Cherry-pick the right loan product
The most substantial advantage of personal overdrafts over credit cards is that they can be used for cash as well as non-cash transactions

Most of us wish we had more money than what we actually have. We may need funds for varied purposes like family functions, travel, purchase, home renovation and medical emergencies. Requirements differ, but borrowing has become a modern reality. It is also notable that financial circumstances of every individual differs.

Traditional financial institutions (FIs) have often failed to recognise these individual needs and such real-life conditions, making debt aspirants turn towards flexible loan offerings by fin-tech companies. But with the advent of online lending companies and convenience offered by them in terms of documentation and disbursal, this problem can be addressed, in hassle-free way.

Let us analyse different scenarios and how you can make the most out of different innovative loan products based on your needs.

Rental deposit loan: Are you relocating for a new job or to your own company’s head office in a big city? You are contemplating to rent out better and bigger home? Shifting costs are taken care of by most companies but how about the rental deposits? In many Indian cities like Bangalore and Mumbai, you are expected to pay a sum equivalent to 10-12 months’ rent or even more as an advance deposit. Given those property rentals are soaring, rental deposits have become a huge problem and irrespective of one’s unwillingness to pay, they are non-negotiable.

How to fund this massive expense without denting your savings or borrowing from friends and family? This is the reason loan products specifically aimed at this need are being offered. Rental deposit loans cover advances up to 11 months, 22 months and 33 months of the rent. The customer merely has to service the minimal interest and the principal amount has to be conveniently repaid upon the lease termination.

Credit card takeovers: Credit cards are a most commonly used form of debt borrowing without much thought. It eases monthly finances by offering up to 4-5 times of salary. This gets you entwined in the vicious credit cycle payments. Minimum amount due seems easy but what you should fear is paying more than 25-40 per cent interest per annum on the outstanding. Now, working professionals who are entangled in this vicious cycle of credit card can set themselves free by availing credit card takeovers. But why should you take a loan to pay another?

Credit card takeover loans are like personal loans and are available at around 1.5 per cent monthly interest versus 3-4 per cent monthly interest of credit cards. They allow you to get over the vicious minimum payment due cycle and also improves your CIBIL score.

Personal overdraft: There are situations where you may have immediate money requirement but unsure of exact expense. There are situations like renovation of home, planning a lavish family function to name a few. Therefore, you cannot be sure of required loan amount and the tenure of the loan. In some cases, one may not have long credit history and traditional FIs can reject personal loan application.

What you may opt for is a personal overdraft, which are loan products that give customers a credit card-like revolving line of credit. How is it different from credit card? The most substantial advantage of personal overdrafts over credit cards is that personal overdrafts can be used for cash as well as non-cash transactions. They are directly linked to a person’s bank account and can be flexibly used through bank debits, ATM withdrawals, cheques, or any other mode of transaction preferred by an individual. Even better, the interest, irrespective of the overall credit limit, is only calculated on the amount withdrawn over and above the available bank balance and only for the number of days it has been availed for. This essentially means that you’re saved from prepayment penalties and recurring monthly EMIs. What is also of great importance is the fact that the rate of interest charged on over-drafts is almost 50 per cent less than the rate charged on credit cards.

Wedding loans: A wedding can hardly be called just a ceremony in India. It is an exhaustive celebration and a grandiose fest to say the least. Your wedding, the once-in-a-lifetime and larger-than-life event, just must not lack in terms of lustre. No wonder then that initial calculations often fall short of the final expenditure during weddings. You need money, and you need it immediately. Lately, custom-made wedding loans, in which a customer is allowed to make only interest payments during the initial 5 months, have been launched in India. These loans are helping people cope with post-wedding expenses by limiting their EMI outflow and easing the overall finances. Customers are able to enjoy their dream wedding and not take undue burden after the wedding either.

EMI-free loans: Many a times your finances don’t allow you to take a loan merely because you cannot put up with EMI in the months to come. Fret not! There are specific loans, which enable you to avail credit without the need to instantly pay the principal amount. You can merely clear the monthly interest till you become more financially stable and then make bullet payments against your loan principal. The fresh interest, once a part of the principal is paid, will be calculated on the reduced principal balance, which decreases the interest payment further. Monthly cash outflow under EMI-free personal loan product are lower by 40 per cent, compared to regular personal loan products.

Travel loans: Customised products like travel loans are new offering from fin-tech companies. It is consumption-based loan similar to consumer durable loans. Travel loan is better than using credit card because the rate of interest charged for travel loans is lesser. Whether you need to travel for a faraway relative’s wedding or birthday, or want to fund a holiday of a lifetime such as a honeymoon or round the world trip. Fin-tech companies offer travel loans, which are designed to offer a blend of interest only payments in the initial few months and fixed EMI payments for the rest of tenure.

These loans are convenient, since your monthly cash outflows in the initial few months after travel are less.

(The author is CEO&CO - Founder, Loantap)