Credit Card Interest Rate

Credit Card’s come with very high interest rates. According to our calculation, Indian Credit Card companies charge around 41% Interest rate on average on credit card bill payments. 

What is Credit Card Interest Rate?

 Credit Cards come with an 45 to 50 day interest free period. From the day of your credit cycle to the bill dues date, you aren’t charged any interest rate

  Recommend read : How Credit Card Companies Make Money

Upon this you can pay the bill in full or you can pay a minimum due amount. If you make the full payment you dot have any interest; However, if you make no payment or minimum due amount, you’re charges an interest rate on the remaining amount. 

 The interest rate (APR)  on average in India is about 41%.

Here’s a list of Credit Card Interest Rate for every credit card.

Card CompanyMin APRMax APR
SBI30%40.2%
HDFC Bank23.88%41.88%
ICICI Bank23.88%44%
Axis Bank34.49%49.36%
Citibank39%40.80%
Standard Chartered Bank23.88%41.88%
Kotak18%42%
RBL Bank40.80%42%
Yes Bank14.40%42%
Indusind Bank46%46%
HSBC Bank23.88%39.6%
American Express42%47.88%
PNB19.56%35.89%
Andhra Bank28.30%41.75%
Allahabad Bank30%40.2%
LIC46.78%46.78%
Bajaj SuperCards47.88%47.88%
Bandhan Bank41.88%41.88%
Tata30%40.2%
IDBI Bank30%40.8%
Indian Bank19.92%27%
Federal Bank30%40.2%
South Indian Bank30%40.2%
Bank of Baroda31.20%39%
Bank of Maharashtra30%40.2%
OBC30%40.2%
Indian Overseas Bank24%24%
Canara Bank30%30%
Corporation Bank27%36%
DCB Bank24%24%
Dhanlaxmi Bank18%36%
Jammu & Kashmir Bank36%36%
Karnataka Bank30%40.2%
Karur Vysya Bank30%40.2%
Lakshmi Vilas Bank30%40.2%
Syndicate Bank24%30%
Union Bank of India15.6%22.8%

HDFC Bank Millennia Credit Card Review

Millennia Credit card comes with great cashback offers specially for online spending. On Purchasing anything online through PayZapp App or Smartybuy you get a whopping 5% cashback , 2.5% cashback on online spends of Rs., 2000 or more and maximum cashback upto Rs. 750 a month and 1% on all offline spends of Rs. 100 or more.

Signup Fee

You have to pay a Sign up of Rs. 1000/- and in return you get 1000 Cashback points worth Rs.1000/-. If you spend 30,000/- or more in the first 90 days since card issuance, the sign up fee is waived off.

Renewal Fee

The card comes with a renewal fee of Rs. 1000/- and you get 1000 Cashbck points worth Rs. 1000 on paying the renewal fee. If you spend more than 100,000/- (8333/- per month on average) in the first year, your fee is waived off and you get to keep the 1000 cashback points.

Cashback

Millenia Credit Card comes with a generous 5% cashback on all online spends via Payzapp and smartbuy. Payzapp is available as a payment method on a number of online stores specially amazon, flipkart, tata cliq, Myntra and Jabong. The 5% is only applicable on spends of Rs. 2000 or more.

If you don’t sign up for Payzapp or Smartbuy, you still get 2.5% cashback on all online purchases on spends of Rs. 2000 or more and upto a maximum cashback of Rs. 750 in a calendar month.

For all offline spends you get 1% cashback. Except fuel.

Pros

High Cash Back value

Millenia comes with really high cash back rewards in comparison to other cards like SBI Simply click which offers a 2.5% savings on select partners including amazon, cleartrip and bookmyshow.com and 1.25% on all online spends and 0.25% on all offline spends.

Lounge Access

You can access Mastercard or Visa or Diner’s Lounge’s in India upto 8 times annually.

Cons

Cashback only on spends of 2000/ or more.

5% in case of payzapp and smartbuy and 2.5% on payzapp cashback is only applicable on spends of Rs. 2000 or more. So if you are looking to buy a single t shirt or order a cosmetic, you would have to wait and order them in one single spend.

High annual fee

The card comes with an annual fee of Rs. 1000/- per annum which gets waived off on spends of Rs. 100,000 or more. In comparison SBI Simply Click comes with an annual fee of Rs. 499.

Low benefits on offline spends.

Yes Bank Prosperity Plus offers cashback of Rs. 5% on movie, groceries, departmental store purchases, in comparison to only 1% on HDFC Millenia. So, if you are looking to spend offline

Our Verdict

Millenia Credit Card is a great credit for anyone who does a lot of online shopping. you save 2.5% on all online spends and 5% on online spends via payzapp and Smartbuy. This is almost double of what SBI Simply Click offers, so all in all there’s no beating the cashback offered by HDFC Milliennia Credit Card on online spends.

Cashback is only valid of spends of Rs. 2000 or more in a single transaction, which could be very high and specially in the age of lightening deals, you could either miss out on the deal of cashback.

If you aren’t looking to do all your shopping online, then Millienia credit card offers1% cash back on all spends of Rs. 100 or more. Which in comparison to Yes Bank Prosperity Cashback credit card is not enough. With Prosperity edge you get a 5% cashback on all movies, grocery, utility bills departmental store purchases.

On the plus this card comes with 8 Domestic lounge access annually. Which no other card in it’s category offers.

All in all a great card for online purchases with an unbeatable cashback with the only downside being the applicability of cashback on transactions of Rs. 2000 or more.

If you don’t know what is payzapp and smartbuy, in a few words, payzapp is a mobile wallet like paytm and phonepe. You can make payments via QR code and BHIM/UPI. It is not limited to HDFC Bank customers. Anyone can sign up on Payzapp.

Smartbuy is a lot of things. It’s a flight booking engine, Hotel booking engine and comparison engine, where you can select a product and see the prices on flipkart, amazon and tatacliq amongst others and click and buy the product and HDFC gets the affiliate commission, in case you were wondering, why HDFC was being so kind.


Home Loan for Women

In the continuously feminising world, women are moving closer and closer to gain complete financial independence. The biggest step towards attaining the financial stronghold is house ownership. In order to encourage and empower women to buy their own homes, government and banks provide various benefits to female home buyers. While the government offers a concession on stamp duty, the banks proffer lower interests and longer tenures to women home loan borrowers.

Home Loan Benefits for Women

Alongside a reduction of 1% – 2% on stamp duty and registration charges, women home buyers enjoy additional benefits when they choose to go for a home loan for fulfilling their housing requirements:

Higher Loan Amount

Banks usually sanction a higher loan amount to female borrowers as compared to what is sanctioned to male borrowers. This is due to the fact that banks consider women to be more sincere towards debt repayments. Banks like SBI can even sanction a home loan of up to Rs. 3.5 Crores to a female applicant.

Lower Interest Rate

Banks offer a concession of about 0.05% – 0.10% on interest rates for home loans offered to women. Although this percentage may appear to be nothing yet they can lead to saving lakhs of money paid away as interest over the entire loan tenure. Here we have compared the interest rates offered to women and men by a few banks.

Bank/FIWomenMen
SBI8.75% – 9.85%8.80% – 9.90%
HDFC Bank8.90% – 10.10%8.95% – 10.15%
Axis Bank8.90% – 12.45%8.95% – 12.50%
ICICI Bank9.05% – 9.25%9.10% – 9.30%
PNB8.70% – 9.25%8.75% – 9.30%
Bajaj Finserv9.05% – 11.10%9.10% – 11.15%
Citibank8.75% – 10.70%8.80% – 10.75%

Longer Tenure

Pertaining to the sincerity in debt repayment of female borrowers, banks are more willing to sanction loans for a longer tenure. Some banks even agree to sanction a home loan extending for 30 years to women borrowers.

Add-on Offers

In order to encourage women home buyers, banks give a warm welcome to female applicants by giving out gift vouchers, gold coins, free vacation offers and privileged credit cards to the borrowers.

Tax Benefits

Women home loan borrowers enjoy income tax benefits at par with males under the various provisions of the income tax act. Women are eligible to enjoy annual tax deduction of up to Rs. 2 Lacs on interest payment under section 24, Rs. 1.5 Lacs under section 80C on principal repayment and the recently introduced additional tax benefit of up to Rs. 1.5 Lacs under section 80EEA on interest repayments exceeding the Rs. 2 Lacs mark.

Home Loan Eligibility for Women

A woman can apply and avail a home loan if she satisfies the following conditions:

Indian Resident

In order to enjoy the various benefits available for female borrowers, a woman home buyer must necessarily be a resident of India. NRI women availing home loans in India do not qualify for these benefits.

At least 18 Years Old

For successfully receiving a home loan, a female applicant must be at least 18 years old at the time of availing the loan.

First Owner of Property

The woman should be the sole owner of the house for which the loan is to be availed, in case of single ownership. In case of joint ownership of the house, she should be the first co-owner of the property, that is, she should hold not less than 50% of the house ownership. Similarly, she should be the first co-borrower, in case the loan is availed jointly by all the co-owners.

Regular Income

In order to ensure the bank that the woman will be able to repay the debt, the woman borrower must have a stable source of income. The income inflows must be regular and viscous.

Good Credit Score

Credit score is a major deciding factor when it comes to borrowing and women are no exceptions. In order to enjoy lower interest rate and a bigger loan amount, a female borrower must ensure that she has a good credit score and clean debt history.

Things a Women Must Take Into Consideration While Taking a Home Loan

There are certain things that a woman must keep in mind before proceeding further with her loan application. These are:

Banks Resist Lending to Single Women

Banks usually do not provide home loans to single female applicant and require a co-applicant for sanctioning the loan. Therefore, women may not be able to enjoy these benefits on their own. Also, banks may ask for some additional security from a single woman.

Check Different Offers

Since banks come up with new schemes from time-to-time, targeted towards female borrowers, a woman must check various bank offers and go with the best one. For instance, SBI came up with a scheme, “SBI Her Ghar” designed specifically for women home buyers that provided for very less interest rates and flexible repayment options.

Takeaway

In order to promote women empowerment, banks offer various benefits to women borrowing home loans. These include lower interest rate, longer tenure, additional gifts and vouchers. There is however one condition for enjoying these benefits that a woman must be the primary home owner. The women also enjoy tax benefits on home loans, similar to men. However, certain banks resist from lending to single women and in such cases, a woman would need a co-applicant for availing the loan and enjoying the respective benefits.

Types of Personal Loans

As the term suggests, a personal loan is a loan which is taken for personal purposes. You do not need to specify the reasons to a bank or financial institute on how you are going to utilize the funds. You can use them at your own discretion for any legitimate purpose. Personal loans can be availed at both fixed and variable rates of interest. The loan can be repaid either in instalments or over an overdraft.

Personal loans can be classified under the two broad categories of secured and unsecured personal loans based upon whether the loan is borrowed against collateral or without any collateral. Most personal loans are unsecured loans.

Secured Personal Loan

In case of a secured personal loan, a bank keeps an asset as security against your personal loan. You can use your car, gold, a fixed deposit or even your insurance policy as collateral. The lender has the option to seize your asset in case you fail to repay your monthly instalments. This reduces the associated risk for lenders and they offer lower rates of interest as compared to those of unsecured personal loans. The processing fee is also lower than what you have to pay in case of an unsecured loan. Moreover, lenders are more willing to give away secured loans.

The following are the main types of secured personal loans:

Gold Loan

Gold loans can be defined as funds borrowed from financial institutions on pledging gold ornaments or gold coins. The bank first verifies the quality and quantity of loan before approving the loan application. The bank charges a small fee for processing your loan application.

A gold loan can be taken by any individual who is above the age of 18 years and has a stable income. The loan amount allowed sanctioned varies from bank-to-bank and usually stands between a minimum of Rs. 10,000 to as high as Rs. 20 Lacs depending upon the value of the underlying gold asset. The rate of interest charged for a gold loan is usually 1.25% higher than the MCLR.

Since the value of gold keeps changing, the bank charges appraiser fee from the borrower, according to the appreciated gold value, while releasing the asset.

Loan Against Fixed Deposits

You can keep time deposits like fixed deposits and certificates of deposit as security with banks for availing a personal loan. However, the loan must be taken from the same bank where you have kept your deposits.

The loan amount sanctioned for such loans will be equivalent to 80% – 90% of the value of your deposit and can range between a minimum of Rs. 25,000 to a maximum of Rs. 5 Crores. There is no processing fee charged while approving these loans.

Loan Against LIC Policy

The LIC insurance beneficiaries can use their policies as security for taking a personal loan. These loans can be availed only after the insurance premium for at least three years has been paid. The maximum loan that can be sanctioned against a LIC policy is equivalent to 90% of its surrender value (the amount that a beneficiary will receive on the maturity of policy).

The applicable rate of interest for this type of loan is between 9% – 11% per annum. This interest is to be paid twice a year, after an interval of six months. For availing this loan, the original LIC policy document is to be submitted along with the application form, identification proof, address proof, and income proof.

Loan Against Stocks

You can pledge your equity shares in order to avail a personal loan. The loan amount will depend upon the value of the underlying equity and can be as high as 50% of its value. You even have the option to swap shares based upon the stock market assessment. The loan application takes very less time to process and the funds are usually transferred to your account within 24 hours.

Pension Advance Loan

The individuals receiving pensions from central or state governments can avail a personal loan on signing all or a part of their pension income to the lender. These loans generally have a tenure of 5 to 10 years. However, the APR for these loans are very high and in some cases, these can be even higher than 100%, which makes these loans an expensive deal.

Unsecured Personal Loan

An unsecured loan is the one which has got no collateral backing. It means that you do not need to mortgage any asset for availing this type of loan. Most personal loans are unsecured loans. Since the lender-associated risk is high for these types of loans, they generally have comparatively high rates of interest. The processing fee is also very high for unsecured personal loans. However, the approval process is very easy and quick which makes these loans the best choice for meeting immediate requirements. Both the interest rate and the loan approval are dependent upon your repayment abilities which are judged based upon your net monthly income and your credit history. Currently, the minimum interest rate offered for an unsecured personal loan in India stands at 10.75% and it can go as high as 26%.

The following are the major types of unsecured personal loans available for you:

Co-Sign Personal Loan

As its name indicates, a co-sign personal loan is co-signed by another person. This person is like a guarantor for your loan who ensures the bank that you will repay the loan. His sign acts as an insurance for the loan that in case you are unable to repay your debt, he/she will pay-off the pending debt amount.

A co-signer should have a decent credit score and a good debt repayment history. This option helps those borrowers who have a very thin credit report indicating that they are new to the borrowing business.

Also, if you have a very low credit rating, a co-signer who has an exceptionally well borrowing behavior can fetch for you very low rates of interest.

Debt Consolidation Personal Loan

If you are juggling between multiple EMIs and bill payments, you can go for a debt consolidation loan. This loan combines your multiple debts such as credit card bills, other personal loans, utility bills, and medical expenses. This means that, now, instead of managing multiple EMIs, you just need to pay a single consolidated EMI every month. Debt consolidation can also help you save as the annual percentage rates may be lower than the mean of what you were paying towards your multiple loans.

Personal Line of Credit

A line of credit operates in a manner similar to a credit card. Here, instead of providing you with a lump-sum of money, a bank grants you access to a line of credit. You can borrow money from this line of credit as per your requirements. You are only charged interest over the amount that you borrow and not on the limit sanctioned by the bank. However, interest rates for a personal line of credit are higher than regular personal loans.

Payday Loan

A payday loan, usually referred to as the salary loan is a personal loan where you can borrow money from the bank on promising that you will return the amount on your next payday. Any salaried individual who has been working for at least one year and is drawing a salary of more than Rs. 20,000 every month is eligible to avail these loans.

The loan amount for a payday loan can range from a mere sum of Rs. 5,000 to amount as high as Rs. 1 Lac. The interest rates for payday loans are often high and the APR can even reach surpass a whopping 391%.

Takeaway

The financial ecosystem has a plethora of options for personal loans which can help you meet your requirements. While the secured personal loans offer lucrative interest rates and leniency in loan terms and conditions, the unsecured loans come with a stringent repayment procedure and higher interest rates. While you have to mortgage an asset for availing a secured loan, an unsecured loan is given solely on the basis of your repayment capabilities as well as your creditworthiness.

Personal Loan for Low CIBIL Score

A credit score is a numerical figure that symbolises the creditworthiness of a person and is generated on the basis of the credit data of an individual, that is available on the records. CIBIL score is a term that is synonymously used for credit score. It is issued by CIBIL which is an abbreviated form of Credit Information Bureau (India) Limited. The company has been renamed as TransUnion CIBIL. It is the oldest credit bureau in India and is, therefore, the most popular. Alongside TransUnion CIBIL, Experian and Equifax are the other credit bureaus in India which issue credit scores. Banks collect credit reports from all credit bureaus in order to define the creditworthiness of their customers.

Credit score plays a crucial role in the approval of your loan application for a personal loan. A high CIBIL score not only improves the chances of loan approval but also accelerates the process. Therefore, it becomes necessary for borrowers to maintain a good CIBIL score so as to enjoy the benefit of taking loans. However, under certain circumstances a lender even lends money to those with a low CIBIL score.

What is a CIBIL Score?

A CIBIL score is a three digit number generated by the credit bureau TransUnion CIBIL. The credit bureau records the credit history of an individual and generates a credit report. Based upon this report, it assigns a number to an individual. This number is referred to as the CIBIL score of the individual. It ranges between 300-900 and indicates a person’s creditworthiness where 900 is the best credit score and a score of 300 is the worst.

A CIBIL score of 750 is considered to be good and individuals with a credit score equal or higher than this number are given preference for lending. However, banks may also lend to individuals with a CIBIL score as low as 600. A credit score below 600 is considered as bad and lenders often refrain themselves from giving away funds to these individuals.

CIBIL Score and Personal Loans

Since personal loans are unsecured type of loans, CIBIL score acts as an important determinant of whether a lender will lend to a particular borrower or not. A high CIBIL score indicates a good credit behaviour in the past. This indicates that a borrower will continue the good behaviour in the future and will repay the loan on time. A bank will easily lend to such borrowers. Also, they will enjoy lower interest rates and better loan terms.

A low credit score reflects poor borrowing history. A lender will often resist from lending to customers with low CIBIL scores. Even if the loan gets approved, the interest rate offered to these customers will be extremely high. The general unwillingness of lenders and strict terms of lending limits credit options for customers with low credit scores. The banks however offer a relief option for these customers referred to as bad credit loans.

Bad Credit Loans

A bad credit loan is a personal loan only with just one difference that it is for people with a bad credit report. The interest rates associated with bad credit loans are phenomenally high and the loan terms are usually stringent. The application process and repayment methods for bad credit loans are same as that of a personal loan. The approval process is generally short, with loans getting approved within a couple of hours, since most of the lenders offer online application and approval. However, since banks offer a high interest rate over bad credit loans you can look for other options for availing these loans such as:

Credit Unions

Credit unions are a great option for those looking to save amount payable as interest on a personal loan. The maximum interest that a credit union can charge is capped at a rate of 18%.

Adding a Co-Signer

A co-signer is a guarantor with normally a decent credit score who signs your loan application as a guarantee that in case you fail to repay your loan, he will pay the pending amount. If your co-signer has an incredibly good credit history, a lender may offer lower interest rates.

Home Equity Loans

A home equity loan is taken by keeping equity of home as collateral with the lender. Here, credit score is not a determining factor for the approval of loan. The loan amount depends upon the value of the property. Since it is a secured loan, the interest rates are naturally lower compared to a personal loan.

Peer to Peer Lending

There are numerous online blockchain, machine learning and artificial intelligence based platforms that provide a lender-borrower interface. The lenders over these platforms offer comparatively lower interest rates and are generally flexible with loan terms.

Family or Friends

Who is easier to convince about your creditworthiness than your own family and friends. Not only will they easily lend you the money but will also charge lower interest rates and in some cases may not charge interest at all.

Advantages of a Bad Credit Loan

Along with the ability to avail credit with a low CIBIL Score a bad credit personal loan offers many other benefits as well. These are:

Fast Approval

Since most lenders have an online presence, applications can be filed online. The AI algorithms only take a few minutes to process the application and verify the attached documents. Thus, it only takes a couple of hours to get a response from the lender. Certain lenders will even transfer the funds in your account on the same day only, such as Indiabulls or Home Credit.

Lower Interest Rate Compare to Credit Card

The interest rates attached with bad credit personal loans are comparatively lower than that of a credit card debt. It makes them a better and more affordable option.

Competitive Market

Due to increase in the number of peer-to-peer lending platforms, there is a rising competition between various lenders. This competition leads to lowering down of interest rates. You can compare interest offers from various lenders and then decide what suits the best to your pocket.

Loan Tenure Elongation

Bad credit loans often come with the flexibility of increasing loan tenure by a duration that may range between twelve months to five years.

Improves Credit Score

Making sure that EMIs are paid on time can improve your credit score and therefore help you fetch better loan terms next time.

Disadvantages of a Bad Credit Loan

As everything comes with a price, availing a personal loan with a bad credit reputation also has certain adversities attached to it. These include:

High Rates of Interest

Since bad credit loans involve a huge risk at the lender’s side, they will naturally offer high interest rates in order to compensate for the risk.

Fees and Penalties

There is a high processing fee, loan origination fee and late payment fee attached to a bad credit loan. Also, if you make repayments by cheque, you will have to pay an additional amount as cheque processing fee.

Collateral Requirement in Some Cases

Due to the high risk involved for themselves, the lenders may ask you to keep an asset such as a house, car or any other valuable as mortgage in order to cover the risk.

Eligibility Criteria

A bad credit loan can be availed by salaried, self-employed and even a non-salaried person. The following conditions are to be met in order to avail a bad credit personal loan.

Resident of India

For availing a bad credit loan in India, it is important that the applicant must be a resident of India. Therefore, NRIs cannot enjoy such loans.

Minimum Age

An applicant must be at least 18 years old for availing a personal loan with a bad credit score.

Minimum Income

The annual income of a person should not be Rs. 3 Lacs so as to enjoy the benefits of a bad credit loan. This ensures a lender that a person is capable of repaying the loan.

Takeaway

A bad credit loan can fulfil the financial needs of adult residents with a low CIBIL score. An online application process and quick approval make it even more attractive. However, the high interest rates and the stringent norms attached to it can make it a dangerous option. One must evaluate his capacities before entering the treacherous waters of a bad credit loan.

Personal Loan Pre-closure Charges

Although a personal loan looks appealing for most individuals yet, in the long run, it can prove to be painful pertaining to the long repayment period and high interest rates. No doubt that personal loan is your way-out of a financial crisis but what after the money crunch is over and you have access to ample funds. Now you can either keep these funds in your bank accounts, use them to make investments or can pay-off your personal loan. While keeping these funds in your bank account may not serve any purpose, paying off your debt can relieve the monthly tension from your income and keep the loan from hurting your FOIR.

You can pay-off your debt anytime by informing your bank, once the loan lock-in period is over. This advance payment is referred to as loan prepayment or loan pre-closure charges and can help you save on interest payable towards the personal loan. If you have the entire amount of loan, you can also choose to opt for a personal loan pre-closure facility.

What is Personal Loan Pre-closure?

The pre-closure of any loan means that the loan is paid off before the entire tenure of the loan is over. That is, the loan amount is paid in advance of the respective repayment schedule. The loan can be pre-paid either fully or partially. In case the loan is paid-off fully, the phenomenon is known as pre-closure of the loan as now the loan has been closed permanently and no future payments are to be made towards it.

In case of partial pre-payment of a personal loan, a borrower pays some percentage of his outstanding loan amount beforehand. This helps a borrower save on the interest payment as now he has to pay interest only on the pending loan amount. There are certain banks and financial institutes who do not allow the partial pre-payment of a personal loan. These are:

  • Kotak Bank
  • IndusInd Bank
  • Aditya Birla Finance
  • Indiabulls Dhani
  • Federal Bank
  • RBL Bank
  • Corporation Bank
  • Capital First (IDFC First)

It is to be noted here that neither partial prepayment nor full pre-closure is allowed before the lock-in period for a personal loan is over. This period is specifically mentioned in your respective loan statement and neither partial prepayment nor full pre-closure is permitted before the completion of this lock-in period. This lock-in period varies from bank-to-bank and usually ranges between 6 to 12 months.

What is Personal Loan Pre-closure Charge?

Since the lenders are losing some proportion of their profit by pre-closing the loan, they levy some charge as a penalty on the borrower. This charge is termed as pre-closure charge and usually ranges between 2% to 4% of the outstanding principal payment for a personal loan. However, certain lenders can even levy a pre-closure charge amounting to a whopping 7% of the pending principal loan amount.

In the table given below, we have provided details of pre-closure charges levied by major financial institutes.

Bank/FIPrepayment ChargesPart-Payment Charges
HDFC Bank2% to 4% of the Principal Outstanding Amount2% to 4% of the Part-Payment Amount
YES Bank2% to 4% of the Principal Outstanding Amount1% of the Part-Payment Amount
SBI0% to 3% of the Prepaid Amount0% to 3% of the Prepaid Amount
Axis BankNILNIL
ICICI Bank5% of the Principal Outstanding Amount5% of the Principal Outstanding Amount
Citibank0% to 3% of the Principal Outstanding Amount3% of the Part-payment Amount
Kotak Bank5% of the Principal Outstanding AmountPart-payment Not Allowed
Canara BankNILNIL
Standard Chartered Bank1% to 5% of the Principal Outstanding Amount2% to 3% of the Part-payment Amount
Bajaj Finserv0% to 4% of the Principal Outstanding Amount0% to 2% of the Part-payment Amount
IDFC First5% of the Principal Outstanding AmountPart-payment Not Allowed
Indusind Bank4% of the Principal Outstanding AmountPart-payment Not Allowed
Indiabulls Dhani5% of the Principal Outstanding AmountPart-payment Not Allowed
Home CreditNILNIL
Aditya Birla FinanceNILPart-payment Not Allowed
IDBI Bank0% to 2% of the Principal Outstanding Amount0% to 2% of the Part-payment Amount
HSBC BankUp to 3% of the Principal Outstanding AmountUp to 3% of the Part-payment Amount
PNBNILNIL
Indian BankNILNIL
Andhra BankNILPart-payment Not Allowed
Syndicate BankNILNIL
Bank of Baroda0% to 4% of the Principal Outstanding Amount0% to 4% of the Part-payment Amount
Federal Bank2% of the Principal Outstanding AmountPart-payment Not Allowed
RBL Bank0% to 3% of the Principal Outstanding AmountPart-payment Not Allowed
Bandhan BankNILNIL
Fullerton India Finance0% to 7% of the Principal Outstanding Amount0% to 7% of the Part-payment Amount
Tata Capital2% to 4% of the Principal Outstanding Amount0% to 2% of the Part-payment Amount
Bank of IndiaNILNIL
Corporation BankNILPart-payment Not Allowed

The table clearly indicates that there are many lenders who do not impose any kind of prepayment charges at all. Also, a borrower must keep looking for pre-closure offers as banks provide certain seasonal offers, every now and then, when banks completely waive off the pre-closure charges for a certain period of time.

Benefits of Pre-closing a Personal Loan

The preclosure of a personal loan comes with many benefits attached to it. These are:

Leads to Savings

Prepayment of the pending principal loan amount helps you save on the interest payment. The tenure of a personal loan generally ranges between 3 to 5 years. The interest rates charged on personal loans are higher as compared to other loans. Pre-paying a personal loan helps to cut interest payments since the interest will be charged only till the time when the complete repayment is made.

Relieves Debt Burden

Paying monthly EMIs on time is a big tension and often eats up a major portion of your monthly salary. Pre-closing a personal loan releases the debt stress from your income and brings you peace of mind.

Disadvantages of Pre-closure of a Personal Loan

The preclosure of a personal loan can also bring your way certain adversaries. These are:

Pre-closure Charges

In order to cover the loss of interest payments, the banks impose a pre-closure penalty that can be as high as 7% of the outstanding principal amount. This amounts to a huge loss of funds. Therefore, the interest savings on pre-closure is often regarded as a myth by many financial experts.

Loss of Investment Opportunity

There is an estimated loss of investment opportunity as if not used for pre-closure, you could have used the underlying funds for making some kind of investment that could have generated profits for you. But since, now, the funds are being paid towards loan pre-closure, you lose the opportunity.

Process for Pre-closure of a Personal Loan

Pre-closure of a personal loan is as simple as applying for one. It is to be, however, kept in mind that the loan cannot be closed online and you would need to physically visit the bank branch in order to close your loan. The following are the major steps that you need to follow in order to successfully pre-close your personal loan:

Step 1: Check if you are eligible for the pre-closure process.

Go through your loan statement and check the terms and conditions attached to the pre-closure of a personal loan. Check the lock-in period and the minimum number of EMI payments which should have been made in order to close the loan. Make sure that you have completed the lock-in period and have made the minimum number of EMI payments.

Step 2: Contact the bank and inquire about the process and documents for personal loan pre-closure.

You can either call the bank or visit the bank branch and inquire about various details of personal loan pre-closure. Ask them about the documents that you would require to carry in order to successfully close your loan and note them down. Also, inquire about the total amount that you will need to pay for pre-closure which includes the principal amount and the pre-closure charges.

Step 3: Prepare all the required documents.

Prepare all the documents as stated by the bank and as is listed in your loan statement. These include:

  • Personal Loan account number: This number is clearly mentioned on your personal loan statement. Note it down.
  • Identity Proof: You will need to carry a government authorised identification proof such as a passport, Aadhar card, driving license or PAN card.
  • Cheque or Demand Draft: Carry a cheque or demand draft for the total payable amount, signed towards your personal loan account.
  • Other Documents: Also carry all other loan-related documents which include the loan statement, approval letter any other document issued at the time of sanctioning of the loan.

Step 4: Visit the bank and move to the loan section.

Visit the respective bank branch along with all the required documents. Once you reach the bank, go to the loan section of the bank. Contact a bank executive there and request for the pre-closure form. Also, inquire about any additional formalities that you are not aware of.

Step-5: Fill the pre-closure form

Fill in all the details on your personal loan pre-closure form. Make sure you correctly fill the form and cross-check all the details. Sign the form after ensuring that it has been filled correctly.

Step 6: Submit the form along with other documents.

Submit the pre-closure form along with all other documents mentioned under step 3.

Step 7: Make payment

After you have submitted all the required documents, pay the entire loan amount along with pre-closure charges. You can either pay in cash, through cheque or a demand draft.

Step 8: Collect acknowledgment slip

The bank will issue an acknowledgment slip in favour of your loan pre-closure. The final authorisation letter will be sent to you through mail once personal loan account is permanently closed by the bank, which generally takes a few days.

Takeaway

If you have the availability of funds and your personal loan tenure is far from completion, opting for personal loan pre-closure is a good idea as it can help you save on the amount of interest payable. However, before choosing to avail the facility, you must go through the underlying terms and conditions for the pre-closure process. Also, the bank will impose a pre-closure charge for letting you pay-off your loan before the repayment schedule. If the pre-closure penalty amount is less than the interest payable, only then opt for the facility.

Personal Loan vs Overdraft

Personal loan as well as overdraft account both involve shorter approval process, require minimal documentation and above all both have no compulsions as far as utilisation of funds is concerned. Yet there are considerable differences between the two, in terms of loan structure, borrowing costs and repayment mechanism. There are certain factors that you must keep in mind before deciding whether you should go for a personal loan or for an overdraft facility.

In case of a personal loan, you have to formally apply in a bank or a NBFC and wait for its approval every time you need new funds whereas for an overdraft facility, you have to apply just once and after its approval, you can access funds as many times as you would like without going through any further application process for a long period. Overdraft facility allows you to withdraw money from your current account even after the entire balance in the given account has been exhausted. Based upon your customer profile, a bank puts a cap on the maximum amount that you can borrow from your current account. Both personal loan and overdraft have certain similarities and differences.

Similarities

An overdraft and a personal loan have certain things in common as discussed below:

No Requirement for Collateral

There is no requirement of keeping an asset as collateral for availing a personal loan or an overdraft facility.

Discretion on the Use of Funds

Whether you are borrowing a personal loan or get sanctioned an overdraft facility, you do not need to specify the reason for which you are borrowing the amount. You can use it on your own discretion for any legitimate cause.

Ability to Borrow Small Amounts

Unlike other loans, personal loans and overdraft borrowing facility provides you with an option to borrow amounts as low as Rs. 5,000 from financial institutions.

Easy Accessibility

For an overdraft facility, you do not need to undergo an approval process every time. You can access any amount within the limit prescribed by the bank, instantly. On the other hand, the application process for a personal loan is also very simple and requires minimum documentation and verification. This makes these borrowing options quick and easily accessible.

Differences

There are considerable differences between a personal loan and an overdraft. These are:

Structure of Loan

While a personal loan is an unsecured loan, an overdraft facility can be availed over your current account. A personal loan amount is made available in one go whereas in case of an overdraft, the money can be withdrawn as and when needed provided the overall amount does not exceed the limit prescribed by the bank. Also, the interest is to be paid only on the borrowed amount in case of an overdraft.

Application

While in case of a personal loan, a formal application is to be filed at a financial institution with required documents every single time you need to borrow. After this, a bank verifies the documents, enquires your credit report, calculate your creditworthiness and then decides upon the various lending aspects. However, in case you are already availing an overdraft facility, no such formalities are required, you can withdraw anytime, anywhere at your own will without taking prior permission from the bank.

Lending Amount

The lending amount for a personal loan is set when a mutual consent is reached between both the parties. Therefore, it takes into consideration both- your needs as well as the bank’s will. On the other hand, the limit for borrowing through an overdraft account is solely set by the bank on its own discretion. If you require cash that exceeds the maximum limit prescribed, you will have to look for some other option.

Tenure

Personal loans are fixed term loans with an average duration ranging between 12 to 60 months. However, the duration for the complete repayment of an overdraft is not fixed and they are often repaid in a much shorter duration than a personal loan.

Interest Rate

While a monthly interest is charged on a personal loan, an overdraft charges a daily interest. The interest rates over overdrafts are usually higher than that of a personal loan. Also, the interest is to be paid on the total amount of loan sanctioned in case of a personal loan whereas for an overdraft, interest is to be paid only on the withdrawn amount and not on the overall limit prescribed.

Repayment

A personal loan comes with fixed EMIs for repayment whereas an overdraft can be paid back any time either fully or partially as suitable to you. However, if the bank demands for repayment, you will have to fulfill those demands immediately. In case of prepayment of a personal loan, a bank levies prepayment charges that may range from 1% to as high as 5%. No such charges are associated with an overdraft.

Credit Score

While processing a personal loan application, a bank requests a hard inquiry on your credit report. This may slightly affect your credit report, lowering your credit score. However, no such inquiry is involved in case of borrowing from an overdraft account. Thus, it does not have any affect on your credit score.

Multiplicity

In case of personal loans, you will have to apply for a new loan every time you need money. However, you can borrow as many times as you want over a single overdraft account. You do not need to request for a new account every time.

Which one to Avail?

If you need money for an emergency or for meeting your day-to-day requirements of funds, an overdraft account will be a good option for you as it does not require any kind of application and documentation for accessing the funds. Further, the bank will not take any time to release the funds over an overdraft facility. You can therefore enjoy instant funds with the option of repaying the amount anytime. It is the most suitable option for curbing your temporary unavailability of funds.

However, if you require funds for a long-term investment or expenses, a personal loan is a better option. It will lower down the interest cost in comparison to an overdraft that charges interest on a daily basis. A personal loan also provides the stability of repayment through fixed EMIs and fixed monthly interest rates.

Takeaway

Both personal loan and overdraft facility have their own pros and cons. While the former involves a fixed amount of disbursement and a fixed schedule of repayment, so is the best suitable to the persons who have monthly fixed income while in the latter case, the credit amount as well as the repayment schedule being free from any bondage, best suits the requirement of a self employed person. Therefore, a personal loan proves to be the best option for the salaried persons whereas, overdraft facility being providing flexible repayment best suits for businessmen whose income keeps fluctuating from time-to-time. Therefore, we must keep in mind our need, expenditure and repayment capabilities before choosing any of the two options.

The Best Credit Card for You

Picking the best credit card is tedious, especially when the best credit card does not exist! Confused? Let me break this to you that since different people have different needs and comparing the needs of any two individuals is foolish, defining the best credit card suitable for everyone is foolish too. There is not any credit card that will meet all the requirements of all the people. However, you can pick a card that best suits your needs by following some simple steps. For this, you will first need to understand your financial structure and your needs and then based upon that you can fish for different credit cards, compare their benefits and drawbacks, and then apply for the one that is most suitable for you.

Step-1: Evaluate Your Financial Structure

You must keep in mind that a credit card can provide you with instant funds to fulfil your rising desires but this is just a temporary benefit as the expense will come back to you in the form of monthly credit card bills. Therefore, you must not go for a credit card that may encourage you to spend beyond your capacities or that offer benefits that may not be useful to you at all. For instance, a credit card that offers mile points and provides access to airport lounges may not benefit you if you are not a regular flier. Therefore, you must evaluate your finances, look at your monthly expenses, check your credit score before you proceed to fish for a credit card.

Step-2: Summarise Your Needs

The next step in the process is to make a list of your needs. Whether you are a frequent traveler or are you a family person and need a credit card for your monthly expenses. Just make a list of all your needs, what you want to use your future card for and how large these expenses could be. Briefly summarise all these pointers.

Step-3: Look for Credit Card and Narrow Down Choices

Now, start looking for credit cards that meet your requirements. Make a list of these cards; compare their offers, benefits, credit limit, fees and charges. Narrow down the cards that you think are the fittest for you. Take into consideration all your expenditures while doing so, whether it is fuelling, grocery shopping, dining or travel requirements.

Step-4: Pick the Card With Highest Overall Value

Now keep both the lists together- your narrowed down credit card choices and summarised expenditures. Scan the both and Pick the card that you think best meets your expenditures within your monthly budget. Look for the value-for-usage. The card offering the highest overall value is the best for you.

Takeaway

As discussed earlier, there is no best card that may satisfy all your expenditures, however, identifying your needs and targeting them while picking a credit card can help to restrict the number of options that are available to you. Comparing the returns, for these limited number of cards, becomes easy and you can simply pick the one offering the highest number of benefits.

How Does a Credit Card Work?

Being nothing more than a small rectangular piece of plastic issued by a bank, a credit card leaves most people in awe when it takes care of huge bills and payments in just a single swipe. You can’t help but wonder about the ease of the entire process and how it works. Here we are going to answer just that.

What is a Credit Card?

A credit card is a financial instrument issued by a bank by means of which you get access to funds generated on demand. Based upon your credit profile and consumer behaviour, the issuing bank puts a cap over the amount of funds you can extract through your credit card. You are required to pay a joining fee for availing the facility and an annual renewal fee for continuing to enjoy the perks of using a credit card. The bank grants you many benefits as welcome gift, perks and spending based rewards such as access to premium airport lounges, spa services, gift vouchers, reward points, etc. The bank encourages you to use your credit card more often by rewarding your spends with reward points. These points can later be redeemed as cash back, gift vouchers or for purchasing everyday commodities.

How Do Credit Cards Work?

You can use your credit at a retail store or online. Here, we are discussing both the processes.

Using Credit Card at a Retail Store

When you propose to pay for your purchases by a credit card, the retailer would need to swipe your card over an electronic data capture machine. The machine will read your card information which is encoded on your card in the form of an electronic chip and a magnetic strip (the black strip that you see at the back of your card). The retailer will further ask you to enter your Personal Identification Number.  All this information will be sent to your bank in the form of a payment request via electronic channels that are fully encrypted.

The bank, on receiving the request, will assess your card information and check if the card expenditure is within the prescribed limit or not. If so, the bank approves the transaction and sends an approval message.

On receiving the approval, the machine will generate two copies of the payment receipts. The retailer may ask you to sign one of the copies, which he will keep with himself and give you the other. The money will be transferred to the retailer’s account within a single working day.

Using Credit Card for Online Payments

When you are shopping online and choose credit card as your preferred payment option, the e-commerce website will direct you to a payment page. On this page, you will first need to choose whether the card is a Visa, MasterCard, RuPay or AmEx. Then, you will have to enter your card details which include the name of the cardholder, the 16-digit card number, expiry date and CVV. After entering the information, you will need to click on the “Pay” button.

This information will be sent to your credit card issuing bank via end-to-end encrypted payment gateways. The bank will verify your details and sends a one time password to your registered mobile number. You will need to enter this one time password at the payment page in order to authorise the transaction. If the one time password is correct, your payment gets approved. 

Credit Card Bill

All your monthly transactions will be recorded by the bank and will be sent to you every month in the form of a billing statement. This bill is to be paid on the due date which is normally 18-25 days from the date of issuing the bill. If you pay the entire bill amount, the bank will not charge any interest or fee from you.

However, if you fail to pay your bill on time, the bank will impose a late payment charge. In this case, interest will also be charged, on a daily basis, starting from the date of the transaction. You can escape the late payment penalty by paying the minimum amount due, mentioned on your credit card bill statement. The rest of the amount will be carried to your next billing statement. It is to be noted that interest will be charged over the amount carried forward.

How do Banks Make Money?

You may be wondering that since banks do not charge any interest on your credit card and even reward your spendings, they may be suffering huge loss. But, on the contrary, banks make a lot of profit by means of credit cards. But how do they do it? The answer is simple. Defaults and revolving credit facility. Banks generally make money by failure of paying the total bill amount on time. The high interest rates and penal fee associated with the failure of timely payments make a big chunk of money for the issuing bank.

Also, banks charge some amount from the merchants as credit card acceptance fee. So whenever you choose to pay by using a credit card, the merchant has to pay some amount for each swipe.

How to Make the Most Out of a Credit Card?

A credit card has many perks. For starters, it enhances your purchasing power by providing the ‘buy now pay later’ option at zero interest rate. Most credit cards come with global acceptance so you do not need to worry about cash conversions on your trip abroad. Besides being the safe and easy payment method, they also help strengthen your credit score. The fact that all your spends are rewarded with points is just a cherry on the cake.

Using your credit card every now and then for your regular expenses such as fuelling, grocery shopping, movie ticket bookings is a good idea since all your expenditure is rewarded with points and other benefits. Thus you can earn upon your daily expenditures.

Apart from the benefits of credit card, there are also certain drawbacks attached to credit cards. Since you do not need to worry about the unavailability of cash, credit cards encourage impulse buying and promote overspending. The failure of repayment of these out-of-the-budget expenses attracts penalty fees and high rate of interest. Since interest is charged on a daily basis, it does not take a lot of time for you to get buried under the continuously exponifying debt. In such cases, it even tarnishes your credit report. Therefore, you need to exercise a great degree of self-control while using your credit card. Do not let yourself get overwhelmed with the purchasing power attached to a credit card as it is just a temporary benefit.

Takeaway

As it is said, do not judge a book by its cover, do not judge the capabilities of a credit card by its size. It may be a small rectangular piece of plastic but grants you super magic powers that help you make big purchases. However, all these transactions once verified and approved come back to you in the form of credit card bills. You should be careful to not spend more than your capacity or it will land you in trouble. A credit card can become either a Ginnie or a pandora box depending upon how you use it.

Should You Take a Personal Loan for Starting a Business?

Starting a business is not a cake-walk on a straight road but a path full of twists and turns. As it is said the biggest challenge is to begin, the biggest hurdle lies in raising the requisite capital for your startup. Bootstrapping is not always an option and while investors are a good source for both funds and mentoring, it takes a lot of time, effort and convincing on your part to make them take an interest in your business. Your business proposal should be well-tailored, you must have conducted in-depth market research and your business revenue model must be promising as well as visionary. The same goes for business loans. Then how to arrange the funding? Well, you can simply go for a personal loan. The loan approval is solely based upon your personal creditworthiness and the disbursal of funds is done within a few snaps of fingers.

Start-up and Personal Loan

Since you do not need to specify the reason about how you are going to utilize the funds generated by the means of a personal loan, you can use it for any purpose, even for funding your business. The loan process is simple involving minimal documentation (you just need an identification proof, address proof, and income proof) and verification. There is no requirement to pledge any of your assets and the funds are transferred to your account in no time. However, the interest rate for a personal loan is comparatively higher than what will be offered to you in case of a small business loan.

The stats are not your best friend when it comes to establishing your startup. According to a recent report published by the IBM Institute for Business Value and Oxford Economics, with the title “Entrepreneurial India,” 90% of the startups fail within the first five years in India. Going for a personal loan for starting a business under such scenarios doubles the risk. On one side you will bear the burden of the loss of investment funds and on the other side will be a tarnished personal credit flow. This justifies Mark Cuban’s words, “Only morons start a business on a loan.”

Should You Take a Personal Loan for Business?

What Cuban implies to say is that while going for a loan if you have steady income inflows is a good idea, availing one at a time when you are risking your entire income for establishing an enterprise of your own can prove to be deadly. Therefore, you must secure both- your income sources as well as your personal credit lines before adventuring into the treacherous waters of availing a personal loan for a business.

Benefits of Taking a Personal Loan for Starting a Business

Availing a personal loan for starting your business could be a good idea as a personal loan comes with many benefits attached to it. These include:

Easy Qualification

The eligibility norms for a personal loan are simpler than those of any other business loans. The eligibility for a personal loan depends on factors such as age,  occupation, income, employment & income stability, residential status & stability, credit score and number of dependents. You do not need to present your business proposal and revenue model for availing a personal loan for starting your business. Its approval is mainly dependent upon your net monthly income and credit report.

Instant Disbursal of Funds

Since a personal loan does not involve much documentation and verification, the approval process takes an average of 24 to 48 hours and funds are transferred instantly into your personal loan account. This makes this loan the fastest method to arrange funds for meeting immediate cash requirements of your business.

No Requirement of Collateral

As most personal loans are unsecured loans, you do not necessarily keep a valuable asset as security with the bank. Therefore, you can enjoy business funding without the fear of losing your asset.

Disadvantages of  Taking a Personal Loan for Starting a Business

Using your personal loan for business purposes can bring in many adversaries and can land you in difficult waters. Some of the disadvantages are listed below:

Risking Your Personal Credit

As already mentioned in the article, starting a business is a risky affair and taking a personal loan for starting your business can damage your personal finances. Since a personal loan is taken by an individual, you need to repay the loan even if your business fails to operate. Therefore, there is a lot at stake while going with the option of taking a personal loan for starting a business.

Limited Funds

While your business requirements may increase from time-to-time, a personal loan provides limited access to funds. While some banks like HDFC Bank can offer a personal loan of up to Rs. 50 lakh, most banks do not lend over Rs. 20 lakh in case of a personal loan. Therefore, a personal loan may not meet all your entrepreneurial requirements.

High Rates of Interest

Personal loans being unsecured are risky for lenders and they, therefore, charge very high rates of interest for personal loans. Depending upon the creditworthiness of a borrower, some banks can even charge interest at rates as high as 26%.

Things to Take into Consideration Taking a Personal Loan for Starting a Business

There are certain factors that you must keep in mind while opting for a personal loan for startups. These are:

Debt-to-income Ratio

Debt-to-income ratio is one of the primary factors that lenders take into consideration while processing your loan request. This ratio indicates your ability to manage loan repayment. Normally, a debt-to-income ratio of greater than 43% is considered good by the lenders. You must ensure that you have a good debt-to-income ratio otherwise even if your loan application gets approved, the EMI payment will exhaust all your monthly income and all you will be left with is peanuts, and it will become impossible to manage your monthly expenses.

Credit Score

Credit score is another crucial factor that helps a bank decide upon the various aspects of your loan request. The bank often offers a high interest rate to individuals having low credit scores. Therefore, you must check your credit score before proceeding with your loan application as there are chances of rejection if you are at the lower side of credit score.

Should You Start a Business with a Personal Loan?

While starting a business with a personal loan is not an entirely bad idea in itself but overlooking the various how’s and what’s is like skating on the thin ice. You can go for a personal loan for starting your business if you have a stable income source, a good credit score and a high debt to income ratio. If you do not have a decent credit score or a debt-to-income ratio of at least 45% and still opt for a personal loan, you are opening a pandora box as your business will not start generating huge returns immediately after coming into operation. It will take a lot of time to start earning profits. You must ensure that you can manage your debt repayment till the time your business is still making its mark otherwise a personal loan availed at a high interest rate will exhaust all your income.