Once a product becomes more convenient or flexible the marketplace will adopt it. A lesson well taken by Standard Chartered Bank. Despite their personal loan product being the only one of its kind available, it failed to catch the fancy of the public. Now, a year after its initial launch, the bank has come out with a revamped product.
Does the latest version work? In a similar fashion to the older one except for changes in the criteria. For starters, Personal Loan gives substantially more. The minimum that you can ask for is Rs 25,000 and it goes on increasing in slabs of Rs 25,000 right up to Rs 5 lakh.
But hold your horses. You may not be entitled to so much. That is just the broad criteria to tell you where the bucks stop.
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Repayment: The most important criteria is the loan tenure. You have options of 12, 24 or 36 months. Depending on what you opt for, the amount is sanctioned. Then it works the other way around, the tenure is dependent on the loan amount. Sounds confusing? Read on.
If you opt for the one-year repayment plan then the amount eligible is five times the net salary. It increases to 10 times for the two-year plan and goes upto 15 times for a repayment tenure of three years. Got the picture? Even if 10 times your net salary amounts to more than Rs 5 lakh, you will have to be content with the limit fixed.
If the amount sanctioned is upto Rs 1 lakh, then you will have to repay it within two years. The term is extended to three years only for sums above Rs 1 lakh.
Cost of borrowing: If this sounds too good to be true, lets check out the cost of this loan. On a flat rate of interest it works out to 12.8 per cent but amounts to 23 per cent on a monthly reducing basis. And yes, the interest rate is not the only cost. You will have to dish out two per cent by way of a processing fee. The repayment is done via post dated cheques (Rs 100 is the fine for every dishonoured cheque). At the very least (on a loan of Rs 25,000 payable in one year) your EMI will be Rs 2,352 and it goes right up to Rs 19,355 for a loan of Rs 5 lakh with a 36-month repayment tenure.
If you think that the rate of interest is too high, check out your options. The other avenue to raise cash with no collaterals or guarantees is via a cash advance on your credit card. At the cheapest it will work out to 2.5 per cent per month which amounts to 30 per cent annually. Not taking into consideration the service charge imposed by some card issuers.
However, this is not a fair comparison as a cash advance is normally drawn upon in an emergency and repaid within a few months. The personal loan targets more long-term needs. Secondly, a cash advance will be limited to your total credit limit or a percentage of it and not such large amounts.
Eligibility: So who gets the loan? Salaried employees, this one is aimed at you. Guys in business and the self-employed look elsewhere. All you have to submit is the proof of residence and age, six-month bank statement or copy of pass book and the original of the latest salary slip (a copy will do if attested by the employer).
Any company? Any public limited company but only around a 100 private companies, as of now. The latter includes asset management companies, financial institutions, multinational, consultancy firms, broking houses, the top 20 advertising companies as well as a couple of hospitals.
This in fact was a major drawback of the initial product. Earlier, only employees of 500 companies listed under their Finance Against Securities in Time (FAST) were the privileged few.
On the other hand, if you have just stepped into your 20s, then this scheme is not for you. The age limit is restricted between 26 to 58 years. Furthermore, Personal Loan is available only in Mumbai as of now. The rest of the country will have to wait.
Add-ons: Introduced this time round are some proposed tie-ups. First with Cox & Kings, where you can take the loan to pay for the entire tour packages.
Take, for example, the Australian tour package which will cost you $1,199 for 11 days and 10 nights (excluding airfare). If you take the rupee at Rs 36 to a dollar, the cost will work out to Rs 43,164. This amount can be taken via Personal Loan only if you meet their requirements, obviously. So whats the benefit of the tie-up?
If you opt for the combined deal, there are benefits from certain add-ons, Stanchart product manager Uma Venkatraman says. That may be the form of discounts. Or in-house offers on the travel schemes such as an extra night or day. With negotiations still on, bank officials refused to reveal any specific details.
Clarification: The headline and introduction of in the Taxwise column dated March 7 appeared as Axe the tax and Our columnist on the features of equity-linked tax savers instead of Concessions for compliance and Our columnist runs through some bold proposals in the budget, respectively. The error is regretted.