Personal Loan

personal-loanThe Pre-approved loan can be a helping point during the emergency time but it is not the good option always. You need to meet a number of criteria to get a personal loan approved. Financial institutions themselves do some mathematics about for their customer’s cash flows, payments, account balances and categorize some customers as privileged customers.

Then financial institutions offer Pre-approved loan to those customers. This offer is applicable for all types of loan like home loan, personal loan, and vehicle loan from the private sector banks and public sector banks.

What defines the Pre-approved loan?

If you have a relationship with a bank for a long time and you are maintaining you are maintaining your account well and you have taken one personal loan, Credit card from the bank. The payment you make each time for your loan, on the credit card is being tracked and monitored closely by the bank.

Depending on your spending behavior over the period of time, the bank offers you a loan which it assumes you can repay the loan with your comfort.

Benefits:

It helps you in emergency situations. If you are looking for a property to buy, you made a search property portal found the property you wanted to it has, also you have cash for down payment for buying property.

At this juncture, you need to fire for getting the rest of payment to get the property as there will be a lot of willing buyers to buy the property for a builder. At this point, the Pre-approved loan can be a right option. Before signing this loan offer, have crosscheck on the interest rate from other banks as well.

Preapproved loan processing times is much faster than normal loan application since the bank has predicted that you are eligible for a loan and your transactions. You can get a loan and move into your property easily.

The another advantage is that you can have a negotiation with the bank to lower interest rate to the possible extent as the bank has voluntarily come up with a loan offer for you. If you have taken a loan and repaid it without defaulting in a single EMI payment then your chances for bargaining capacity is high.

To sanction a Pre-approved loan, the bank takes into the account of your payment history and other factors too.  Your cash transactions in your account may be a lot better than the bank has assumed.

The pre-approved loan offers you get from bank and bank representatives are not the same. You need to have a check with the bank to know more.

Whenever you approach banks for a personal loan, there is interest associated with the loan. The interest is an expenditure. If there is higher interest then higher expense associated with the loan. You end up paying more towards interest which will cost you dearly. So it is important to reduce your amount goes towards your EMI.

There are numerous ways in which you can reduce the EMIs; here are some of the ways:

Negotiate with the bank for EMI

If you maintain a good relationship with a bank like making payments on time, no defaults in EMI in the past payments, you can negotiate with the Bank for reducing the interest rate on Loan and hence thereby  lowering  your EMI.

Most of the banks will lower the interest rate on their loan, so as to retain good customers. If the bank does not offer the expected interest rate then you may consider other banks for lower interest rates.

Look for other lenders:

As there is competition among the lenders for getting good customers and loan market is being occupied by the new lenders who lend loans at the best interest rate, chances are high for changing your lender.

While changing for another lender you need to have an eye on interest rates, processing fees, any other penalties being offered by them beforehand. You need to figure out the quality of service that new lender is offering you and any fee is charged by the current lender for switching over to the new lender.  This will help you to a great extent in solving your financial burdens.

Prepayment in Loan:

When you have higher the outstanding balance, you bear the higher interest on your loan. Whenever you have the surplus amount, get a salary hike, bonus in your company use this money to make the prepayment for your loan which in turn reduces you outstand in balance amount, lower total interest payable also tenure to the possible extent, thereby you reduce financial stress.

Finish Higher Loan interest first:

Ram has taken a home loan, personal loan, and one credit card, he should first close credit card as it charges a higher interest rate, then he should strive for closing a Personal loan, finally lower interest rate Home loan in the priority wise.

Once Ram finished higher interest loan, he should use the saved money to the next higher interest loan till the loan paid off completely. Loans have become an integral art of our life. Always take steps in reducing EMIs and loan tenure which results in Total loan amount reduction. This helps you a lot in the longer run.

There are two types of interest rates

Being short of funds most people approach banks for getting the loan. In return, they need to pay not only principal amount also, need to pay with the agreed interest over the mentioned time period.

Fixed Interest rate:

In this type interest rate is fixed throughout the loan tenure, till the point loan is completely paid off.

Let’s take the case of karthik took a Personal loan amount of Rs, 200,000 at a flat interest rate of 15% for three years. Later he was astonished when he came to know that he need to pay 10% more for the loan. He realized he should pay more than 10% of the promised loan interest rate by the bank.

He should pay the principal loan amount with interest every year until loan amount gets over for the three years:

Principal amount: 200,000

Interest Rate: 10%

Interest amount per year it will be Rs.20, 000 so the entire amount would be Rs 60000, adding to the principal amount final total is Rs. 260000 as per the flat interest rate.

The monthly EMI amount per month it would be Rs. 7222

We always suggest our customers not to go for flat interest rates when taking the loan as it is the most expensive ones.

One should always opt for reducing balance interest rate when options are givens to choose. In this interest rate, Principal amount gets reduced, daily, monthly, quarterly and annually.

When the principal amount gets reduced, the interest you pay on the reduced balance also decreased. The more you reduce the principal amount, the better for the customer. New interest is made on the remaining principal amount.

Let us consider the same case on reducing balance interest rate:

Karthik got Rs.200000, with interest rate of 10% for three years;

On the reducing balance, the interest rate per annum would be 17.91% percent per annum.

This interest rate is almost double the interest rate per annum as that of Flat interest rate.

If we opt for reducing balance interest rate the EMI would be Rs.6453. There is approximately around 10 percent difference between Flat rate interest rate and Reducing balance interest rate. It will have a bigger impact on the cost of the loan.

Generally, the Flat interest rate may sound good, but when interpreting arithmetically you will realize reducing balance interest rate is better than the flat interest rate because interest rate calculated every month on the outstanding balance loan amount.

Reducing balance rate is also known as Diminishing balance interest rate.