There are many people who are facing a cash crunch and finding it difficult to make ends meet. Loss of job, pay-cuts and falling business income after the outbreak of Covid-19 have impacted the finances of several individuals. To add to the misery, hospitalization due to coronavirus has further pushed many into deeper debt. For arranging money at quick notice many people have borrowed from friends, relatives, and neighbors.
Although personal loans are readily available but may come at a high cost especially when the lenders are reluctant to extend loans. Personal loans are available from around 11 percent and can go as high as 18 percent, as they are unsecured in nature. There could be processing fees and other charges in-built into the loan offer as well.
Even if you have to opt for a personal loan, choose a lender with the lowest EMI per lakh. Ask for the documentation required, approval formalities and how much time will it take for them to credit your bank account with the loan amount. Most banks and NBFCs are offering digital loans which are essentially personal loans. Some of them can be pre-approved loans and may require no or less documentation. Keep an eye on processing fees, foreclosure charges, etc before finalizing them. They can be good sources to arrange funds but there are alternative options too that may be explored. Here are some of them.
Salary overdraft
As a salaried employee, you may get an overdraft (OD) facility of up to three times your salary from the bank. The OD facility is generally for 12 months and you have to pay interest only on the amount you use, and for the duration you use it.
It is a non-EMI product, and you have to service only the interest every month. At any time, you may foreclose the OD facility without any penalty or charges. This facility is easy to activate, requires no documents, and guarantees money in your account in a quick time.
PayDay loans
A payday loan is a loan that you can avail till the time your upcoming salary gets credited to your account. These are short-term loans when one is short of funds for a short period. Generally, a PayDay loan is a single installment loan i.e. the full loan amount and interest due will be automatically deducted from the customer’s bank account in the next month after which he has availed the loan.
Loans against FD
If you or your parents hold a fixed deposit in a bank, you may opt for a ‘loan against FD’, without having to break the deposits. The loan can be availed for an amount up to 85 percent to 90 percent of the value of your deposit. It can be availed both as a loan or an OD.
Covid loan
For those who are found Covid-19 positive on or after April 1, 2021, and need money to meet medical expenses related to the treatment of coronavirus, the State Bank of India has launched a loan offer for those who are holding a bank account with them. The loan can be availed by the bank customers who could be Salaried, non-Salaried or Pensioners. There will not be any collateral to avail the loan from the bank.
Mutual Fund loan
If one is facing a short-term cash crunch, getting funds against mutual fund investments may provide some relief. Some banks have a facility that provides mutual fund investors to get a loan by pledging their holdings in both debt and equity schemes of mutual funds. The investor need not have to sell the MF units and the loan availed is in the form of overdraft (OD). In an OD kind of loan, one pays interest only on the amount of loan used and not on the entire amount of loan.
In addition, you may take a loan against gold jewelry, an insurance policy, or even your residential or commercial property if you have them. The loans against them are secured in nature as you will be providing collateral and hence, the interest rate in them is generally lower than a personal loan. You may negotiate with the banker and NBFC to not keep any foreclosure charges in the loan agreement and try to prepay the loan as and when funds are available from your own sources.