Personal Debt Management - Personal Loan and Car Loan

Personal Debt Management

A personal loan is borrowed to hedge against the unforeseen expenses that may arise, it may be to get your home renovated, expenses in daughter’s marriage, to buy a laptop or to buy a vehicle, for your child’s higher education, but before you go for a personal loan you should know the following factors which vary the personal loan.

• The amount to borrow.

• The rate of interest.

• Is it fixed or floating rate of interest?

• Loan repayment term.

• Additional cost involved-prepayment fees, brokerage fees etc.

Following only the interest part of the personal loan is not the right way to asses a Personal Debt. Processing fees, prepayment penalties should also be taken into consideration. Some ‘No-fee’ credits will have the penalties of prepayment, that’s how the lender makes the money. But the interest part of the personal loan carries more weightage.

Types of Personal Loans

• Secured personal loan

• Unsecured personal loan

A secured personal loan is attached with the collateral. It may be your movable assets or immovable assets like house, land etc. advantage of a secured personal loan is lower interest rate and low EMIs hence reducing the burden on the borrower but the disadvantage is borrower may lose his property if he fails to pay back the loan amount.

Unsecured personal loan doesn’t require any collateral but the credit history of the borrower has to be good. The advantage of this type of loan is borrower need not possess any property, faster processing but the disadvantage is higher interest rate on the loan.

See Also: Get Personal Loans in Emergency Situations

Points need to remember before going for a personal loan

• What type of personal loan?

• How much I can pay?

What Type of Personal Loan?

What type of loan fits your needs? Secured, unsecured or lines of credit? The type of loan also determines your requirements and repayment abilities. Lower income borrower is not suggested to go for unsecured loan since the interest rate and repayment EMIs will be higher.

How Much I Can Pay?

Will I be able to pay the higher EMIs….? Is the first question that every borrower needs to ask themselves. A secured loan is attached with collateral so offer lower interest rate and lower EMIs but the unsecured loan will offer you higher EMIs with higher interest rates. So comparing ones repayment ability and borrowing capacity is important while taking personal loan. 

Personal Debt Management Techniques

How to manage the personal loan? There are different thing to be done for the proper management of a Personal Loan, such as;

• Take insurance against the loan.

• Debt consolidation method

• Interest rates

Take Insurance Against the Loan.

While taking the loan the lender may offer insurance against the personal loan, if something worst happened with the borrower the burden will not be there on the family as it will be paid by the insurance company. But before taking insurance against the personal loan, think about the extra expenses that you would incur on the loan for taking insurance.

Debt Consolidation Method

Debt consolidation technique is very popular in overseas countries. It is a method to lower your interest rate when you have multiple number of debt payments like credit card loan, home loan personal loans etc. in such cases a large part of your monthly income goes for paying the interest only and you will be left with very small money to spend. So in such cases to lower your repayment burden all of your debts are consolidated into one smaller payment and thereby decreasing your interest rate, this means that borrower will be left with more money than before.

Interest Rates

Interest rate factor plays a very important role while taking a personal loan. See to the kind of interest the loan offers, is it a fixed interest rate of floating interest rate.

• Fixed interest rate

• Floating interest rate

Fixed interest rate remains fixed throughout the term of the loan. But the floating interest varies with the market rate. It is calculated by adding spread rate to the prime lending rate. A fixed rate of interest do not affect your EMIs but the floating interest rate may or may not have adverse effect on your EMIs, it depends upon the interest rate fluctuations in the market according to that your EMIs goes up and down. Before deciding the kind of interest rate, check out the status of the economy. If it is running under inflation better go with floating interest rate since inflation will not persist for longer period.

See Also: Five Personal Loan Mistakes to Avoid

How to Manage Credit Card?

Credit card is good only if it is used in a right way. After the global economic crisis banks have become more alert and are charging more interest on credit cards. A credit card is a risky money instrument for every borrower; if not re-payed on time banks have the power to take back the money from borrower’s savings account.

• Credit cards are more profitable when the card holder uses it in a proper way; everything depends upon the kind of card you get.

• It is advised to get a lifetime free credit card that doesn’t have annual fee attached.

• Purchase a credit card that fits your lifestyle.

• If you make huge shopping make sure that your credit card gives you a lot of discounts and cash back rewards

• Be very careful about how to use it and when to use.

• Don’t mess yourself in the sea of debts especially when comes to credit card though it is an ideal source.

• Keep in mind that interest rates on credit cards are much higher than other types of loans.

• Remember that cash withdrawals from your ATM using your credit card will be charged a processing fee and even the interest rate on that is also very high.

How to Pay Back your Credit Card Loan?

There are two methods for paying off your credit cards.

• Higher interest rate in the beginning

• Lower balance first

Higher Interest Rate in the Beginning

Paying off the higher interest rate card will save your money in the long run. If you want to pay off your debt more quickly then pay off those credit cards that have higher interest rate.

Lower Balance First

There are many tangible benefits if you are paying off the credit card with lower balance first. Lower balance is easy to pay off and it will also keep your motivational level going on.

Pick up the appropriate method to pay off your credit card loan. Take down all your credit card debts in the order you are going to pay off them. It could be either from higher interest rate to lower interest rate or from lowest balance to highest balance. Write down the interest rate on your credit cards, EMIs and balance them with your net monthly income.

Dos and Don'ts with your Credit Card

Dos

• Use your credit card wisely

• Before making every purchases think of the burden of debt you are going to have

• Use your credit card to satisfy your need rather than the want

• Don’t simply spend on everything which is not of any need

• Inform your creditor if you can’t pay off the monthly payment on date

Most of the creditors will help you if you let them know about the situation before you miss the payments. In case if you miss the payments without prior informing to the creditor the interest rate on your debt may increase or you will be fined for the non-payment.

Don’ts

• Don’t use your credit card for your everyday purchases like food, cloths etc.

• For everyday purchases use either cash or debit card.

• Don’t keep more debt balance every month.

Making minimum payment every month will increase the time scale to pay off your debt and also increases the amount of interest you are paying. So to keep safe from all these problems

See Also: Types of credit cards

Personal Loan Eligiblity as Prevailing in the Market

Bank name	Interest Type	Interest Rate	Loan Eligibility
		(%)	(Rs. Lakh)
HDFC Bank	Floating	14.5-16.5	4.24 - 5.65
Axis Bank	Fixed	14.0-21.0	3.98 - 5.31
SBI	Floating	16	4.27 - 5.69
Citi Bank	Floating	16.0-28.0	3.63 - 4.84
Andhra Bank	Floating	15	4.33 - 5.77
Canara Bank - Can Budget	Fixed	14.5	4.36 - 5.81
Bank of Baroda	Floating	14.5	4.36 - 5.81
Bank of Maharashtra	Fixed	14	4.39 - 5.85
Punjab National Bank	Fixed	13.0-14.0	4.39 - 5.85
ICICI Bank	Floating	14.0-18.0	4.15 - 5.53
Vijaya Bank	Floating	13.75	4.4 - 5.87
State Bank of Mysore	Fixed	14.25	4.37 - 5.83
Bank of India	Floating	12.25	4.5 - 6
Karnataka Bank	Fixed	13.25	4.44 - 5.91
Corporation Bank	Fixed	14.5	4.36 - 5.81

Personal Loan Interest Rates of Different Banks.

Bank name	Interest Type	Interest Rates for various loan amount
		1 lakh	2-5 lakhs	6-10 lakhs	>10 lakhs
HDFC Bank	Floating	14.5 - 16.5	14.5 - 16.5	14.5 - 16.5	14.5 - 16.5
Axis Bank	Fixed	14.0 - 21.0	14.0 - 21.0	14.0 - 21.0	14.0 - 21.0
SBI	Floating	16	16	16	NA
Citi Bank	Floating	16.0 - 28.0	16.0 - 28.0	16.0 - 28.0	16.0 - 28.0
Deutsche Bank	Fixed	15.0 - 16.0	15.0 - 16.0	15.0 - 16.0	15.0 - 16.0
ICICI Bank	Floating	14.0 - 18.0	14.0 - 18.0	14.0 - 18.0	14.0 - 18.0
Andhra Bank	Floating	15	NA	NA	NA
Canara Bank	Fixed	14.5	NA	NA	NA
Bank of Baroda	Floating	14.5	NA	NA	NA
Bank of Maharashtra	Fixed	14	NA	NA	NA
Punjab National Bank	Fixed	13.0 - 14.0	NA	NA	NA
Dena Bank	Fixed	15	NA	NA	NA
Oriental Bank of Commerce	Floating	13	NA	NA	NA
Vijaya Bank	Floating	13.75	NA	NA	NA
State Bank of Mysore	Fixed	14.25	NA	NA	NA
Indian Bank	Fixed	14.5	NA	NA	NA
Bank of India	Floating	12.25	NA	NA	NA
Karnataka Bank	Fixed	13.25	NA	NA	NA
Indian Overseas Bank	Fixed	12.75	NA	NA	NA
Corporation Bank	Fixed	14.5	NA	NA	NA

Car Loan Interest Rate of Different Banks

Bank name	Interest Type	Interest Rates for various term
		1 yr	2 yrs	3 yrs	4 yrs	5 yrs	6 yrs	7 yrs
Bank of Maharashtra	Floating	9.5	9.5	9.5	9.5	9.5	9.5	9.5
HDFC Bank	Fixed	10.5	10.5	10.5	10.5	10.5	NA	NA
SBI	Floating	11.25	11.25	11.25	11.25	11.25	11.5	11.5
Axis Bank	Fixed	10.0 - 10.5	10.0 - 10.5	10.0 - 10.5	10.0 - 10.5	10.0 - 10.5	10.0 - 10.5	10.0 - 10.5
Allahabad Bank	Floating	10.5	10.5	10.5	10.5	10.5	10.5	10.5
Union Bank of India	Fixed	11	11	11	11.25	11.25	NA	NA
Andhra Bank	Floating	11.25	11.25	11.25	11.5	11.5	NA	NA
Canara Bank	Fixed	8.5	8.5	8.5	8.5	8.5	8.5	NA
Bank of Maharashtra	Floating	10.75	10.75	10.75	11.25	11.25	11.25	11.25
ICICI Bank	Floating	8.75 - 12.25	8.75 - 12.25	8.75 - 12.25	8.75 - 12.5	8.75 - 12.5	NA	NA
UCO Bank	Floating	11.5	11.5	11.5	11.5	11.5	NA	NA
Vijaya Bank	Floating	11.25	11.25	11.25	11.25	11.25	11.25	NA
State Bank of Mysore	Floating	10.5	10.5	10.5	10.75	10.75	11	11
Indian Bank	Fixed	11	11	11	11.25	11.25	NA	NA
Bank of India	Floating	9.75	9.75	9.75	10.25	10.25	10.25	NA
Karnataka Bank	Fixed	10.5	10.5	10.5	11	11	NA	NA
Syndicate Bank	Floating	9	9	9	9	9	9	NA
Syndicate Bank	Floating	12	12	12	12	12	12	NA
IDBI Bank	Floating	8.5	8.5	8.5	8.5	8.5	NA	NA

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