They are ideal when we need to buy a product for which we do not have ready cash. Personal Loans are better choice compared with consumer durable loans. In fact before we consider taking a consumer durable loan we might consider a Personal Loans instead, as the procedure is slightly longer but the rate of interest is lower. Flexibility of duration and availability of various schemes make personal loans an attractive option.

It is an all-purpose loan, which is given in most cases without any kind of security like a car, home, shares or any kind of property. Most nationalized, foreign, and co-operative banks offer personal loans. Besides banks, some other finance companies and financial institutions also offer them.

Lending rates differ for different financiers and currently range from 12 to 30 per cent. These loans are available in the range of Rs.15000 to Rs.10 lakhs. The repayment period varies widely; some lenders usually permit repayment up to a maximum of 60 months. And most lenders restrict the lending to a maximum period of 36 months.

About the eligibility the following persons can take loans home.

1. Minimum takes home salary/gross monthly income of Rs. 8000

2. You should be a minimum of 21 years

3. Age should not exceed a maximum age of 60

4. All jobholders.

5. Self-employed professionals.

6. Self-employed non-professionals

Service charges are of up to 3% of loan amount are levied. This amount differs for various lenders.

Issuing post-dated checks for entire tenure of the contract does repayment of the loan. The amount of the post-dated check would be EMI i.e. equated monthly installment. Some lenders also permit repayment option by way of standing instructions to your bank account or deduction at source from your salary every month.

You can also club the income of your spouse for the purpose of boosting your own eligibility for a personal loan

About the release of loan amount, all the banks are competing with each other. Some banks say they would process it within three working days, where as some say they would do it within two.

However if all the required documents are ready, and once you submit your application

form and supporting documents, they shall give approval within 72 hours provided everything is in order. All loan approvals are at the sole discretion of the banks.

There are few things that are not positive in this issue. It is the interest rate. It is high.

The rates start at 16% and go up to 22%.

The reason is normally, when a loan is given, there is some security guaranteed from the barrower So we end up pledging our home, car, securities or gold.

If we cannot pay back the loan, the lender can take any of the items we pledged. He is just protecting himself.

A Personal Loans is different. It is not secured. There is no underlying security involved. We also do not need a guarantor. Should we default, our lender will be legally expected to repay the loan.

So the lender is taking a big risk with us. To make up for this risk, he charges a higher interest.

All the lender has to go by is the fact that we earn a particular amount. Therefore, we should be in a position to repay the loan. So he is taking a risk based purely on your ability to repay the loan and a perception of our personal circumstances.

Today, almost all the lending institutions offer personal loans -- from HDFC Bank, ICICI Bank, HSBC, ABN Amro, Citibank, Kotak Mahindra Bank, Standard Chartered and State Bank of India.

But here is what you need to check:

» Minimum and maximum loan amount

IDBI Bank offers it from Rs 50,000 to Rs 10 lakh (Rs 1 million). If you want it for less, try SBI (Rs 24,000) or HDFC Bank (Rs 25,000).

UTI Bank too offers it for as low as Rs 25,000, but stops at Rs 500,000 (for the salaried and professionals), and Rs 300,000 (for the self-employed).

ICICI Bank offers the widest range of Rs 20,000 to Rs 15 lakh (Rs 1.5 million).

If the bank is not willing to give you the amount you need, try clubbing your spouse's income along with yours to avail of a higher amount.

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» Interest rate

Look around. Compare rates. You may get a better deal at some places than at others.

But don't get fooled by the interest rate that is presented.

In some cases, it is calculated on a monthly reducing basis (the moment you pay your principal, the following month's interest rate is calculated on the reduced amount).

In some cases, it is calculated on an annual basis (the same is done every year).

Of course, the monthly reducing rate is a better option.

The best way to find out is to tell the bank the amount of loan you want, for how long and get an Equated Monthly Installment.

The lowest EMI is your best bet.

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» Types of interest rate

SBI offers a flexible interest rate.

Other players too may offer it.

But be very careful. If interest rates rise, you will pay dearly for this loan.

Currently, SBI offers an interest rate of 16% per annum. But should you take the flexible interest rate, you could end up paying as much as 23% per annum if rates in the economy rise.

»Repayment tenure

Most banks offer the loan from one to four years.

Though some players like ICICI Bank go up to five years.

And some do not even have the 12-month minimum time.

IDBI Bank offers it for a maximum of four years for salaried individuals, but doctors and dentists can take it for five years. A proprietor, professional or business partner can only take it for three years.

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» Relationship

You do not need to have any account with the bank to take a loan. But do check for exceptions.

If you already have a relationship with the bank (account or another loan), ask if they have a preferred interest rate (which will be slightly lower than the normal one offered).

Also, some banks tie up with corporates to offer a preferential rate. Check to see whether you fit the bill.

And if you have a salary account with the bank, chances are higher that you will get a lower rate of interest.

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»Penalties

Repayment is done every month via EMIs. You are given a fixed amount every month and have to submit post-dated cheques to that effect.

If you are sure you get some money during the course of repayment to repay the loan, look for pre-payment penalties.

If you do want to hurry up with paying your loan, check how much of a fee you will have to dish out every time you pre-pay. For instance, if you pre-pay more than 75% of the principal outstanding in one year, UTI Bank imposes a 1% penalty.

ICICI Bank permits repaying the loan only after 180 days (around six months) at a penalty; no part prepayment is allowed. So either you pay back the entire amount or nothing. That's tough.

HDFC Bank too permits prepayment after six months with a 4% penalty.

www.hdfcbank.com/personal/loans/personal_loans_elg.htm - 33k

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