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May 13, 2020

Covid-19 Personal Loan: Interest Rate & Eligibility

Covid-19 Personal Loans are more affordable than general personal loans but their eligibility criteria are changed. Only existing customers who have a salary or loan account with bank/NBFCs can get Covid-19 Personal Loan. If you have a salary account or an ongoing loan for which you have not missed a single EMI in Bank/NBFC, you may be suitable to avail a new personal loan called the COVID-19 loan. Interest Rate much lower than regular personal loans, this loan aims to help existing bank customers to tide over a temporary crash crunch due to the effects of the COVID-19 pandemic.

  1. Covid-19 Personal Loan offered by banks/NBFCs for the specific purpose of tiding over the liquidity crunch during the time of the COVID-19 pandemic.
  2. Covid-19 Personal Loan is being offered to existing salary account holders and home loan customers with a high credit score.
  3. The maximum amount offered for Covid-19 Personal Loan is Rs 3-5 lakh depending upon the monthly salary of the client and existing loan value.
  4. The Interest Rate on Covid-19 Personal Loans are lower than personal loans and vary from 7.2%-18% per annum. The loan term varies from 6 months to 5 years.
  5. Covid-19 Personal Loans don’t carry prepayment fees and have low or no processing fees.

Some of the banks offering COVID-19 personal loans are Punjab National Bank (PNB), Union Bank of India (UBI), Bank of India (BoI) Bank of Baroda (BoB), and Bank of Maharashtra (BoM).

“Many of our customers are suffering temporary cash flow problems as their companies are paying them lower salaries during the lockdown. For such individuals, we have launched COVID personal loans with lower interest rates and comfortable assessment norms," said Muchal Venkatesh, general manager, retail banking, UBI. Since these personal loans are for a specific purpose, Union Bank of India (UBI) interest rates are as low as 7.2% per annum. Typically, personal loans from the bank/NBFCs interest rate between 10-18% per annum.

Eligibility for Covid-19 Personal Loan

The eligibility criteria for Covid-19 Personal Loans are different from that of general personal loans.

  • Bank of India (BoI) is giving loans to customers who have been drawing salaries through the bank for at least a year, or to those who have an existing home or personal loan. 
  • PNB, which has named its product Sahyog COVID-19, Punjab National Bank (PNB) is also offering it to existing customers who are drawing their salaries through the bank.
  • UBI is offering it to customers who have a salary account or have availed of a housing, mortgage, vehicle, personal or pension loan from the bank. It is giving a loan amount equal to six times the last credited salary or pension of the applicant. “Ours is a floating rate personal loan. We are also giving moratorium for the initial months (till June-end). The interest accrued during the moratorium would be added to the principal. The customer has to make the payment in 57 EMIs," said Venkatesh. Since it’s a floating rate loan, the interest rate will change whenever the Reserve Bank of India (RBI) revises the repo rate.
  • Bank of Baroda (BoB) is providing COVID-19 loans to those who have availed of home, mortgage or vehicle loans from it. The loan amount will depend on the EMI of the existing loan. The maximum amount that can be taken is 10% of the approved limit of an existing home or mortgage loan and 20% of an existing vehicle loan. So, if a person is paying an EMI of Rs. 30,000 for an ongoing home loan, the bank will sanction the loan in such a manner that the EMI of the COVID-19 loan is Rs. 3,000 (10%) or less. They should be our loan customers for six months or more and should have paid their EMIs on time for the past three months," said Virendra Kumar Sethi, head, mortgages and other retail assets, BoB.

Should you take Covid-19 Personal Loan?

COVID-19 loans make sense for those looking at consolidation of their obligations. If you have a credit card outstanding. You can use COVID-19 loans, which are accessible at a much lower interest rate, and repay the credit card bills. “Covid-19 personal loans can work for reducing the debt burden if utilised smartly. A borrower can replace high-cost loans with them," said Vishal Dhawan.

If the situation does not improve, companies can further reduce salaries or opt for cutting down the workforce. When the future is uncertain, it doesn’t make sense to take on more liabilities. Don’t be swayed by the product only because the cost is lower. It’s best to avoid fresh leverage in the current environment.

Usually, planners advise against liquidating investments if they are giving higher returns than the cost of the loan. But this doesn’t hold true when there is no predictability about future income. So if you don’t have an emergency fund, the best option is to liquidate your investments. Do take the penalty and tax into account before deciding which one to liquidate first.

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