In the last four months, the interest rates on personal loans have gone up 2 to 2.5 per cent. This translates into an increase of Rs 150 in your equated monthly installment.

The impact has hit entitlement of the loan, too, which has come down by 5-10 per cent. Earlier, you could get a loan of up to Rs 500,000 if you were earning Rs 20,000 per month. Now, the same salary gets you Rs 450,000.

Rajiv Jamkhedkar, business manager, Citibusiness, Citibank, gives you tips on what to do next.

Are people going in for personal loans? What is the trend?

A lot of people are going for personal loans, which has seen 30 per cent growth in the last two years.

Do you think the increased rate of interest will impact subscription of personal loans?

Yes, this could have some impact. Data shows that, over the last three years, the salaried middle-class availed personal loans. Later, various banks introduced schemes for the self-employed segment, which has led to an increase in the subscription of personal loans. They are attractive for banks as they are for people.

Can I get a personal loan of Rs 200,000-Rs 300,000? My annual income is Rs 280,000.

This income will get you a loan of Rs 200,000-Rs 300,000 from any bank. You should, preferably, go to the bank where you hold a savings account.

Convenience and fast loan delivery are the main factors to keep in mind while deciding about the bank. Those who apply for personal loans usually need cash urgently or have a specific deadline.

Banks offer personal loans at a lower interest rate (4-5 per cent lower), than finance companies. If banks offer an interest rate of 16-20 per cent, finance companies offer an interest rate between 20 and 24 per cent.

The cost of funds to the banks is generally lower compared to finance companies.

Is it wise to raise personal loan to pay up credit card bill?

If you have accumulated a huge amount on your credit card, it is alright to take a personal loan to pay up dues.
Remember, credit card has an easy mode of payment. The use of a credit card is different from a personal loan.
Don't use a credit card when you need a personal loan. If the amount is big and you need more EMIs spanning two-three years to pay the loan, then go in for a personal loan.

I have a savings account with the bank that has offered me a ready cash facility. Should I take it or raise a personal loan? I require a loan of Rs 250,000.

Rupees 250,000 is a big amount. I suggest you take a personal loan. Work out the EMI and tenure of the loan. You can choose a loan tenure of two to four years. Pay not more than 25-30 per cent of your monthly salary as EMI.

The interest will depend on your previous track record and credit appraisal done by the bank when you will apply for the loan. If you choose to pre-pay later, you have to pay 3-4 per cent of the amount you are pre-paying as pre-payment charges.

I work on a contract basis and have no salary slip. Will I get a personal loan?

If you are self-employed and don't have any employment contract with a firm or have your own business, banks will give you the loan.

When you apply for the loan, please submit a copy of the work contract and the bank statement showing money paid to you as a contract employee and copy of income tax return.

Are banks selective in giving personal loans?

Banks don't have any security for personal loans, which are considered unsecured loans unlike home loans, where banks have the security of the house.

So it is important to weigh the creditworthiness of the people whom they are providing loans to.
Therefore, banks use a lot of statistical tools to minimise their loss rate. They want to be sure they will get back the money.

So they are careful while giving personal loans. Banks make policies of providing loans on the basis of income, occupation, qualification, years of service and education. These things are important at the time of credit appraisal of applications.

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