5 Things to Consider Before Opting HDFC Personal Loan

Imagine yourself to be shopping in a mall where all shops keep similar products with just the packaging and probably the pricing altering a bit. Wouldn’t you find it confusing while making a decision to buy the product from which shop?

Similar is the situation among banks selling personal loan nowadays. With the aggressive tele-callers and bank officers trying to sell personal loans at the smallest of chances, it becomes increasingly difficult for the customers. How do you make a decision when you really require a personal loan? It is wise to go by a product which is being sold by a highly reputed and well-established bank. Taking up personal loan from HDFC Bank is one such decision.

In today’s date, HDFC bank happens to be a front runner as far as personal loan is concerned.The bank’s scientific and calculated approach to lending products has made it a leader of sorts in the financial markets. If you are an existing client of HDFC bank, you might have a pre-approved personal loan against your name. Having a pre-approved loan paces up the loan documentation and disbursal process. For non-customers too, taking up a personal loan is not a nightmare at all. HDFC bank has transparent procedures and proper laid down rule which aids in faster decision making of the loan department This suggests, that in case you are able to provide proper documentation at correct times, the disbursal of loan becomes much faster than most of its competition banks.

One can opt for a personal loan staring from Rs 50000/- to Rs 15, 00,000/- as an individual depending upon your income and credit repayment history. The interest rates for HDFC bank personal loan range between 12.50% and 19.50%. The tenure of the personal loan can be chosen between 1 year and 5 years.

Other common qualifying criteria for HDFC personal loans are as below:

• Applicant age between 21 to 60 years of age
• Minimum income for loan applicant is Rs 12000/- per month
• Submission of address proof mandatory for loan applicants
• Last 3 months of bank statement required for loan application processing.

Apart from the above, the bank may ask for more documents on a case to case basis as per their requirements.

Apart from taking up a new loan, customers who are having personal loans with other banks can also transfer their existing personal loans to HDFC with a very low processing fee and attractive interest rates.

Before you opt for a personal loan from HDFC bank, it is necessary to know about details which most customers do not enquire banks about. Few such information areas are presented for you:

1. HDFC bank does not allow part payment of your personal loan. In a situation the lender feels he has saved a higher amount in a particular tenor, he cannot deposit the amount to repay the personal loan partially. This would suggest that loan would be required to complete its entire tenure of paid back in full. Pre-closure of the personal loan account is only allowed after one year at HDFC bank at minimal charges.
2. One can increase the loan amount to as high as Rs 2500000/- in cases where incomes of both the applicants are clubbed together. Of course, this is subject to bank’s rules and other discretionary powers.
3. A lender can get a preferential rate and lower processing fee if he has a salary account with HDFC bank. Additionally, payment of EMI becomes easier since you can provide a standing instruction from your existing salary account with HDFC Bank.
4. HDFC bank does not ask for collateral or a security in order to process your personal loan request. One needs to be aware in case any imposter fraudulently seeks such details while claiming to process your loan application.
5. Payment of personal loan takes place by means of EMI or Equated Monthly Instalments. As the term suggests, each month a fixed amount of money is debited from your pre-stated bank account towards repayment of the personal loan towards HDFC Bank. A lender may provide HDFC Bank with PDC or Post Dated Cheques so that the same can be presented each month by the bank to collect the payments. A Standing Instruction (SI) or ECS (Electronic Clearing System) is much in vogue practice followed wherein debit towards payment of the loan can be raised by HDFC bank on fixed dates from bank of your preference.

How to Calculate Your EMI For Personal Loan

There are multiple kinds of loans which are available to an individual ranging from housing loan to a car loan satisfying the particular financial need or requirement of an individual. A personal loan is a loan which an individual takes to satiate any urgent personal financial needs. The personal loan is taken by a borrower for the purposes like meeting financial requirement for a wedding, for meeting vacation expenses, for funding medical expenses, etc. Personal loans are unsecured loans in nature which do not need any collateral as a security against the loan amount. Also, such loans are readily sanctioned with the minimal requirement of documentation as compared to the other types of loans.

Meaning of EMI

An important aspect associated with the personal loan is the EMI. EMI denotes equated monthly installment, a periodic payment towards a loan repayment which a borrower makes on a regular basis.

EMI amount constitutes the principal value and the interest amount for the loan repayment. Initial EMI payments consist of a majority of the value as interest component, and as the tenure shortens, the EMI payments constitute more of principal amount which a borrower has to repay.

The Loan Amortization schedule is the representation of the EMI payment details in a tabular format which acts as a fact sheet for the borrower to scrutinize the loan status. It guides the borrower about the outstanding loan amount, remaining tenure, interest rate and outstanding principal amount status.

• Personal Loan Amount: It is the total sum which the borrower has taken as a personal loan from the lender.
• Rate of Interest: It is the amount which is expressed as a percentage of the principal amount charged by the lender.
• Term of the Loan: It is defined as a time frame which is mutually agreed upon by the lender and the borrower for the repayment of the personal loan amount.

Calculation of Personal Loan EMI

There are various ways to calculate the personal loan EMI amount based on the key determinants discussed above. The mathematical formula to calculate the EMI is[P x R x (1+R) ^n] / [(1+R)^ n-1]

Where
P represents the principal loan amount
R represents the rate of interest
n represents the total monthly installments

Some may find it tedious to calculate EMI using mathematical formula. The borrower may also calculate the EMI amount in excel with the formula EMI = PMT (Rate,Nper,PV,Type)

Where
Rate is the interest rate,
Nper is the total no. of installments,
PV is the present Value of the loan,
Type is either one or zero depending upon the EMI payment madeat the beginning or end of the month.

Relationship between Type of Interest Rate and EMI Amount

Interest Rates are usually of two types:

Fixed Rate of Interest: Interest rates,which are flat and fixed throughout the tenure of the loan repayment and have no correlation with the reducing loan amount. Such interest rates express a fixed percentage of the total personal loan amount.

Reducing Rate of Interest: Interest  rates,which reduces as the loan tenure reduces and expressed as a percentage of the outstanding personal loan amount.

In the event of fixed rate of interest in the personal loan, the EMI payments stand same and constant during the entire repayment tenure of the personal loan, whereas in the event of reducing rate of interest, the interest rates vary depending upon the outstanding loan. Therefore, the EMI payouts also vary with change in the rate of interest on the personal loan.

Relationship between the EMI and Pre Payment of Loan

Another variable on which the EMI payments are dependent is the pre-closure or partial payments made towards the loan. The number of partial payments for the loan is deducted from the base principal amount leading to the reduction in the interest amount which has to be paid otherwise. Borrower making a partial payment is endowed with two choices which are

1. To either retain the tenure same or
2. To keep the EMI amount same

If the borrower chooses the first option keeping the tenure constant, the EMI payouts towards the remaining loan repayment reduce where as if a borrower opts for the second option to keep EMI fixed then the loan tenure reduces.The borrower has to make a prudent decision when it comes to partial repayment of the loan.

EMI calculations are imperative to understand before taking a personal loan, and one has to ensure that the EMI amount is appropriate to be paid periodically as per the borrower’s budget and income. The quick personal loan sanction may be lucrative in nature, but being an unsecured loan type, the interest rates are higher on such loans. EMI amount consists of principal amount and the interest amount which is required to be paid back to the lender.

Understand your EMI periodicity and the amount beforehand, to have a smooth loan repayment structure.