For personal or credit card loans, it's time to scout for good rates

You can raise cheaper personal loans online to repay unsecured loans. For home loans, banks are taking documents online, but property verification may take time

The Covid-19 pandemic has led to a sharp drop in interest rates by banks. State Bank of India, the country’s largest bank, announced cut in the marginal cost of the fund-based lending rate at 7.4 per cent on Tuesday. It had already cut the external benchmark linked lending rate and repo linked lending rate to 7.05 per cent and 6.65 per cent. Most other banks have also cut their lending and deposit rates substantially. And while you are sitting at home, you can use this opportunity to switch lenders, especially in case of unsecured personal or credit card loans. 

These rate cuts come at a time when many employees are facing salary cuts, which will crimp their spending ability significantly. Aditya Mishra, Founder and CEO Switchme.in says: “Currently, interest rates are a low seem only around 2007-2008 pre-financial crisis, giving a big opportunity for customers overall.” 

The opportunity Mishra is talking about is loan switching or loan transfer. Adhil Shetty, CEO BankBzaaar says, “A loan transfer is a way of consolidating your debts for better financial management. Funda­men­tally, in a loan transfer, you shift your existing loan to a new lender to avail lower interest rates, a higher loan amount, or both. “This means you get to switch to lower rates; you can also choose a longer tenure, reduces yo­ur EMI burden and some lender make even give you a top-up facility,” he adds.

Personal Loans: You can either go for a regular personal loan with the new lender or even a Coronavirus loans. Virendra Sethi, head, mortgages and retail assets, Bank of Baroda says: “Our special Covid-19 personal loan starts at a rate of interest of 10.25 per cent per annum and comes with a maximum tenure of 5 years. You can use the loan for non-speculative purposes like paying off a high-interest loan like credit card or personal loan.” 

Union Bank of India’s Covid personal loan rate stands at 7.20 per cent is only for existing borrowers. However, the application can be made online or through their app. Muchal Venkatesh, general manager, retail banking, Union Bank of India, says: “These loans will help them pay off their existing debts, at a much cheaper rate.” 

While PSU banks are focusing on existing lenders, digital lenders like Money tap are offering loans to both new and existing customers as well. Bala Parthasarathy, Co-founder & CEO, MoneyTap says, “Our process is fully digital, but keeping in mind the current scenario we have becomes stricter regarding the kind of borrowers lend to. The loan can be disbursed within two days.” As far as personal loan repayment goes, Venkatesh says: “It’s a 10-minute process, but a bank visit is needed.” 

Home loan: There no question that home loans too are available at attractive rates. With time at hand, there’s no harm in looking for switching your loan to a lender that offers a better deal. Mishra says, “Currently lenders like SBI, BoB, HDFC and like are accepting applications for switching home loans. All documents have to be provided digitally.” Third-party aggregators like Switchme approach several lenders on your behalf and zero down on a suitable match. Almost all process happens digitally barring the last couple of steps. 

Sethi says, “We are currently giving in-principle sanctions. You can approach to switch your existing home loan to us directly; we also have tied-up with third-party aggregators” Once you get the sanction approval, it is only a matter of time. An NBFC official says: “Once the lockdown is over, the physical verification can happen. Only after physical verification will the disbursement happen.” 

It makes sense to switch: Say if you took a loan of Rs 50 lakh at 8.95 per cent for 20 years in 2015, your existing equated monthly instalment (EMI) would be Rs 44,826 for the next 15 years. But now if you decide to switch your loan at 7.45 per cent rate of interest, your new will be Rs 40, 968. The reduction in EMI would be Rs 3,862, and the total savings by Rs 6,95,095 over 15 years. 

Of course, it always makes sense to approach your current lender to lower rates before venturing elsewhere. M Barve, Founder, MB Wealth Financial Solution, says: “If you have been a good borrower, there will negotiating power with the lender. Many don’t switch due to inertia, but there’s no harm in checking out how much you can save.” 
 

Naveen Kukreja, CEO and co-founder, Paisabazaar.com: “Opt for loan transfer only if the net savings is substantial after taking into account the efforts required for exercising the loan transfer. Else, they should continue with their existing lenders.”