Business Today

Your borrowing options

With personal loans all but drying up, here are a few ways to overcome your income-expense mismatch.

Clifford Alvares        Print Edition: September 6, 2009

When Navin Daniel set out to take a personal loan of Rs 25 lakh about seven weeks ago, the private sector bank where he usually banked his salary seemed eager to take up his business. Soon after Daniel filed the application, his bankers assured him they would release his loan “within a few days”. But about two weeks into the deal, his bankers called up and said they could provide only Rs 8 lakh, which would again take a few days more.

After two more weeks, his bankers brought down the amount to Rs 4 lakh. Three more weeks later, Daniel is still awaiting his personal loan. When Daniel contacted his bank lately, they turned around and refused a loan. Now, the marketing professional is tapping his friends to tide over his shortterm funding requirements. Says Daniel: “If banks have a complete loan department to look into these issues beforehand, then they should have come back a lot earlier than just make blank promises.”

Loan Control
Banks and NBFCs are reluctant to give personal loans even to good-quality customers.
If you must borrow, pledging assets is the only option in these times.
For short-term needs, loan against gold is the cheapest option - credit card is the most expensive.
For long-term needs, consider loan against property or car. Property loans are the cheapest to get.

With banks seeing high levels of default in personal loans, such rejections are becoming all too common. Banks and non-banking financial companies (NBFCs) have stopped disbursing personal loans, or unsecured loans, to good-quality customers. It’s a sign of the times. The credit squeeze has put lenders in a spot of bother as it’s getting difficult to raise resources in these uncertain times. As a result, they have cut back their lending. Says Apul Nayyar, CEO, Moneyline Credit: “People began to borrow heavily and were getting overleveraged. And to top it, credit began to tighten.” The distress is visible across the lending industry as growth in credit offtake has slipped from 25 per cent last year to around 15 per cent currently.

So, what’s the alternative? If you are looking at borrowing now, you need to pledge some collateral or assets to the bank. Gone are the days of easy credit when borrowers could easily sign up a loan against personal credit history or against salaries. Lenders are increasingly asking for various assets like bank deposits, shares, mutual fund units, government securities like National Savings Certificates, gold and real estate to lend against. Alternatively, credit cards can come to your quick rescue if you need emergency cash, but use this type of borrowing sparingly. That’s because the interest rates on credit cards is a stiff 42 per cent.

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