- Want a short term loan for 1-5 years? You have multiple options to choose from
- Choose from a personal loan, gold loan, car loan, etc, based on your needs - Read this post to know the details of these loans
If you are reading this post, you must be looking for loans that you can pay over 1-5 years. In other words, you are looking for short term loans to meet your needs. Now, that need can’t be buying a home as a home loan, which many take to do so, runs for 15-20 years on average. So, you will most likely want loans for marriage, education, purchase of car and jewellery, medical emergency, etc. Given the needs, there are various short term loan options available for you. These are personal loans, credit card loans, car loans, and even loans against securities. Let’s talk about all these short term loan options here and see which fulfills your purpose the best.
Let’s Begin with Personal Loans
Personal loans are one of the most preferred short term loan options for customers wanting to meet their instant needs. The best thing about a personal loan is that it can be disbursed instantly provided you meet the eligibility criteria as set by lenders, which could be a bank or a non-banking finance company (NBFC). As far as personal loan interest rates are concerned, they can be higher. But of late, the cost of funds for banks has come down with the RBI cutting the repo rate, the rate at which the apex bank lends to commercial banks to meet their short-term obligations, by more than 100 basis points (100 basis points =1%). Although the change in the repo rate does not have a bearing on a personal loan as it happens in the case of a home loan, banks have eased personal loan rates too, riding high on their cash surplus. The rate has come down to as low as 10.30%. However, the maximum rate can still be above 20%.
How Can You Get a Personal Loan in India?
As a personal loan is an unsecured loan, lenders like to be convinced of your ability to repay the same. So, how do they get an idea of your repayment capabilities? As soon as you apply for a personal loan, the lender pulls your credit report to check your credit score as well as the repayment track of loans and credit cards, whichever you have paid or are paying. It means you should have a credit history when applying for this short term loan option. The credit score, be it provided by CIBIL or any other credit bureau, should be above 700 at least. If the score is more than 750, you give yourself the best chance to grab a hassle-free personal loan. A good credit score means you have managed your debts responsibly. Such a positive impression makes lenders feel confident in lending you this short term loan.
Another factor that lenders consider is your monthly income. Different lenders can place different minimum monthly income criteria for individuals to get a personal loan in India. Some lenders can allow you a personal loan on earning a minimum of INR 25,000, others can increase the minimum income criteria to INR 40,000 a month. So, you should check the income criteria of different lenders before zeroing on a personal loan deal.
Can I Take a Personal Loan If I Don’t Have a Credit History?
If you don’t have a credit history, you will not have a score but can still get a personal loan. You might ask now, how is it possible? Well, banks like to capitalize on their existing relationship even if it is in the form of deposit products. So, if you have a salary or savings account with a bank for a long time, you can get a personal loan from the particular lender. Even those working in top-notch firms can get a personal loan without a credit history. However, if you have a poor score, all your account relationships and employment status will be of no use. In that case, you will have the option of taking a gold loan or loans against securities. We will discuss these short term loan options later.
Personal Loan Interest Rate of Different Lenders
Choosing the best personal loan interest rate can help reduce the Equated Monthly Installment (EMI) and interest payments for you. You can check the interest rate effect using the Personal Loan EMI Calculator. Just put the values of the loan amount, tenure and interest rate in the calculator, which will compute the EMI and interest outgo. Let’s first check the interest rates of different lenders and then make all the calculations.
|Interest Rate (In Per Annum)
|10.75% - 14.50%
|10.75% - 19.00%
|Kotak Mahindra Bank
|11.05% - 20.25%
|IDFC First Bank
|10.50% - 25%
|State Bank of India (SBI)
|11.00% - 14.00%
|SMFG India Credit
Gold Loan – Is it a Suitable Alternative to a Personal Loan?
Gold loans are often seen as an alternative to personal loans as the latter can be denied in case you fail to meet income and credit score requirements. In that case, you can apply for a gold loan by submitting your precious gold ornaments. The lender will evaluate the ornaments and find the exact composition of gold lying in them. After assessing the weight of gold, the lender will set the valuation of the yellow metal as per the prevailing market rates. The lender can disburse gold loans at around 65-90% of the value of the yellow metal. Just a few identity and address proof and the loan will be disbursed in your bank account. You will get about 1-3 years to repay the gold loan.
How Much Will be the Gold Loan Interest Rates?
The interest rate of gold loans will most likely be on the lower side as they are a secured loan. In case you default on loan payments for a long time, the lender could seize gold ornaments and sell it to recover the money. But your credit score can also be checked to decide the rate of interest; individuals having a good score of 750 and above will most likely get a lower rate compared to someone having a poor score. That was all about how gold loan interest rates can be determined. But how much is the gold loan interest rate now? Let’s find out in the table below.
|Interest Rates (In Per Annum)
|State Bank of India (SBI)
|9.50% - 17.55%
|10.00% - 19.76%
|Kotak Mahindra Bank
|10.50% - 17.00%
|12.00% - 27.00%
|12.00% - 29.00%
Credit Card Loans
Credit cards also come with the EMI options on purchases of smartphones, jewellery, and any other product. You can pay the EMI on this short term loan over 3 months to 2 years. The EMI option comes with an interest rate of 13-18% per annum, quite lower than 30-40% that you have to pay when revolving the credit card dues without using the EMI option. Yes, credit cards allow partial payments i.e. you can pay the minimum due, accounting for around 5% of the outstanding credit card balance, or more than that but below the total due. There won’t be any late payment charges if you do it on or before the payment due date. But that will invite a 30-40% interest rate on unpaid credit card balance as stated above. So, it’s not a good thing to do.
In case you have got stuck in such a situation, ask your bank to give you a credit card EMI option to make it easy for you. Most banks allow EMI conversion facility for purchases made within 45-60 days of the date of using this option. In case you are denied the EMI facility for the same, apply for a personal loan at the earliest if you feel the credit card debt could go out of your control in times to come. Pay off the credit card debt with a personal loan and pay the latter in easy installments.
Loan Against Securities
Many borrowers use this short term loan option to meet their requirements. You can apply for a loan against fixed deposits, shares, mutual funds, bonds, etc. The loan quantum can vary based on the type of security you submit. If you are applying against fixed deposits, debt funds and bonds, the loan can be around 80-90% of the investment value of these instruments. Whereas, if you apply for a loan against mutual funds and shares, the loan can be around 50-60% of the investment value of these securities. All these loans are disbursed as an overdraft for 1 year. The extension of the facility will depend on your repayment track.
Want to be free from the hassles associated with public transport? You will need a personal car in that case. Don’t worry, if you don’t have sufficient cash to fulfill this purpose. A customized car loan is up for grabs at attractive interest rates. All you need to have is sufficient monthly income to pay the car loan EMI. You can choose to pay the EMI for upto 7 years. Most take this short term loan option for around 3-5 years. The reason behind this is that the vehicle can depreciate sharply in value over time. So, borrowers might end up paying much more to the lender and may not get much value when they look to sell it years later. Keeping an optimized loan tenure makes sense.
Does the Credit Score Matter When You Apply for a Car Loan?
Yes, it does! It’s due to the depreciation that takes place in its value. In case someone defaults on car loan payments, the lender may not get the desired amount by selling the vehicle. As a result, the lender might fall short of getting the pending dues. So, banks and NBFCs check the credit score of individuals and sanction only when they find applicants worthy of a car loan. You must have a good credit score i.e 750 and above to get an easy sanction.
Car Loan Interest Rates That Exist at Different Lenders
Grabbing a car loan at a lower rate of interest should be your top priority. The lower interest rate will ensure a reduction in your outgo, something which is precious in a car loan. So, what exactly is the car loan interest rate these days? Let’s find out!
|Interest Rates (In Per Annum)
|7.20% - 7.90%
|7.95% - 8.30%
|7.45% - 14.50%
|Bank of Baroda