BackAvail of personal loan for a shorter duration
Personal loans come with high interest rates, it is best to go for as less a duration as possible.
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My younger sister is getting married in April and I need 20 lakh for the same. I earn 70,000 a month of which I spend around 30,000. I also pay a premium of 6,000 towards my term insurance and invest 5,000 in mutual funds (MFs) via systematic investment plans. I have 5 lakh in cash. My MF investments will add up to around 3 lakh. I plan to take a personal loan for the remaining amount. I have also been told I can take a loan against my wife’s jewellery. Which option is better? Or can you suggest any other option?
—Sumit
Your existing savings even if you redeem completely comes to 8 lakh. And if you save for the next three months, you will have another 1 lakh. With a total saving of 9 lakh, you are short by a good 11 lakh.
At such a short notice, options available to you are not many. This means you need to borrow from the markets. As you said personal loans and loan against gold are the options you have.
It is also assumed that you have checked other sources from where funds could have been raised with more flexibility and low cost—office loan and even loan from your family.
While any kind of loan will make your cash flow go haywire, I assume you are not left with much options. And with no option left, you need to check now which kind of loan is easy to get with better flexibility as well as has a low interest rate.
Personal loans are an expensive way of borrowing and it comes next to only credit card loan as far as borrowing costs are concerned as they are unsecured loans and hence carry a high risk for the lender. These loans are available for a tenor of 12-60 months. It is advisable to take this loan for as less duration as possible as you do not want to pay high interest rate for long but this will mean a high equated monthly instalment (EMI).
So, you need to work out your cash flows. As per your details, you have a cash surplus of 29,000. You can pay 26,000-27,000 a month. And a loan of 11 lakh at an interest rate of 16.25% for a five year tenor will put you back by 26,896 a month.
You may target to pay this in four years and your EMI will go up to 31,315 per month and to achieve this, you may need to stop the monthly investment in MFs.
Loan against jewellery may be a notch better than personal loans as you are offering collateral and it becomes a secured loan hence the rate of interest will be less and varies between 12-15%. You will be able to get 75-80% of the value of pledged jewellery. This may be a better option if you go to a bank rather than a non-banking finance company, and even better if you take it from a bank where you have an existing relationship. You may get a better rate and processing will be faster.
Queries and views at mintmoney@livemint.com
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