What is the no-cost EMI option in Personal Loan

What is no cost EMI?

Before 2013, Banks and other credit lending agencies used to offer zero-interest loans. They weren't technically interest-free but made the fool out of the customer and many ended up buying it. This led to RBI banning this way of presenting the loans. No cost EMI is the same loan scheme credit lending agencies offer but the wordings are changed. Although it still looks like there would be no interest associated with it, that's not the case.

What the lenders do is for whatever product you are requiring the no-cost loan, they would take back the discount which was earlier offered on the product. If we take the same example as we mentioned above where you want to purchase a laptop with 20,000 in hand. In case you choose the EMI option you will be getting the laptop for 50,000 and 1000 as interest. Otherwise, you would have received a discount of rupees 1000 on the purchase. The laptop which you could have purchased for 49,000 now costs you 50,000 because of no-cost EMI. There would also be some additional bank charges over this 50,000.

Working of no-cost EMI -

Usually, this no-cost EMI is offered on credit cards. Some lenders offer this scheme while others don't. In case your credit card company does not offer this scheme, unfortunately, you can't get the deal. This no-cost EMI offer is offered by retailers only on select products. This offer is usually rolled out on those products they wish to sell faster. The retailer gives the discount as the interest the customer would be paying on the No cost EMI offer.

Should you go for a no-cost EMI?

A lot of banks offer no-cost EMI on websites such as Flipkart, Amazon. Usually, this offer is rolled out on electronics such as laptops, phones, refrigerators, air conditioners, microwave ovens, washing machines etc. This is most of the time done by the companies to sell off their old stock faster so that when the new, costly stock arrives, people only have the option to buy the new ones.

Secured personal loan vs unsecured personal loan -

Secured personal loans are also offered where the security generally is your bank account, vehicle or another asset. They are easier to qualify for due to lower risk for the lender and also carry lower interest charges. But first, look for an eligibility calculator to see if you are eligible for a loan or not. Check SBI Personal Loan Eligibility Calculator here. Paying your loan on time is one of the major criteria that shape up your credit score.

When should you go for a personal loan?

You might be wondering about ways to get loans with no security and lower interest rates than personal loans. Unfortunately, such options don't exist. Since the risk for lenders is higher in personal loans, the amount charged would also be high.

Here are five situations where taking a personal loan would be the best option -

1. Debt consolidation for credit cards

2. Paying Off Other High-Interest Debts

3. Home renovation financing

4. Paying for a Major Life Event

5. Improving Your Credit Score

Purchasing necessary expensive equipment -

Getting a personal loan and paying it off on time certainly helps in improving your CIBIL score, especially if your credit history hasn't been all roses. There is a lot of Instant Personal Loan app that makes the process a whole lot easier for you.

If you have taken credit card debts earlier, taking a personal loan can help in creating what is called a 'credit mix'. If you have a credit mix that means you know how to handle different types of loans and managing them all properly and repaying on time shows that you are a well-informed borrower.

Conclusion -

With that being said, borrowing a personal loan is a very good option if done after keeping important things in mind. The no-cost EMI option on interest loans are nothing but the same as other loans and they don't mean that you would be saving any interest. It's just a way to sell the product.

Why NBFCs Demand Have Increased For Gold Loan

Gold loan is expansive in terms of availability as almost every primary person can get the advantage of a gold loan, and almost all Banks and NBFCs deliver it. The reason behind it being so popular among the masses is that no income proof is seen to approve the gold loan. It is a secured loan that bestows the creditor a precious article like gold which he can effortlessly liquidate any time to realize his loss in case the debtor delays to reimburse. Moreover, the homemakers and retired persons can also apply for the loan when the family is in need. A person with no income and credit score can effortlessly apply for a gold loan and get the loan amount disbursed within no time. Even people who do not have a good credit score can also improve their CIBIL credit score by paying the monthly EMI of the gold loan on time.

After the gold prices hiked, the Non-Banking Financial Companies are extending their gold loan scheme, and the growth is estimated to be 15 to 20% or more than the previous year. Some NBFCs have also witnessed 28% growth in the gold loan business in the financial year 2020. The search in the price of gold has increased the demand for gold loans in the masses. However, the outbreak of the coronavirus in the country has impacted the incremental demand for gold loans. But towards the end of 2020, the price of yellow metal diminished, which hit the gold loan business in the first quarter of 2021.

The current situation has made the unsecured loan market scarce, forcing people to look for secured options. Some prominent gold loan NBFC saw growth in 2020 due to the demand and availability of credit the companies could provide. The disruptions in unsecured loans and an escalation in gold prices have impacted the gold loan market. Small or medium traders and other customers are provided with better accessibility, and this convenience attracts more people towards a Gold Loan. Gold Loan Interest Rate is reasonable and pocket-friendly.

Both the Financial Institutions: Banks and NBFCs furnish Gold Loan, but the NBFC is gaining popularity among the masses. The Non-banking financial companies provide 80% to 90% of the value of gold pledged to them. For example, if a gold ornament of Rs 5 lakh is pledged to an NBFC, then Rs 4 to 4.5 lakh can be avail as a gold loan. Moreover, the total gold loan amount that can be obtained from a Bank is lesser in comparison to the NBFCs. Some NBFCs have a limit of Rs 1 crore, whereas some other NBFC does not limit providing the gold loan. Most NBFCs provide their customers with a repayment scheme where just the interest amount is paid during the repayment tenure of the gold loan.

Banks generally charge a fee for valuing gold, and the processing charge of the gold loan can range between 1% to 2% of the loan value. On the other hand, many NBFC does not charge any processing fees, and no extra amount for valuing the gold is charged from the customers. Additionally, banks can limit the use of gold loan funds in some areas like agriculture, etc. But NBFCs do not restrict the usage of funds provided against a gold loan amount that can be used for any speculative activities. But NBFC's generally charge a higher rate of gold loan interest than banks like the SBI Gold Loan Rate.

Gold loans offered by NBFC are mainly easy to get as it comes with minimum documentation and more manageable repayment options. Further, the processing fees and prepayment charges are not taken from the borrower. So, those who cannot fulfill the eligibility criteria and documentation criteria of the Bank can try to get a gold loan from NBFCs.

People Mostly Use Gold Loans To Manage Savings

Several banks and lenders across India offer gold loans to their clients at impressive rates of interest. This means that without selling your gold, you can fulfill your needs for funds and at the same time manage your savings. But prior to applying for a gold loan, a person should know how to go about the process of getting gold, etc.

Let us first look at the advantages that Gold Loans offer to people :-

Quicker processing :- Gold loans come under secured loans and therefore contain lenient eligibility criteria and most minor documentation. It does not even need a credit score for loan permissions. And thus, lenders naturally disburse the loan in only a few hours. People competent for an online gold loan can even get the loan payment in just a few minutes.

Lower interest rate :- Compared to unsecured loans such as personal loans, home loans, car loans, etc., gold loans that are secured loans demand a lower interest rate. Also, if you deposit another asset as collateral for security, the gold loan interest rate can be reduced further. In addition, if you tend to have good relations with the bank or lender you wish to avail loan from, you might get a better option in terms of rates of interest. You should make sure that you know the prices of gold as you get the gold loan based on the Gold Loan Per Gram.

The credit score is not required :- Unlike many other loans, gold loan approval does not require your credit score. In any other loans, the loan amount is sanctioned based on the borrower’s repayment capacity and credit score. Still, in the case of a gold loan, the loan amount is given based on the market value of gold as it is deposited as collateral.

No processing charges :- Some banks and lenders don’t impose any processing charges, while some banks and lenders might charge up to 1%-2%. In contrast, others might charge a fixed percentage of the total amount of the loan or charge a processing fee. Others may charge a fixed amount of processing from the loan availing amount. These are a few of the benefits of a gold loan, making borrowers avail of a gold loan over other loans and still manage their savings.

Now, let us discuss a few loopholes in Gold Loans as below :-

Loan-to-Value Ratio :- In the gold loan process, you receive a specific percentage of the market price of the gold that you pledge as collateral with the bank or lender. The loan amount is agreed upon based on the RBI’s LTV (Loan to Value) ratio. This ratio varies from different banks and lenders and rises to a maximum of 80% of the total value of the gold that is pledged, as was decided by the RBI. But recently, RBI increased this percentage up to 90% of the total value of gold pledged. Due to default in repayment of the loan amount, you might lose your pledged gold. In case of gold loan repayment failure, lenders have the right to freeze your gold ornaments and jewelry and auction it to get back their money, that is, the gold loan amount.

Several banks willingly assist you regarding the best loan amount you can get in exchange for the gold you pledge, and for this, you might check the Gold Loan In SBI so that you know that you are getting the best amount of money for this gold as security. This leads to you fulfilling your requirements without touching your savings.