Types of personal loans you must know about

What is a Personal Loan?

A personal loan is a type of unsecured loan that can be used to fund just about anything that you need, whether it is to buy a new phone or for home repairs, etc. Many people choose personal loans when they are in immediate need of funds.

A basic set of documents that you would require to submit when availing a personal loan are:

* Address proof: Telephone/ Rental agreement/ Electricity bill/ Ration card
* Identity proof: Passport/ Voter’s ID/ Driving License/ PAN Card/ Aadhaar Card
* Income proof: Salary slips for last 3 months, IT returns for salaried professionals for last 2 years or Form 16
* Bank statement for last 6 months of salary account or main operational bank account
* Details of existing loan (Loan accounts statements for last 1 year and sanctions letters)

Job continuity proof: Current job appointment letter or employment certificate

Education proof: Degree/Educational Qualification Certificates

Personal loans are available in many different kinds, based on their purpose. Listed below are some of the most common personal loans you can find today.

Festival Loan:

Festivals are of immense importance in India, and celebrating them with pomp and enthusiasm, indirectly translates to expenses. A festival loan is a short-term loan that banks offer so that you can meet these expenses. Since most festive expenses aren’t exorbitant, the borrowing limit on this kind loan is relatively low. At the same time, they also have a low-interest rate.

Things you should know about festival loans:

* Tenure: 1 year
* Rate of interest: Vary from bank to bank
* Minimum loan amount: Rs. 5,000
* Maximum loan amount: Rs. 50,000
* Processing fees: Up to 2%
* Prepayment charges: Up to 3%

Home Renovation Loan:

Renovating your home is not something you do every day, which is why it is best to make all the changes you want at one time. A home renovation loan allows you to do this without exhausting your savings. Another benefit of this loan is that the interest you pay on it will be exempted from tax for up to Rs 30,000.

Things you should know about home renovation loans:

* Tenure: 20 to 30 years
* Rate of interest: 10 to 12%
* Maximum loan amount: 80% of the LTV of the estimate
* Processing fees: 0.5% – 1% of the loan amount
* Prepayment charges: Nil

Fixed Rate Loan:

As the name suggests, a fixed rate loan is a loan where the rate of interest doesn’t change during the period of your loan. The benefit of this loan is that you, as a borrower, can predict your future payments. This loan eliminates the risk of having to deal with higher interest rates as the loan period progresses.

Things you should know about fixed rate loans:

* Tenure: 5 to 10 years
* Rate of interest: 9.95 to 11.75%
* Processing fees: Up to 1% of the loan amount
* Prepayment charges: Up to 2% on principal outstanding

Consumer Durable Loan:

Every day newer and better technology is emerging in the market. Are you someone who loves to stay updated with the latest trends of consumer durables such as electronic gadgets and home appliances? If yes, then you need not worry about funding. Consumer durable loans are specifically designed to fulfil these needs.

Things you should know about consumer durable loans:

* Tenure: Up to 2 years
* Minimum loan amount: Rs. 8,000
* Maximum loan amount: 5 lakhs
* Processing fees: Up to 2.5% of the loan amount
* Please note: This may vary from bank to bank

Wedding Loan:

Most people want a lavish wedding, but not all can afford it. A wedding loan is an ideal way to take care of some or most of your wedding requirements, including expenses like shopping for sarees or jewellery, decoration etc. Many people opt for these loans as it allows them to meet expenses with little worry.

Things you should know about wedding loans:

Tenure: 1 to 5 years
Rate of interest: 10.5 to 34%
Minimum loan amount: 5 lakhs
Maximum loan amount: 30 lakhs
Processing fees: 0.5%-2.5% of the loan amount
Prepayment charges: 2%-5% of the outstanding loan amount

Holiday Loan:

Not sure you if you want to spend all of your savings on the next family trip? With a holiday loan, you can keep your savings intact while enjoying a vacation! This type of loan usually has higher interest rates compared to other loans but is a good idea when you know a big payout is coming to you and you need time to arrange it. The total loan amount you can be eligible for depends on your holiday location and credit history.

Things you should know about holiday loans:

* Tenure: 2 to 3 years
* Rate of interest: 12.95 to 14.20%
* Minimum loan amount: Rs. 10,000
* Maximum loan amount: 2 to 10 lakhs
* Processing fees: 2% of the loan amount (minimum Rs. 1000 and maximum Rs. 10,000 excluding service tax)
* Please Note: This may vary from one bank to another.

Business Loan:

Since a personal loan is unsecured – i.e. you don’t have to maintain a collateral – such types of business loans are quite a good deal. This kind of a loan is particularly useful if you want to expand a business. Also, if you wish to start your own business, you can apply for a business start-up loan to meet your financial needs. Here, your loan amount is based on your credit history and eligibility.

Things you should know about business loans:

* Tenure:1 to 6 years
* Rate of interest: 17 to 22%
* Minimum loan amount: Rs. 50,000
* Maximum loan amount: Up to 75 lakhs
* Processing fees: Up to 2.5% of the loan amount

Apart from the common documents mentioned above (identity proof, address proof, income proof, etc. ), you will also need the following documents to apply for a business loan:

* Bank statement for the last 6 months
* Latest ITR showing the computation of income, balance sheet and P&L account (for the last 2 years). These documents must be CA verified
* Proof of continuation which includes (ITR/ Trade License/ Establishment/ Sales Tax Certificate)
* Either of the two documents – Sole proprietorship declaration, certified copy of Partnership Deed
* True copy of Memorandum and Articles of Association

Understanding the different loans available to you can ensure you get a loan that perfectly suits your needs. This way you don’t end up spending more or getting a lower amount etc.

Credit: Economictimes

3 Things That Keep Young Girls From Taking Charge Of Their Finances

3 Things That Keep Young Girls From Taking Charge of Their FinancesThe children’s central park in our housing complex is a busy place. While children are busy sliding and swinging their chaperones are busy networking. Finding out who stays where, whether they are owners or tenants and many more related but irrelevant questions. I am usually the odd one out, the mother who claims that she works but is in the park every evening and if weather permits even late afternoons in winters. So I get a lot of curious questions on what I do.

“Aunty I work in the space of Financial Education especially targeted at women”

I get a very disinterested “Oh” and Aunty moves on to put another slice of apple in her granddaughter’s mouth.

Mrs. Khanna who was now on her third round of Kapaal Bharti is suddenly interested. “Please meet my daughter, she is clueless about her finances”.

“Sure when can I meet her?”

“I think Saturday evening should be fine. Just drop by casually”

“Okay will do that. What’s your house no?”

“432 Ground Floor, house with big rose bushes”

“Oh yes, I have seen it. Will be there at 5:00 pm on Saturday”

“Thank you”

Mrs. Khanna, I gathered was as obsessed with making her daughters independent in all aspects as she was dedicated towards her yoga. I was very impressed with her drive. It is not every day you meet parents who appreciate the need for making their daughters financially independent.  Her daughter Dolly, however, was another story.  It always amazes me when I meet young girls who are managing successful careers but ask them what are you doing with your salary? “I give it to Papa”. “I have no clue what to do”. “I spend most whatever is left is in my savings account”

Initially, I would get agitated but having interacted with many women I now realize that 3 things keep young girls from taking charge of their finances. Solve it and you would have got many on the path of financial independence

Imagination or lack of it to be more precise.  When you are young in your early 20s it is very difficult to imagine old age and the attendant problems. So when you cannot imagine a problem appreciating a solution for the same is a tad difficult. To be honest it is always easy to imagine good things like a dream holiday, a luxury cruise or a fancy car. So the trick is to talk about what someone can imagine. I now always discuss ways and means to accumulate wealth to make these dreams a reality. Investments done to meet these goals give them the first taste of how money multiplies and how can they with little discipline and help grow their money.

Second thing afflicting our girls is what I call as the “Cinderella Syndrome”.  We raise our girls to believe that they need someone to take care of them.  This is the most amazing dichotomy of our patriarchical society. World over women are the caregivers to their children and elderly at home. But when it comes to their own physical and financial well being we make them believe that they need someone else to take care of them. So deep-rooted and widespread is this belief that it will take a lot of work to change this.   We need many more mothers like Mrs. Khanna to bring a change in our homes to bring up our daughters as independent individuals. Dolly sits with a blank face as Mrs. Khanna and I discuss merits of financial independence. I am by now used to this disinterest and know it will take more than one meeting to impress the importance but Mrs. Khanna a feisty Punjabi that she is getting agitated. She almost yells at her daughter “Beta don’t  depend on anyone to be your financial plan, whether it’s your spouse, the government, a financial advisor, or your family. All of those things can be taken away, for one reason or another. The only person you can rely on to be there for you your entire life is yourself.” Dolly nodded I understand let’s draw up some investment options and then excused herself to make an urgent call.

I am satisfied this is more than I achieve in most of my first interactions. A beginning has been made all thanks to Mrs. Khanna’s determination.

As I push myself back on the sofa to enjoy my cup of Tea I see Mr. Khanna enter with a suspicious look on his face. “Are mutual funds investments safe? I have recently started a SIP 2 month back and it is right now negative”. Well, this brings me to the third deterrent which is true not only for young Girls but for a large population irrespective of the gender. Fear of loss from more aggressive products like Mutual Funds. This fear largely stems from a lack of knowledge of the product.  Mutual Funds broadly are of two types Equity and Debt. Equity Mutual Funds are meant for long-term wealth creation. If one is looking for short-term investments debt mutual funds are the right product to invest in. You can read more here on “How to invest” this is a ready reckoner to choose correct investment products.

Equity-backed investments are most effective in beating inflation and creating wealth over the long term. To appreciate this, one should understand the source of equity profits. The ultimate source of profits in equity is the general growth of the economy. The fear that people and Mr. Khanna have is that of volatility.

The daily noise from the stock markets is such that the overwhelming impression we get is of volatility. However, this is an illusion. If you were to look at the equity markets once every five years, you would get the following (annualised) returns: 6.5, -1.3, 81.4, -0.7 and 12.2. That makes it pretty clear that it is the daily noise that we need to avoid.

I am hoping that this explanation has satisfied Mr. Khanna and he will stop tracking his and his daughter’s future portfolio on a daily basis!

Read More at Momspresso

5 Secrets to Saving for the Future While Enjoying Life Now

Save? Spend? Or both?

In my work with younger clients, that’s one of the main conflicts I see: The desire to prepare for the future and save versus the impulse to live for the present and enjoy earnings now. People know that nobody is promised tomorrow, but they also don’t want to live out their retirement years with limited choices, or none at all.

So how can people strike a successful balance between these seemingly competing desires? Based on my work with financial planning clients, here’s my five-step plan:

  1. Understand your cash flow. I’m going to make a bold statement here: Nothing will affect your financial future more than your ability to understand your household cash flow. If you want more money to save for the future or to spend now, you have to understand your current spending patterns and habits to get there. Check in on your spending weekly; that takes far less time than a monthly review, and it’s easier to catch places you may have spent more than you planned. It’s easy to live lean for a week if you’ve overspent in a previous week. It’s a lot harder to catch up if you’ve been overspending for a month.
  2. Learn to say “no” by deciding on your “yes.” The clearer you are about what you want to do in the short and long term, the easier it is to make spending choices that you’ll be happy with when you look back at them. Before I married the woman who became my wife, I used to feel deprived if we weren’t going out to eat often. On our honeymoon, I discovered that what I really wanted to do was to travel the world with her. Once that became the big yes, I wasn’t depriving myself if I didn’t go out to eat. If I did go out to eat, I was depriving myself of what I really wanted, which was to travel more. That single idea helped me change my habits entirely and build up the money we needed to take a big trip every year.
  3. Limit your monthly bills. Eric Kies talks about Money Past, Money Present, and Money Future in his First Step Cash Management system. Money Past is all of the money you’ve agreed to spend at the beginning of the month — things like rent, utilities, and student loan payments. While buying a new car may not seem like a big deal if you think you can afford it, adding on a car loan to your Money Past comes with a major tradeoff: It limits your day-to-day spending (Money Present), and it cuts into your ability to save for the future as well (your Money Future). Be careful; I regularly see young couples adding to their Money Past bucket, limiting their present and future spending choices.
  4. Automate your savings for present and future goals. Chances are you get paid by direct deposit, and it’s easy to direct funds into multiple accounts. Beyond your basic emergency fund, I’ve seen clients have a lot of success in setting up multiple savings accounts to have balances grow for specific goals (a trip to Europe, for example, or a new car). This allows you to see the specific progress you’re making. The same concept applies for retirement plans at work. If you can save that money automatically before it reaches your bank account, you’re far more likely to continue saving those funds in the future and even to increase your contributions over time.
  5. Plan for spontaneity. This may sound contradictory, but I think it’s essential. Many people I’ve spoken to resist tracking their spending because it feels constraining. A good solution to this is to build in money that is purely for spontaneous spending. If you know there’s money in your budget that is there for the sole purpose of spending it, it protects the money that you’re saving into other accounts by providing an outlet for a spur-of-the-moment decision.

Why there is no alternative to equity for long-term investments

long-term-thinkstockLong ago, perhaps till about 2000, I used to be a little defensive about advising people to put almost all their long-term savings in stocks or equity mutual funds. In those days, it was hard to come across anyone who did not react negatively to such a view. Equity was for punting, while savings were to be kept in deposits of one kind or another. At that time, perhaps 99% of savers had an anti-equity view. Those days are long gone and the proportion of savers who are anti-equity is now down to a mere 95% or so.

Even so, nowadays, I see no point in breaking it gently to anyone, so I’ll come straight to the point: Your long-term investments must be kept in equity-backed investments. There are no ifs or buts here. If you do not do so, you will expose yourself to the frightening specter of old-age poverty. Except for the small proportion of people who have inherently inflation-linked lifelong income (like a lot of rent, or perhaps a government pension), every other saver must invest almost all their long-term investments in equity.

In last week’s edition of this column, I had shown that deposit-type savings—whether FDs, PPF or anything else—yield almost no real (above inflation rate) rates of return. The result is that those who depend on these for their old age income need much more savings in order to avoid hardship. Therefore, unless you have rental income that can be hiked periodically, or you have a government pension, you will have to fight inflation yourself.

In this battle, the only effective weapons you have are equity-backed investments. However, the problem with that is that most of us still live in the India of the past, one that was a pure fixed-income country. Except for a small handful of punters, investments of almost everyone were made in deposits. This was true at least till the mid-1990s. The only time the investor dabbled in equities was when he filled out his application form for an IPO, or just ‘issue’, as it was then called.

The ‘issue’ worked more like a lottery ticket than an investment. Then, from about the mid-1990s onwards, there arose a small but distinct equity culture where individuals started investing in equity mutual funds in reasonable numbers. However, when seen in the context of the size of the saving population and the kind of money that is invested in deposit-type products, equity exposure is still tiny.

To understand why inflation can be defeated only by equity-based investments, let’s step back and think from the basics. There are only two ways of investing money—either you can lend it to someone, or you can own your own business. When you lend, you get a basic return but do not share in the upside. For anyone who is good at doing business, the best way to invest is in your own. Fortunately, because of the existence of stock markets, any of us can become owners (or rather, part-owners) in a in a business. We can reap the financial advantages of being owners with very few challenges that the real owners face.

This means investing in equity. Equity could mean buying shares but for beginners, it generally means investing in equity-based mutual funds. To appreciate this, one should understand the source of equity profits. The ultimate source of profits in equity is the general growth of the economy. The fear that people have is that of volatility.

The daily noise from the stock markets is such that the overwhelming impression we get is of volatility. However, this is an illusion. If you were to look at the equity markets once every five years, you would get the following (annualised) returns: 6.5, -1.3, 81.4, -0.7 and 12.2. That makes it pretty clear what the right choice is, doesn’t it?

Credit: Economic Times # DhirenderKumar