Avoid low-interest COVID-19 personal loans, unless strapped for cash

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This is the time to utilize your emergency loan. If you don’t have one, partly utilize investments meant for your long-term objectives.

The ongoing pandemic has derailed normal life and, more importantly, impacted the personal finances of the common Indian. Pay cuts, deferred salaries and loss of revenue for those in business have become common. So, many banks and NBFCs have launched special, low-interest personal loans. Interest rates start at as low as 7.25 per cent for such loans and many public sector banks offer the loan at 7.25-8.45 per cent. These are aptly called COVID-19 personal loans, as they are being offered for the specific purpose of helping people tide over a temporary liquidity crunch

First, not everybody needs this loan

The need for an personal loan.

There are two kinds of people currently. First are those whose loans are affected due to this dilemma (due to pay-cuts, income deferments, loss of earnings for company/ professionals, and so on). On the other hand, there are those whose economic lives are still more-or-less on track.

And also it’s really the very first category that requires an assisting hand. For people in the 2nd category, it should be stated that an individual financing being readily available at reduced prices does not imply that they must opt for it. A financing is a loan after all. And rate of interest needs to be paid on the amount being borrowed (and interest arbitrage play is ideal left to professionals).

COVID-19 personal loan, as of now, are only offered to existing customers with great qualifications (those having a wage account with stable jobs) or customers that have great credit score history. They still require to make profits. And the leisure in the kind of reduced rates (at the very least a couple of portion factors reduced than regular personal loans) is truly helpful. Also, banks want to help but they do not want NPAs from the retail front.

Moratorium on payments

As an included action, loan providers are additionally supplying a halt duration on these personal financings. This will supply some breathing room for consumers, at the very least for a couple of months, during which they would expect points to stabilize. What should not be failed to remember is that the postponement isn’t a interest or EMI waiver. Rate of interest remains to accrue and also obtains contributed to the overall settlement expenses of these personal loan.

Those taking into consideration these financings need to understand something extra.

Assuming that you are taking (or planning to take) this funding since you have liquidity concerns. After a couple of months, repayments will certainly start mandatorily. So, if you think your liquidity issues will certainly be fixed with certainty soon, then taking this funding path is fine. If you have doubts as well as feel that you will proceed to stay under liquidity stress and anxiety for some even more time, then assume about it: just how will you take care of the added concern of the COVID Personal Loan EMIs? Lots of people are taking these car loans wishing to get moratorium expansions. Do not do that. Your hope can not be a technique as well as it can backfire through bumpy rides.

If you don’t see things boosting soon, then stay clear of taking these lendings when possible.

This is the moment to utilize your emergency fund if you have one. If you don’t have it and rather have investments for your long-term goals, consider using them partially if points are getting really tight for you.

Preferably, you shouldn’t be dipping right into your long-lasting cost savings. If you actually have no other methods or help at hand, and also predict cashflow concerns, then you would not desire to be in a circumstance where you take a car loan as well as are more strained by EMIs.

Taking personal loans need to be your last option. Also when you aren’t sure regarding the stability of your future cashflows and also see a possibility of disruption getting additionally prolonged. And also it goes without stating that economizing and reducing your non-core expenses is a no-brainer if you see a demand to obtain now.

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