrowers, the lender and the third party involved, if any. You should take these types of loan keeping in mind the fact that it has been taken for the purpose of some very important things such as Education of children, medical treatments etc. The benefit of Loan against Property is that it is a low interest rate loan and gives you tax benefits also.

Does personal loan give Income tax benefits?

For any Personal loan, the interest paid is for the most part not deductible. However if the loan is used in obtaining any income which you are unveiling in your Return of Income and in a position to legitimately identify the loan with gaining that income, then the interest and different expenses might be guaranteed as a deduction.  There is no other method of benefiting from personal loan under the Indian Income tax law of 1961 as changed till date.

                   Assuming that you have taken a personal loan from a bank, housing finance company, Life Insurance Corporation of India or from an employer and used the cash for purchase or construction of a house, you can assert IT profits for both principal and interest paid.  But in the event that you have taken a loan from a friend or relative, and then you can assert tax reductions on the interest paid justly. In any case, provided that you have taken a loan for renovation of your house building, then you can claim reasoning up to Rs.30, 000 a year of the interest paid.

Normally such Personal loans have to be arranged in such a manner, that some origin of income gets tagged. Loans for particular utilization or family matters are not entitled to Income tax concessions. Also loan for marriage, education, traveling and do not get such concessions. Usually, a few organizations like ICICI, HDFC and LIC make loans for Housing and vehicle necessities. They also do not usually provide loans for different purposes to salaried individuals since they can lay their substantial hands effectively and rapidly in the event of default on these possessions and recuperate their giving.